Explainer: How Sebi is cracking down on unregistered investment advisors
Mint takes a closer look at what steps the regulator has taken to check the activities of unregistered advisors and what more Sebi can do about it. Unregistered investment advisors are those who haven’t signed up with Sebi to offer investment advice. The practice of advising retail investors without being registered with the regulator violates Sebi’s (Investment Advisors) Regulations.
In most cases, unregistered advisors are not qualified and provide potentially misleading information to investors who are new to the market or are not well-versed with securities. Such advice could compromise investment interest, given the lack of experience of some of these unregistered advisors, their potentially dishonest behaviour and false qualification claims. Sebi regularly warns them and even imposes penalties on them to protect the market’s integrity and prevent any disruption in the capital markets.
On 27 June, the regulator’s board approved a proposal for a mechanism to allow Sebi-registered investment advisors and research analysts to collect fees from their clients. This would be a closed ecosystem and accessible only to those registered with Sebi, giving investors the comfort of interacting with bona fide entities. The mechanism will help investors avail the services of and make payments to only registered advisors and analysts.
It is meant to recognise registered advisors and analysts and help investors differentiate them from unregistered entities. This is currently only an optional mechanism. Lovaii Navlakhi, director of the Association of Registered Investment Advisors, said that keeping the mechanism optional may not be as effective as mandating it.
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