Thinking of Seeking Investment Advice: Validate These 5 Critical Factors First!

Are you stepping into stock market investment and looking forward to availing proper financial advice from an Investment Advisor?

Great!

As per the latest data, around 1300 SEBI-registered IAs are supposed to offer one-to-one personalized trading tips & recommendations to clients.

But wait, how will you choose the right one for yourself?

Isn’t it difficult for beginners to choose a financial advisor, especially when SEBI has not provided any data to determine their expertise and quality of services?

Well, it is but proper research and validation of a few basic things can help you find the best and right financial advisor for yourself.

How Your IA is Collecting Payment from You?

Now beginner retail investors and traders who are not aware of the regulations often miss this part and follow IA instructions to make payments.

But before that, one needs to understand and be aware of the SEBI IA regulation that states that – An Investment Advisor can collect fees either through NEFT/RTGS/UPI or through cheque or Demand Draft.

Through which mode are you making payment to your IA?

There are a few cases, where SEBI has penalized IAs for violation of this rule and one of those is the IA running a company Bharosa Technoserve Pvt. Ltd., and collecting fees through Razorpay Payment Gateway.

Most of you think about what difference it makes.

But if you go in depth then you will find that SEBI framed processes and regulations keeping in mind the interest and benefit of retail investors to reduce the number of fraudulent activities.

That is why, if an IA needs to follow the rules, it becomes the duty of a trader and investor to consider regulations to avail services.

Is Your IA Doing Proper KYC?

If you are using the services of an Investment Advisor, then it is important and mandatory for IA to maintain a record of your details.

Now this not only means sharing your Aadhar or PAN card details but also providing an understanding of your suitability to use his recommendations.

Further, it helps an IA to segregate the client based on Growth, Balanced & Conservative Investors.

Also, conducting KYC helps foster trust between the advisor and the client, promoting transparency and long-term client-advisor relationships.

In case, your IA is skipping this step, then it becomes your duty to raise questions for the same. Sometimes, even after gaining awareness, clients too avoid this step and start using the services of the IA.

But this step is important and is made mandatory for all registered IAs, to comply with the Anti-Money Laundering (AML) regulation.

So, if you want to give the right beginning to your investment journey, make sure you consider this step before using the advisory services.

Has Your IA Done Proper Risk Assessment?

Most beginner traders & investors don’t even know the role of Investment Advisors.

In general, Investment Advisory are SEBI-registered individuals who provide personalized trading calls to traders and investors after doing proper risk profiling and risk assessment.

Now it is important as it helps client in getting a proper recommendation based on their age, financial goals, income, etc.

This further reduces the risk associated with investment and further helps you in getting the right financial advice that suits your needs and risk appetite.

Now, when you take services from an IA, he or she initially does proper risk profiling by asking you a few questions and maintaining a record of all your answers.

Only on that basis, the IA further provide you with tips and recommendations. But many IA reaps the advantage of unawareness among investors related to this and provide general recommendations or common list of stocks to all their clients.

Now imagine the consequences, where you with a low-risk appetite are getting the same recommendation as the person with huge capital and a high-risk appetite.

Scary, right?

Just to avoid such things, it is always better to ensure that your IA has done a proper risk profiling and provides you with trading calls followed by a proper disclaimer.

Is Your IA Registered to SCORES?

Although SEBI does not provide any public data on the complaint or performance of SEBI-registered Investment Advisors, it provides a provision where a client not satisfied with the IA services can report it on the SCORES portal.

But what if your IA is not registered on SCORES?

This would make it almost impossible to raise your concern and at the same time for SEBI to validate and check the activities of IA.

We came across multiple cases where people reported such issues to provide justice to our clients our team applied for RTI and got the name of the IA in the SCORES portal.

But apart from this, SEBI penalized Bharosa Technoserve Pvt. Ltd for not registering itself as an IA on the SCORES portal. Now the company had a client base of 187 at the time of investigation.

Just think that if any of those clients had ever faced any issue they left with no option to report the issue and might have accepted the losses they faced.

It is therefore important to keep yourself aware at least of the services that you are using from the registered bodies of the stock market.

Obligation to Use Third-Party Services

Day by day we came across issues where one or the other registered body asked their clients to use third-party services for their benefits.

But keeping SEBI regulations ahead, any IA or other registered body cannot ask the client to sign up or register for any third-party services.

Again Bharosa Technoserve Pvt. Ltd run by Mr. Sanjay Bhargava, Mr. Sahil Bhargava, and Ms. Anita Bhargava violated this issue by providing Bhraosa Club Smallcase Membership.

Under this membership, clients were getting model portfolio data and other services of Smallcase. This means that IA was not considering any risk profiling and other assessment of the clients who had subscribed for this plan.

Later on interrogation, they pointed all the fingers at Smallcase and replied that since the client was considering the portfolio provided by Smallcase hence there was no need for them to do any assessment or follow IA regulations in such a case.

Now this seems to be a minor issue but again the question remains the same, what if you get scammed or get the wrong financial advice? Against whom would you raise the complaint?

Registered Firm Bharosa Technoserve Pvt. Ltd or Smallcase?

To protect yourself from such troubles, it is always better to consider the above parameters before using the financial services of a Registered Investment Advisor.