The Securities and Exchange Board of India (Sebi) recently issued a warning to investors regarding the increasing number of individuals and institutions providing investment advice without registration. Sebi warned investors that investment advice can be provided only by registered investment advisors (RIAs), who have been suitably approved by Sebi. The warning has come following a recent find by the regulator that there were several instances of unregistered individuals providing illegal stock tips and financial planning advice.
This move by Sebi has again brought to light the dangers investors face if they follow the advice of unregistered and dubious advisors. Sebi has made it crystal clear that investors should check their advisor’s registration status before following any financial advice.
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Significance Of Transacting with a Sebi-RIA
Selecting an Sebi-registered investment advisor (Sebi RIA) provides investors with an added layer of security. Sebi RIAs have to adhere to those guidelines to ensure they serve the best interests of their clients. They are required to be adequately qualified, give clear information relating to their fee structure, and disclose any possible conflict of interest.
Conversely, unregistered advisers have no code of rules to abide by. They could give half-cooked advice just to earn their commissions. It is safe to assume that the advice you get from a Sebi RIA is likely to be genuine, fair, honest, and designed to assist you to achieve your economic objectives safely.
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Steps to Verify an Adviser's Registration
One can check the Sebi website to check whether their advisor registered with Sebi. A current list of all Sebi RIAs is maintained on the website. This way, investors can also confirm if the advisor is officially recognised and if registration is still valid.
If the adviser’s name is not in Sebi’s list or if their registration has been cancelled or has lapsed, investors must reconsider doing business with them at once. It is important to verify these facts before signing any contracts or remitting money for investments.
What Genuine Sebi RIAs Must Provide
A genuine Sebi RIA should be able to produce their formal certificate of registration at any given time when demanded. They ought to also show a written clear contract that addresses the extent of their services, the charging mode, and rights and obligations of both parties involved. This is done to assure full transparency between the adviser and the client.
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Along with this, they should receive fees directly from the client and should not receive any secret commissions from third parties, mutual fund houses, or insurance companies. They have disclosures and transparency as part of their job as per Sebi rules.
Red Flags That Should Raise Concern
If the advisor promises to give returns, dodges forms, is hounding you for investments in haste, or refuses to provide you with Sebi-registration documents, you should raise suspicions at once. Conducting business in individuals’ bank accounts or evading fees and services are also cause for concern that the advisor may be fake.
Investors need to remain wary and should stay away from such individuals because it can lead to loss of money and future legal issues.
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Protect Yourself by Being Informed
Before you believe any financial advisor, make sure that he/she is Sebi-registered. Investors should not believe somebody on hearsay, but must also verify an advisor’s credentials personally.
If you encounter a Sebi-unregistered person providing investment tips, you can report them to Sebi through the SCORES platform. Small checks, such as verification of registration and asking the proper questions can save investors from losing money and make better financial choices.
