Recent order opens Pandora’s box on role of investment advisors and RAs
SEBI recently passed an interesting (and controversial) consent order against Amit Jeswani, a SEBI-registered research analyst and proprietor of Stallion Asset.
While the market regulator imposed a settlement of ₹28.6 lakh on Amit Jeswani, the important observation in the order said that registered research analysts cannot offer model portfolios or advisory services. While it is a known fact that RAs cannot offer customised investment advice, SEBI’s stance on portfolios has caused confusion among market participants.
To impact many
According to market sources, the settlement order is likely to impact platforms such as Smallcase that offer curated portfolios to investors that are created by research analysts as well as investment advisors.
According to the settlement order, “it was observed that being a Research Analyst, the applicant (Amit Jeswani) was selling model portfolio products to his clients/prospective clients which is against the defined responsibility of a Research Analyst as mentioned in RA Regulations and professional standards of Research Analyst.”
It was alleged that applicant had “not acted honestly and in good faith” and had “not ensured maintenance of appropriate standards of conduct and adherence to proper procedures,” SEBI said
The show cause notice further added that, “the applicant was not registered as an investment advisor with SEBI, however, from the call data records of the applicant, wherein calls were made to client by the employees of the applicant, it was observed that he was introduced to the clients as an entity providing advisory services.”
“The HPAC (high powered advisory committee) also recommended imposition of a non-monetary settlement term of restraining the applicant from obtaining any other registration with SEBI for a period of three years from the date of the settlement order,” the consent order said.
To affect ‘genuine advisors’
However, market participants are upset with these observations by SEBI and said it will jeopardise not only investors but also advisors who do their job in a transparent manner, after getting registered with SEBI. As RAs are allowed by SEBI regulations to offer buy, sell or hold recommendations on stocks subject to certain rules, they are not sure of the distinction between such individual recommendations and stock portfolios.
According to them, retail demat accounts in India have surged close to 6.5 crore and most retail investors added in the last few quarters are first-time investors, who need to be handheld on investment. If regulated entities are subject to such restrictions, they point out, that investors could be falling prey to unregulated ‘stock tips’ in social media and unscrupulous elements that operate through phone from distant destinations such as Indore promising unimaginable returns.
Clarity to be sought
According to some, SEBI should have cracked the whip much earlier and not now after curated portfolios have gained prominence among investors fraternity. They also feel that if SEBI is really of this view, it can tweak the rules and make the system more transparent and accountable.
All said and done, SEBI has clarified the difference between research analyst and registered investment advisors through the order. It is better that individuals or platforms which wish to attract large individuals seek complete clarity on this from SEBI as only a thin line separates the roles of RA and registered investment analyst.