Sebi has imposed a fine of Rs 10 lakh on Bull Research Investment Advisors for violating regulatory norms. The judgement sheds light on factors to keep in mind when dealing with investment advisors
The Securities and Exchange Board of India (Sebi) has imposed a fine of Rs 10 lakh on Bull Research Investment Advisors for flouting regulatory norms. The order came after the market regulator had conducted an examination of pending complaints against the registered investment advisor.
Sebi-registered investment advisors are required to provide personalised investment advice to their clients based on their unique requirements, such as financial goals, risk tolerance, and investment preferences. This is done in exchange for defined fees.
Frauds Committed By Bull Research Investment Advisors
The adjudicating officer found that Bull Research Investment Advisors had promised their clients of assured returns or loss recovery. Sebi bans investment advisors from giving assured returns. Further, Bull Research Investment Advisors lured clients to make bigger investments under the promise of assured returns.
The investment advisors also concealed the exorbitant fees they charged from their clients by raising invoices in the names of family members, selling multiple packages without adequate fee disclosure, collecting multiple payments for the same service, and pressing for additional charges under the guise of Goods and Services Tax (GST).
Sebi rules mandate that the investment advisors should conduct proper client risk profiling, suitability analysis, and operate only with the necessary qualifications and capital adequacy.
In this case, the order from the adjudicating officer said that it was proved that investment advisors decided the package and/or service (suitability) upfront and the fee was collected by the investment advisor even before doing the know-your-customer (KYC) verification and risk profiling.
Things To Know While Dealing With Investment Advisors
The first thing one should check is whether the investment advisor is registered with Sebi or not. One should also take feedback from existing clients for better clarity.
Investment advisors are also responsible for conducting risk profiling of clients and ensuring suitability of investment advice based on the client's risk profile and investment objectives. Sebi mandates that investment advisor has a process for assessing the risk a client is willing and able to take. The advisor should identify whether client is unwilling or unable to accept the risk of loss of capital. The client should keep these things in mind while interacting with the investment advisor,
One should also conduct background research, and evaluate the credentials and fee structures of the advisor.
The important thing to remember is that being part of a financial planning association does not guarantee fiduciary status. Thus, during the initial meeting with an advisor, always inquire if they always act in fiduciary capacity, how they earn money, their financial planning approach, services offered, and their clientele.