Due to the crisis caused by the Covid-19 pandemic, investment advice is highly sought after, with people trying to improve the state of their finances and make money through investing.
Retail participation in equity markets hit new highs both in Malaysia and globally as more newbie investors put money into the market.
But unscrupulous people are taking advantage of the increased demand, proclaiming themselves investment “gurus” and selling unlicensed investment advice or pushing doubtful “investment” products.
Recent cases include estate planning trusts being marketed as investments with guaranteed returns, and insurance endowments being marketed using unauthorised illustrations and misleading returns projections, created without the knowledge of the life insurer.
There have also been numerous online scams.
Online broker RakutenTrade has warned the public not to fall for investment scams misusing the company’s name and falsely claiming to represent it.
RakutenTrade is the country’s first and only fully digital equities trading platform. All trades are executed using its official RakutenTrade website or via its iSpeed.my trading app.
Jail and fines await unlicensed investment gurus
An investment advisor who is not licensed by the Securities Commission Malaysia (SC) can be fined up to RM10 million or be imprisoned for up to 10 years or both.
“The provision of investment advice, whether through formal channels such as analyst reports or social media platforms such as Facebook and Telegram, is considered one of the seven regulated activities under the Capital Markets and Services Act 2007 (CMSA). Anyone conducting such activities will need to have a valid licence issued by the SC,” the SC said in a statement.
It added that investors should remain cautious and take responsibility for their own investments.
Investors are advised to upgrade their knowledge of investing and investor rights through the InvestSmart website and refer to the SC’s Investor Alert List for any unauthorised or unlicensed companies and individuals before making an investment decision.
Bear in mind however that not being on the alert list does not automatically make an investment legit.
Unlicensed investment gurus giving questionable investment advice can lead to poor financial decisions and losses.
This will affect investor confidence, the professional standards of practice and damage the reputation of licensed financial services providers.
Minority Shareholders Watch Group CEO Devanesan Evans thinks the SC should come down harder on unlicensed investment advisors to prevent the numbers from rising alarmingly.
Investors persuaded to exploit loopholes to buy multiple properties can be left facing cash flow problems when things do not pan out as promised.
What about bad advice from property ‘gurus’?
People have been advised to buy multiple properties by self-proclaimed property “gurus”, using loopholes to get their loans approved.
These “gurus” paint a pretty picture of all the potential benefits for an investor if they join their investment club with bulk-purchase discounts, fantastic passive income from rents, amazing capital growth and being able to unlock equity from a property.
But property markets are cyclical in nature and affected by demand and supply. The recent Movement Control Order affected a number of tenants, with some property owners facing a nightmare of multiple vacant properties.
The situation will get even worse once the current moratorium on bank loan repayments ends and property owners without tenants face negative cash flow and will be hard pressed to service their mortgages.
Many who follow fake property gurus are persuaded into buying properties they do not need at prices they cannot afford.
“If we follow ‘gurus’ who tell us about property investment, the one with no risk and profit is the guru while the one with high risk is the buyer,’ said kopiandproperty.com founder and well-known speaker on property issues Charles CL Tan.
There are investment “gurus” do not have a licence or any credibility, some of whom are even pushing Ponzi schemes or get-rich-quick schemes.
Their marketing gimmicks are effective as they can persuade people to buy properties based on their speculative predictions supported by their fancy public lifestyle displays.
Social media is also full of investment guru ads, including poorly shot videos with dubious advice, forcing platforms such as Facebook to ban ads.
Investors should be wary and check information with regulators to ensure it is credible, and get investment advice only from licensed financial professionals before making investment decisions.
This will help avoid bad financial decisions that can affect future savings or one’s investment portfolio.
Half-baked knowledge is even more dangerous when people are hoodwinked into thinking that someone knows what they are doing.
If pressure is being brought to sign up for an investment course or if the greed sensors are tingling, it is best to quickly walk away.