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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Unregistered Stock Advisors- SEBI is looking at you- Investors beware

Posted by Muthu on March 23, 2011

Usually I write once or twice a week. Looks like this week is going to be an exception. 

We’ve written in the past, how we keep hearing about stock brokers running unofficial or illegal PMS.

Except SEBI licensed PMS providers, nobody is authorized to dispense stock advice to investors and receive consideration for the same.

These brokers keep changing the avatars under various names such as Portfolio Advisory Services, Portfolio Construction Services, Investment Strategy services etc.

Whatever jingle these people use, please note that they are not licensed or authorized by SEBI to do so. You are dealing with them at your own risk.

Though these people may claim that they are not your portfolio managers and so there is no need to get registered. SEBI mention very clearly in  the below circular, ‘advice or directs or undertakes on behalf of the client management or administration of a portfolio of securities or the funds of the client.’

I’ve given below some portions of a SEBI circular issued on 18th Marech’11 (http://www.sebi.gov.in/press/2011/201143.html ) which would ensure that you do not fall into trap of unscrupulous stock brokers.

1)    SEBI has been receiving complaints against persons who have been giving stock-specific advice to investors and receiving consideration for the same.

 2)     Further, it has also come to the notice of SEBI that some persons are giving investment advice through the print media or by sending bulk SMS messages even without entering into any contract or arrangement or without any consideration.

3)     Section 12 of the SEBI Act, 1992 requires all intermediaries, including portfolio managers, associated with the securities market to obtain registration from SEBI before operating in the securities market. Under the SEBI (Portfolio Manager) Regulations, 1993, a portfolio manager is a body corporate who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client management or administration of a portfolio of securities or the funds of the client.

In this context, investors are advised to be cautious and to take the following precautions before dealing in any manner with persons seeking to render such advice:-

4)     where the advice is rendered or sought to be rendered by a body corporate pursuant to a contract or arrangement, to verify whether it is registered as portfolio manager under the SEBI (Portfolio Manager) Regulations, with SEBI. The list of entities which are registered as portfolio managers with SEBI can be verified from the SEBI website www.sebi.gov.in

5)     where the advice is rendered or sought to be rendered by any person, by means of advertisements through SMSs, or the electronic or print media, whether pursuant to or in the absence of any contract or arrangement, it might be an attempt to influence market price and lure investors. Investors are therefore advised to take adequate care and carry out necessary due diligence before acting on the basis of such advice/communication.  “

You may visit www.sebi.gov.in to see the list of entities who are registered with SEBI for portfolio management which as stated in point (3) above include advise and direction.

If the name of the entity of the gentleman you are dealing with is not there, then you are doing it at your own risk. I do not know what legal recourse you have against such entities.

To my understanding, then a stock broker who is not registered with SEBI for PMS, can only buy or sell securities on behalf of client. He is not supposed to advice or provide ‘market tips’.

If you want to know what your stock broker is doing within the frame work of law and if he is not registered with or authorized by SEBI for dispensing stock advice, what legal recourse you’ve against him – Please write to SEBI at sebi@sebi.gov.in and get clarification.

It is better to be safe than sorry when you are dealing with persons or entities who are not authorized by SEBI for dispensing stock advice, that too for a consideration.

I came to know about this circular first at Deepak’s  www.capitalmind.in before going to the SEBI site. Deepak has few interesting points to make on this issue and wonders why business channels are excluded from the purview of the circular.

One Response to “Unregistered Stock Advisors- SEBI is looking at you- Investors beware”

  1. Bukola said

    very good write up

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