How not to get fooled by fake investment advisors

SEBI has asked the troika to file any objections if they feel need to be filed and has asked them to present in SEBI office to give their response, pending a final order that SEBI is expected to come out with in a few months’ time. The final order will specify the penalty, if any, that SEBI may choose to impose on them.

Many of us have got calls from assorted stock brokers, particularly those based in Madhya Pradesh and in the city of Indore who call and offer stock trading and advisory services. Moneycontrol gives you a cheat sheet on how to prevent being duped by fake investment advice.

Does your advisor guarantee returns?

Rishabh Jain and his associates used to make tall promises against its advertised products. As per the SEBI order, it had advertised two products on one of their website — a ‘Stock Option (Zero loss) Jackpot’ package and another ‘Nifty Option (Zero loss) Jackpot’ package.

Details of the packages that were listed on this website, as per SEBI order, used words like “95-99% accurate recommendation..”, ‘zero loss’ ‘jackpot’ and such words to give an impression of bumper and assured returns.

SEBI found out through its investigation that the fraudsters used to run 10 websites that used to offer investment advice and solicit subscription money, some of which were ‘www.niftysureshot.com’, ‘www.newsbasedtips.com’ and ‘www.optiontips.in’.

If your investment advisory firm contains such words that allude to a guarantee of returns by way of a promise or giving ‘tips’ or relying on news to give tips, these are warning signs of speculative advice, instead of hardcore and solid research.

SEBI Investment Advisor guidelines of 2013 and SEBI mutual fund regulations clearly specifies that no mutual fund, distributor or investment advisor is supposed to give any assurances or make promises about the sort of returns either of them could generate in future. “It is a clear case of fraud if your advisor assures returns from market-linked instruments, such as shares or mutual funds. Nobody can make a promise. They can at best give a track record of their performance, but never promise future returns”, says Vijay Krishna Kuppa, co-founder, Oro Wealth, an on-line investment advisory firm.

Check for credentials

This is tricky. The troika fraudulently advertised Mashruwala’s and Capmetrics Investment Advisor’s RIA license number to try and pass of as genuine advisors. But how do you look through that to ascertain if your advisor is genuine or not?

There’s a way. Ascertain- from your online firm’s website- whether it is a distributor or a SEBI-registered investment advisor. Then, visit the websites of Association of Mutual Funds of India (the mutual fund industry’s trade body) if you want to validate a distributor. Visit SEBI if you want to validate a SEBI-registered investment advisor.

Enter the name of the person or the website or the registration number and you’ll get more details. Most of the records have contact numbers and email IDs of a contact person associated with your advisor. Try getting in touch with them, ask questions and see what sort of responses you get. Then, try and see if the details match what you see on the website to ensure they’re the same set of people.

Srikanth Meenakshi, co-founder and COO, FundsIndia.com, one of India’s largest online mutual fund distribution firms points us at the bottom of his firm’s website, at its AMFI registration number (69583). If you click on this number, a scanned document pops up on your screen; the firm’s registration certificate. You can also see the firm’s actual name; Wealth India Financial Services Pvt Ltd.

Now, go back to AMFI website at the link provided above. Enter its AMFI code (69583) and you’ll get the details of the firm ‘Wealth India Financial Services Pvt Ltd’.

“If there is a missing link here, or if you cannot find the registration number or if you find it but the name doesn’t match, there’s a problem”, says Meenakshi.

Avoid stock tips

This is the most lucrative trap that most of us fall into. We feel that buying and selling equity shares swiftly- or what is popularly called as stock-trading- is a sure shot way of success. In reality, there are no short-cuts.

Most reputed financial planner or investment advisors suggest a holistic financial advice. This involves not just your investments- of which equity shares is just a part- but also your expenses, earnings and even spending.

SEBI’s Investment Advisor guidelines 2013 specifies that investment advisors are supposed to do risk profiling of their customers and are meant to offer products that are best suited to them. Rishabh Jain and his associates had put themselves out to be a SEBI-registered advisory firm. And a SEBI-registered investment advisor is supposed to a detailed risk profiling. From the sample of complaints that Sebi quoted in its order, Jain and company never did any risk profiling nor did they ensure product suitability.

But here’s the most glaring hole in their offering. They offered just one product: stock tips. A registered investment advisor is supposed to offer you a bouquet of products like equity mutual funds, debt mutual funds, fixed deposits and so on.

Nitin B. Vyakaranam, founder and CEO, Artha Yantra says that investors too should not go for quick bucks. “This is a classic problem that exists where customers feel they want more and more returns. Some investors might be in a bad situation financially and they feel they can overcome it by making it somewhere else. Fraudsters are always around to take advantage.”.

Sharad Singh, founder and chief executive officer, Invezta.comsays that stock tips per se are not evil. It’s when the advisor just offers derivative instruments in equities or fixed income is when the problem lies. “If the advisor offers long-term stock advisory and ensures that only the right-minded people are offered equity shares, especially derivatives, then it’s okay.”

Testimonials

Jain’s numerous websites not only put up a fake track record, consistently. They also put up testimonials; praises sung by its customers about the returns the website’s tips helped them generate. The problem was; they were all fake. Says the SEBI order: “It is understood that the Noticees (Jain and his gang) themselves post positive reviews and testimonials of getting unbelievable returns from the unregistered investment advisory websites on www.tradingtipscomplaints.com to promote subscriptions.”

The bigger problem is, “there is not much you can do and separate the genuine from the fake testimonials,” says Krishna Kuppa. Sanjiv Singhal, founder and chief operating officer, Scripboxsays that a better way to check testimonials is to search for it on the internet, elsewhere.

“A simple way is to just run a google search on the internet. If you find references of the website or the firm, or its key officials being quoted in the press or have written blogs, you atleast know that these people exist and are genuine.”

But, he adds, if you don’t find any other reference of the firm other than its own website, it should raise a red flag.

Online payments

Remember those incidents where people ordered a mobile phone online and got a brick inside the package, instead? That’s the tricky part of ordering something online. This includes making a financial payment to an online advisory firm you have little knowledge about.

Most experts we spoke to said that there’s a risk here of your advisor running away after taking your money. Much like Jain and his gang who- as per many complaints documented in SEBI’s order - simply stopped picking up calls once investors realised that their stock tips started to flop, one after another.

Vyakaranam of Artha Yantra says that most credible online financial firms have a dedicated call centre. Once they take payments, they call you to confirm or get our Know-Your-Customer documents picked up physically. A good and professional call centre interaction inspires confidence, experts say.

Ultimately, remember this: If it’s too good to be true, it is in fact too good to be true. If your advisor talks words like “double your money”, “guarantee returns” and sounds too enticing, run as far as possible from him.