Looking for an investment advisor? Beware of fake testimonials, reviews | Mint

At zero time on an investment advisor, investors are often drawn to testimonials provided on investment advisor websites. It is not unusual for an advisor to claim that one of his clients managed to earn a whopping return of (say) 30 percent on the investment made, while another could increase his investment by (say) twice over a period of time.

While unaware of the veracity of such ludicrous claims, some naive and gullible investors may fall into the trap laid by such investment advisors (IAs).

Capital markets regulator Securities and Exchange Board of India (Sebi) recently cracked down on one such investment advisor (IA) who ran a firm called “Monetary Solutions” and imposed a penalty of ₹25 lakh for a number of violations, including sharing fake testimonials and reviews of other investors.

The role of an investment adviser is crucial for the development of the securities market, especially for the entry of small investors who can rely on the advice of these IAs, notes the Sebi adjudicating officer.

It is therefore vital that every investment adviser takes all necessary steps to comply with all provisions, rules and regulations set by the regulator

Evidence: Just for advertising?

In the above mentioned case, a satisfied customer stated that the services of ‘Monetary Solutions’ are good and was quoted as saying: “Good service. Nice deal. Experienced licensed financial advisor helping me trade. I am doing an average of 25 million business a day with them and I am totally satisfied with the services worth the money.”

When asked to provide details of the clients whose reviews were mentioned, the investment adviser said: “The testimonials displayed on the Money Solutions Investment Adviser website are for advertising purposes only and they are not our clients and are perjury.”

In addition to the testimony, the accused investment advisor also mentioned his past 45 tips and the status of all his tips which were shown as success and the respective profit accumulated from those tips ranged from ₹1000 and ₹30,000.

Tricky question

Investment advisers must also show the full picture of the markets, which includes a variety of risks. Deliberately luring investors to choose a high-risk investment will mislead them.

According to the Code of Conduct for investment advisers as specified in the Third Schedule, questions should be fair, clear and not misleading, and the questionnaire should not be vague and should not contain leading questions, the official said in her order. Sebi Judge Barnali Mukherjee.

In the aforementioned case, investors were induced to choose high-risk investments by asking misleading questions.

These questions included the following:

Q1: Would you invest where a small return associated with low risk is earned instead of a high return associated with high risk?

Question 2: When the market is not doing well, would you want to invest in riskier investments instead of less risky investments to earn high return?

The investigation observed that such questions were designed to make clients fall into the high-risk category so that they would be able to sell services to such clients because the adviser does not provide any services to an investor who falls in the low-risk appetite category. .

Sebi adjudicating officer Barnali Mukherjee imposed a penalty of Rs ₹18 lakh (under section 15EB) and ₹7 lakh (under Section 15HA of the Sebi Act) amounting to the total ₹25 lakh to the aforesaid investment adviser for failure in fiduciary duties owed to his clients.

The official also concluded that the rules and regulations that investment advisers must follow should prevent wrongdoing and promote ethical behavior in the securities market.