Financial “Advisor” Penalised by SEBI for Pushing Risky Investment Products

Moneylife Digital Team 13 August 2019

Market regulator Securities Exchange board of India (SEBI) has directed Indore-based Star India Market Research and its proprietor Dharmendra Kumar to pay a penalty of Rs40 lakh for pushing its clients towards investments with a higher risk profile than they could afford.

The investment advisor was found offering high risk products meant for high networth individuals (HNIs) to clients who were in the age-bracket of 18-20 years and very senior citizens who were above 80 years and have annual income of less than Rs5 lakh.

An order passed by Maninder Cheema, adjudicating officer of SEBI, says, "I note that actions by the noticee (Star India Market Research) indicated an effort to push its clients towards investments with a higher risk profile than they could afford, in breach of its fiduciary responsibility. Taking advance payments and pushing multiple products on to investors implied more interest in generating business in disregard for and at the cost of the investment needs of clients, as assessed based on their risk profile and savings capacity. Taking into account the facts and circumstances of this case, I am of the view that a penalty of Rs40 lakh under Section 15HB of the SEBI Act will be commensurate with the violations committed by Star India Market Research."

After checking some of know-you-customer (KYC) data submitted by the investment advisor, SEBI found that most clients have annual incomes of Rs1 to Rs5 lakh, had no prior experience with trading in securities or were too old to go in for high a risk product. Yet, they were sold stock futures, stock option premium, and stock cash, as shown in the following table:

SEBI also found that Star India Market Research had sold products meant for HNIs with an income of over Rs25 lakh to his clients, who have gross annual income of less than Rs5 lakh.

In addition, in 62 instances, Star India Market Research received payment as fees for services to be rendered in future and had collected Rs44.21 lakh from clients.

Comments

User

Suketu Shah

3 years ago

best is learn investing yrself.donot use service of any advisor.

Kali Raj

3 years ago

Iam also applied for claim please do the needful as early..

Ramesh Poapt

3 years ago

there are thousands of such cases, in not lacs....particularly in
insurance, mf included. and top of it, Portfolio M S!

Rajendran

3 years ago

I have seen that commission is being paid by MFs which is almost equal or more than the dividends earned by the investor. SEBI should restrict the commission on the basis of the performance of the MF.