Investment advisers need to have good credit report for offering services

MDT/PTI 15 October 2012

Investment advisers would be required to submit a credit report or credit score from CIBIL, instead of references from two bankers needed in the original draft regulations, while applying for SEBI registration

New Delhi: Investment advisers will need to have a good credit report card and satisfactory research capacity to get permission to provide advice to investors in stocks and other capital market segments, reports PTI.

Market regulator Securities and Exchange Board of India (SEBI) recently decided to frame exclusive regulations for Investment Advisers, after consulting other regulators like Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority-PFRDA (PFRDA), as also the comments received from the public on a concept paper disseminated for this purpose.

After deliberations over the proposed rules at its board meeting, the SEBI board felt that the regulations need to robust enough to safeguard the interest of investors in the capital markets, a senior official said.

Accordingly, a number of changes were suggested by the board to the draft regulations proposed by SEBI, including the requirement of a credit report or score from Credit Information Bureau (India) Ltd (CIBIL), and details of the research facility to be submitted by the entities seeking to become investment advisers, he added.

While the draft regulations were presented before SEBI board in August, the final regulations would be notified soon after incorporating the proposed changes.

Also, the new regulations, which make it mandatory for investment advisers to get registered with SEBI subject to certain exceptions, would now come into force three months after their notification.

SEBI had previously proposed the regulations to become effective from the date of their notification.

Among the proposed changes, the investment advisers in their applications would be required to submit a credit report / score from the CIBIL, instead of references from two bankers needed in the original draft regulations.

CIBIL is a national agency that collects and maintains records of an individual's payments pertaining to loans and credit cards.

This information is used to create credit information reports (CIR) and credit scores which are provided to lenders and other entities to help them evaluate the credit profile of the person.

Also, the draft regulations required the entities seeking to get registered as investment advisers to submit details of their data processing capacity. Instead, they would now be required to submit details of their in-house and other research capabilities, the official said. .

The other changes to the draft regulations include the provision for appointing or authorising an Ombudsman to resolve any dispute between the investment advisers and his/her clients, in addition to a dispute resolution mechanism through arbitration.

Besides, the draft regulations provided for SEBI being authorised to appoint an self regulatory organisation (SRO) for the purpose of regulating Investment Advisers at a later stage.

However, this has now been proposed to be replaced by a provision, under which SEBI for the purpose of regulating investment advisers may recognise a "body constituted under appropriate laws/regulations", whose membership will be necessary for being allowed to act as an investment adviser.

Changes have also been proposed to make it clear in the regulations that the education and certification requirements for the investment advisers are continual in nature.

As per the proposed regulations, the investment advisers would not be allowed to take any remuneration or compensation from any person other than from the client being advised.

For a bank or body corporate having a distribution, referral or execution business, it would be necessary to keep the investment advisory services segregated from such activities and to make disclosures to the clients being advised about any remuneration or compensation received by it and any of its associates for the distribution, referral or execution services.

Comments

User

MOHAN

1 decade ago

I have paid my broker an amount of Rs.1800/- for investment "tips" for cash segment for six months at a 50% discount ! ! . I am regularly getting tips through SMS. But, it is not disclosed whether the SMS for buy and sell is based on fundamentals or technicals. SEBI must make it mandatory for the providers of such investment "ideas" to include the details of fundaments/technicals along with the buying/selling recommendations. Simply advising the clients for buy and sell of a stock must be made illegal because the information could be an insider information or pure speculation or cheating.

Nilesh KAMERKAR

Replied to MOHAN comment 1 decade ago

Sir,

Please permit me to say . . .If profits can be made @ Rs.1800 for six months where’s the need to work and earn?

Whose fault??? When you act recklessly and end up with a financial disaster. If people confuse speculation with investing, what can SEBI do about it? No regulator can control a market participant’s greed to make a quick buck by entering into a perfectly legal but loss making transaction.

Speculation is not illegal, cheating is. If you speculate you must do it with your eyes open and with a clear understanding that you might eventually end up wiping out your entire capital. Speculation is mostly about betting on an outcome within a stipulated timeframe, normally of shorter duration. But, in the long run the speculators normally lose - there can be a few exceptions though (say top 5% of the speculators) to prove the rule.

Look before you leap â€¦

MOHAN

Replied to Nilesh KAMERKAR comment 1 decade ago

You are absolutely right. I have not done any single transaction so far based on the "1800" advice. My point is that the "adviser" must explain/disclose the basis for the investment 'advise".

Nilesh KAMERKAR

Replied to MOHAN comment 1 decade ago

There’s no need to find out whether these ‘tips’ are based on fundamentals or technical’s. The only step you need to take is to run as fast as possible away from such tipsters.

Sir, the rationale is simple, why would any ‘right minded’ person exchange such potent trading / investment ideas for a princely sum of Rs.300 per month? – Would he not seek a profit-sharing arrangement?

It would be a horrible mistake to call such a tipster as an investment adviser. Because, what is being dispensed, is not ‘investment advice’, but, may be an encouragement to bet on the odds – similar to what a casino dealer does at his gambling table.

MOHAN

Replied to Nilesh KAMERKAR comment 1 decade ago

The investment adviser is my Broker. Why cant SEBI ban such investment ideas?