Pickright Technologies Pvt. Ltd, backed by Nuvama Wealth, allows research analysts (RAs) and investment advisors (IAs) to display the accuracy of their trading calls and the performance of their model portfolios, a practice legal experts claim violates the advertising code.
Bengaluru-based Pickright allows users to either pick a portfolio based on the returns generated or sign up for trading calls from Sebi-registered experts based on the “accuracy” of the calls. Users can then place their orders on the platform, which are then executed through leading brokerages.
According to legal experts, by displaying past performance and “accuracy” levels, the platform is enabling a violation of the Advertisement Code for RAs and IAs issued by the Securities and Exchange Board of India (Sebi) in April 2023. The RAs, IAs and the platform could invite regulatory action for such marketing content, according to lawyers and industry experts that Moneycontrol spoke to.
“It is a violation of Sebi rules for RIA and RA to advertise their services using past performance metrics. A Research Analyst doing this is in violation of Sebi's Advertising Code and any Registered Investment Advisor doing this doing is both illegal and immoral. RIAs cannot have a product that is meant for use by multiple people because their role is to make customised solutions for individuals based on their investing goals and capacity to take risk,” said Naveen Fernandes, the Public Interest Director on BSE Administration and Supervision Ltd. (BASL). BASL has been notified by Sebi as the supervisory body of RAs and RIAs by Sebi.
“The Advertisement Code for RA/IAs prohibits them from making reference to past performances,” said Smrithi Nair, Partner at Juris Corp Advocates & Solicitors, an advisor to market infrastructure institutions such as stock exchanges.
Pickright’s disclosure page also inaccurately listed its registration status as a registered investment advisor (INA200015635), although it surrendered its certificate of registration in February last year.
Advertising rules
The advertising code for RAs and IAs states: “The advertisement shall not imply any assured returns or minimum returns or target return or percentage accuracy or service provision till achievement of target returns or any other nomenclature that gives the impression to the client that the investment advice/recommendation of the research report is risk-free and/or not susceptible to market risks and/or that it can generate returns with any level of assurance.”
Yet, Pickright’s Trading Advisory page allows RAs and IAs to display the accuracy levels of their trading calls.
Then there are others...
Most of these appear to have been taken down since Moneycontrol wrote to Pickright for their responses.
The platform’s Investpack feature allows the registered entities to show the returns they have generated over varied periods. Investpack, according to the website, is a “ready-to-invest portfolio” with selected stocks, ETFs or mutual funds “combined to beat market volatility with zero tension”.
Kinjal Champaneria, Partner at Solomon & Co, cited the advertisement code issued by BSE Administration & Supervision Ltd. Under it, he said, “reference to the past performance of the investment advisor or recommending/promoting any specific investment by way of reference to past performance or research material is not permitted”.
Platform’s response
Pickright denied that it shows the performance track record of individual RAs. According to its response, the company displays the performance of strategies of the registered entities and not of the registered entities. That is, the performance shown is of the product and not of the maker/designer; the regulations only restrict the performance of the maker/designer.
In an email response to Moneycontrol’s queries, it stated: “The performance track record of Individual RA’s is not shown in Pickright. The CAGR of the strategy is only shown to logged-in state users for a few strategies. The CAGR is shown for specific strategies from inception on the Pickright platform. This is not back-tested data.”
Nuvama, which holds a strategic stake in the platform, also put forward a similar response to Moneycontrol’s email: “RA performance metrics are not showcased. However, CAGR of invest pack/strategies based on actual historical data is accessible to logged-in users.”
Nair said that this argument might not sway the regulator since the RA/IA essentially provides stock recommendations or investment advice, and the performance of these recommendations or advice cannot be seen as distinct from the performance of the registered entities.
Similar product?
Pickright doesn’t seem to be the only platform sailing close to the wind. As 5Paisa’s spokesperson pointed out, when asked about integrating the brokerage platform with Pickright, Pickright’s “product offering is similar to Smallcase”.
Nithin Kamath-backed Smallcase’s spokesperson said that their platform does not highlight performance metrics of RAs and IAs and that these are shared only when the clients ask for them. The spokesperson said, “In accordance with the Advertisement Code, Smallcase doesn’t use or highlight past performance of SEBI registered RA and IAs in any advertisements or display this information in the public domain. The performance, when requested by the clients, is shown based on the inputs and recommendations provided by the RA/IA and is based on a transparent return calculation methodology shared on the website.”
On Smallcase, returns generated by portfolios are shown after a user logs in and is shown a disclosure: “By proceeding, you understand that investments are subjected to market risks and agree that returns shown on the platform were not used as an advertisement or promotion to influence your investment decisions”.
Pickright, too, has users agreeing to disclaimers before being shown the returns data.
As Nuvama said, “adequate disclaimers are shared on the website for information of the investors as per SEBI Guidelines.” Pickright said that returns are “only shown after user consent for RIA packs.”
That is, only after a user ticks a box agreeing to a disclaimer is the user shown the performance of the portfolio, even against a benchmark index’s performance.
But Champaneria said that adding these disclaimers will not protect the registered entities.
He said, “The addition of disclaimers is mainly to alert or caution the investor of the risks involved in such investment and therefore adding a disclaimer will not protect the registered entities from regulatory action.”
BASL’s Fernandes said that, if any platform is enabling RAs and RIAs to do this, that is to promote their services or products using past-performance metrics, they will also guilty of breaking the law as accessories.
He added, “Smallcase too is in violation of the SEBI guidelines for allowing RAs to use past-performance to advertise their products or services. The regulator should act against such platforms but these platforms seem to be operating under the regulator's radar where possible.”
Brokerages’ take
Pickright, which is not a Sebi-registered entity, has claimed that it has leading brokerages as “partners”.
Aditya Birla Money said it is “enabling its customers avail services of Registered Investment Advisors (RIA) empanelled on Pickright’s platform”.
5Paisa Capital said, “there exists an order placement-related integration with them such that the client may be allowed to punch orders from their platform, which would be routed through our platform after 2F authentication”.
The brokerage added that there are “no commercials involved in this association and our integration is only to facilitate order placement through open APIs”.
Zerodha said it isn’t a partner to the platform and that, after Moneycontrol raised the query based on Pickright’s claims, it reached out to the platform and asked them to take down such claims.
Bajaj Finserv has not responded to Moneycontrol's email. The article will be updated once they do.
How will the regulator view these integrations?
Champaneria said that after the regulator’s meeting with its Board on June 27, it is clear that Sebi intends to restrict the association with Sebi-registered entities and unregistered entities/platform.
He quoted Sebi’s proposal that was approved by its Board: “the persons regulated by the Board and the agents of such persons shall not have any association, like any transaction involving money or money’s worth, referral of a client, interaction of information technology systems or any other association of similar nature or character, directly or indirectly, with any other person who, directly or indirectly, provides advice or recommendation or makes any implicit or explicit claim of return or performance, in respect of or related to security or securities unless permitted by the Board to provide such advice/ recommendation/claim”.
Surrendered registration
Pickright used to be a registered Investment Advisor, but according to its email to Moneycontrol, it surrendered its registration in February 2023.
Its disclosure page still cites its IA Registration (INA200015635).
When asked why it is still claiming to be registered when it isn’t listed anymore as a Sebi-registered IA, Pickright said that compliance holds it liable for five years “till the surrender of the page of disclosure of advisory is kept”.
The company has kept the disclosure on the IA registration till they surrender the page. This, according to legal experts, isn’t allowed.
Nair said that once the registration is surrendered, an entity cannot continue to claim to be Sebi-registered just because it is liable for actions taken as a registered entity.
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