The Securities and Exchange Board of India (Sebi) is likely to monitor the activities of registered investment
advisors (RIAs) more closely because the number of complaints against them has been rising.
In a recent consultation paper put out by Sebi on setting up a self-regulatory body, the regulator said with the number of Sebi RIAs rising (1,195 on June 2), the number of complaints against them has also seen a corresponding increase.
The complaints include charging high fees, giving an excessively rosy picture of the return clients can expect, and so on. Clearly, a Sebi RIA licence is no guarantee that the investor will get the right advice. Furthermore, investors also need to guard against operators who use fake licence numbers, or run advisory operations without being registered at all. The first sign you may be getting into a relationship with the wrong kind of advisor is the promise of very high, assured returns. Anything above 20 per cent is a high return over the long term. And if it is assured, that should raise a red flag. “Nobody can offer you assured returns in market-based instruments,” says Mrin Agarwal, financial educator and founder, Finsafe India.
A bona fide advisor should begin the relationship by speaking about financial planning and goal-based investing. “He should seek information about your goals, your financial condition, and your risk profile. Only after this exercise should he prepare a tailormade financial plan and then suggest products,” says Priyanka Devgan, counsel with law firm Verus. If the advisor begins by talking about the money you can make, and by pushing one of his pre-packaged products, smell a rat. Devgan says investors should also be wary of advisors who start a relationship without entering into a signed agreement.
Many investors have in recent times complained about being charged high fees. Agarwal is of the view that Sebi should come up with standardised fees, which can vary within certain limits, depending on the amount invested, complexity of the plan, and the advisor’s expertise. Until this happens, consult a number of advisors to learn about an appropriate fee for the level of investment
you are making. Many advisors operate without a licence, or use the licence number of RIAs without their permission. Check on Sebi’s web site if the advisor is registered (https://bit.ly/2kjQKY1). Next, to avoid impersonators, find out how long the person or entity has been in business. It is safer to go with an advisor for whom you have got positive references from older clients.
Many advisors giving stock-related advice tend to take investors for a ride. “Most retail investors should stay away from day trading and investing in futures and options (F&Os),” says Deepesh Raghaw, founder, PersonalFinancePlan.in, a Sebi-registered investment
advisor. Usually, tip-based investing does not help investors in making money in a sustained manner because the tips are not backed by good research. According to Raghaw, only investors who know about position-sizing and use stop losses should engage in short-term trading. As for F&O investing, investors could lose more than the principal invested as it involves leveraged bets.
These days many fraudulent advisors operate online. They have no face-to-face interaction with the investor. “First, they charge an advisory fee and then ask the investor to invest a certain amount. Once the amount has been transferred, they cut off all contacts with the investor,” says Vidisha Krishnan, partner-corporate and capital markets, MVKini Law Firm.
She suggests not investing with any such entities without checking their background and track record.
File your complaints on SCORES
SCORES stands for Sebi Complaints Redress System
Investors can file complaints against listed companies and intermediaries on www.scores.gov.in
Complaints against registrar, transfer agents, brokers, stock exchanges, mutual funds, and depository participants can also be filed
While filing the complaint, one needs to upload supporting documents
You can track the status of your complaint by using the registration number you get at the time of filing