Investment advisor charges clients more than their annual income; licence suspended for 3 years

The investigation also found that the advisor had taken trades on behalf of the client.

An investment advisor was found to have charged a service fee that was disproportionate to the client’s income, sometimes even double a client’s annual income.

Pinnacle Market Investment Advisory was found to have charged a client who was earning between Rs 3-5 lakh per annum a service fee of Rs 10.46 lakh; while it charged clients who were earning less than Rs 3 lakh per annum and between Rs 10-15 lakh per annum, fee of Rs 4.66 lakh and Rs 20 lakh respectively.

The market regulator has suspended Pinnacle Market Investment Advisory’s certificate of registration for three years, for various violations under the Investment Advisor Regulations, including disregarding the client’s financial situation, investment objectives and risk appetite.

In one instance, an employee of the advisor even encouraged a customer to take a loan to pay the service fee of Rs 3.09 lakh, even though the client’s trading amount was less than Rs 1 lakh.

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The order issued by the Securities and Exchange Board of India (Sebi) on September 12 stated, “The Noticee (Pinnacle Market Investment Advisory) sold products/ services to its clients without considering their financial status and their investment needs. Thus, the Noticee did not act honestly and in the best interests of its clients. The Noticee also failed to act in a fiduciary capacity towards its clients.”

The investigation also found that the advisor had taken trades on behalf of the client. This was determined through the IP addresses from which the trades were taken, they were located in Indore while the client was located in Hyderabad. Though the advisor submitted that the client had shared his trading credentials for this, the order stated, “it cannot use the same to trade on behalf of its client in violation of the provisions of the Investment Adviser Regulations, 2013.”

The advisor was also found to have failed to promptly resolve client complaints received on SCORES and to submit the Action Taken Report (ATR) on the complaints; to have delayed the disclosure of material information regarding the appointment of a new director; and to have failed to appropriately assess the risk appetite of clients, among other things.