Your checklist for identifying a genuine SEBI-registered Investment Adviser

Identify the right investment advisor before committing your money

The sharp surge in interest around equity markets has seen an unprecedented rise in stock market related frauds in recent years.

One of the popular tactics of the miscreants is to pose as SEBI Registered Investment Advisers (RIAs) and lure unsuspecting investors on social media platforms.

Beware of scammers posing as RIAs

I know many advisers in the RIA fraternity who have been caught off guard after receiving complaints from victims, realising their identity being misused, even SEBI license forged. I received a complaint too once from a mysterious individual and was asked to return the money, the only difference being it turned out to be a spurious call, followed by a fake mail.

The complaint was not genuine and it was an attempt to extort money from me as an RIA!  Even RIAs are not spared. With their information publicly available on the SEBI website, they are as vulnerable as the investors.

Also read: SEBI extends advance fee-collection limits for Research Analysts, Investment Advisers to one year

Zeroing in on a genuine RIA

So how do you identify a genuine SEBI RIA? Merely looking at the credentials is not enough. Even the SEBI certificate won’t help if it is forged. Here is a checklist which will help you decide if you are dealing with an actual SEBI registered adviser:

1.      As per the SEBI regulations, an RIA is required to enter into a formal agreement with the investor by issuing a letter of engagement (LoE), which contains all terms and conditions including disclaimers, KYC, fees chargeable, period of engagement, confidentiality clause, etc. If you are dealing with a genuine adviser, you will be required to sign the LoE -  the adviser will sign it too and send you a copy of the signed agreement. This is to protect the interests of both parties. The RIA will not ask for a single penny unless the LoE is signed.

2.      Usually, the guarantee or the promise of skyrocketing returns comes from unsolicited cold calls, whatsapp messages and email.  There would be the usual pressure tactics to invest quickly instilling a sense of FOMO. Conversations with an actual adviser are more solution-oriented revolving around your financial goals, life situation and risk appetite. A competent and ethical adviser will take a holistic view of your financial situation first rather than pushing products that you may or may not need.  As part of compliance, a SEBI RIA will initiate proper risk profiling and assess suitability to recommend investment advice accordingly.

Also read: Will the right financial advisor for me please stand up?

3.      The only way a real adviser earns direct income is from the fees chargeable to you and the entire engagement is transparent. You will know how much you are paying and what are you paying for. The fees mentioned in the LoE is the exact fee that an IA will charge you, nothing less or more.

4.      In October 2024, SEBI introduced a centralised fee collection mechanism (Cefcom) for RIAs wherein clients can pay fees through a designated platform. The intent was to create a transparent, secure ecosystem and protect investor interest. Not all advisers are using this payment channel for their clients for the time being, as it is optional.

However, a new UPI mechanism is also in the offing soon to ensure a unique UPI address for intermediaries including RIAs to prevent fraud. Such initiatives are expected to distinguish registered intermediaries from unregistered ones.

5.      Merely finding the RIA name on the SEBI website is not enough. Cross check and verify the phone/email with the details on the Adviser website. Also, reach out personally on mail or calling to confirm if you are connecting with the right and genuine Adviser.

As an investor, it is your responsibility to do proper due-diligence before engaging and dealing with any intermediary in the financial services set-up. Financial literacy is also important to educate self in this regard. Even if you remember the fact that there are no get rich quick schemes in the world, you will be able to easily distinguish between the language of a genuine Adviser and a fraudster.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.