How are you reinforcing trust in your client relationships, SEBI chairman asks portfolio managers

SEBI chief Tuhin Kanta Pandey also said that while the PMS Regulations were completely overhauled in 2020, the capital market watchdog will aim to develop “a more optimal regulation.”

Portfolio managers should ensure that their clients understand the risk-return trade-offs of the product and educate them on their risk appetite as well while building resilient and differentiated portfolios, said Tuhin Kanta Pandey, chairman, Securities and Exchange Board of India (SEBI).

While speaking at an event organised by industry body Association of Portfolio Managers of India (APMI), the SEBI chief said that portfolio managers should ask themselves how they are strengthening the trust level with their clients.

“A question to ask yourself - How are you reinforcing this trust in your own client relationships? You must ensure that clients understand the risk-return trade-offs, the bespoke nature of their mandate, and the advantage of directly owning underlying securities - benefits that pooled products may not match,” said Pandey.

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“Educating each client on their unique risk appetite is the first step in building a truly diversified portfolio. Your client communications must be clear: eliminate ambiguity, communicate performance claims responsibly, and formally document any strategy changes,” he added.

The SEBI chairman further said that portfolio managers should complement mutual fund investments as well since many of their clients would be investing through that route as well.

“Many of your clients will have investments through mutual funds or other pooled vehicles. Your role is to complement these investments. By combining the benefits of mutual funds with the capabilities of PMS, investors in India can build portfolios that are both resilient and differentiated,” he said.

Interestingly, at a time when many finfluencers and even some portfolio managers have been using social media platforms to make misleading claims, the SEBI chief said that APMI must act to curb such claims.

“APMI and the industry must curb misleading claims being made by a few registered Portfolio Managers. Such exaggerated performance claims undermine trust and could stall growth of this industry,” he said.

Pandey further said that the PMS industry should modernise onboarding, reporting, and client engagement through digital solutions to stay competitive and trusted especially at a time when SEBI’s tech-enabled supervision also puts the onus on portfolio managers and their ecosystem to embrace technology.

He also said that while the PMS Regulations were completely overhauled in 2020, the capital market watchdog will aim to develop “a more optimal regulation.”