Choose With Care

One of the people we spoke to while doing our 26th anniversary cover story said she was duped by a “financial advisor”. While the capital markets regulator, the Securities and Exchange Board of India, and various investor awareness platforms, including us, keep advising that it is important to consult a financial advisor for your investments, choosing the right one holds the key.

One of the much-advised ways to do that is opting for Sebi-registered investment advisers (RIAs). But is that a sure shot way to escape wrong advice or fraud?

According to a recent analysis by the Association of Registered Investment Advisers (ARIA) on Sebi’s SCORES platform, there have been 17,892 complaints against Sebi RIAs, as on June 30, 2024. However, out of these, 11,451 complaints were against RIAs who are out of business and have not registered with  BSE Administration and Supervision Ltd (BASL). Moreover, 74 per cent of the licensed RIAs have no complaints against them since inception, while 10 per cent of licensed RIAs accounted for 94 per cent of the complaints.

What does this data tell us? One, most Sebi RIAs may be genuine as they have not received complaints. Two, there are bad apples everywhere, including Sebi RIAs. The proposals in Sebi’s latest consultation paper, once notified, may open the doors for more “advisors” to become RIAs. How that affects the complaints data is something that will unravel in the months to come.

So what does an average investor do? There are financial traps wherever you go, whether you are investing in the stock market, mutual funds, real estate or other financial schemes; or buying life or health insurance; or transacting online.

What can really come to your rescue is exercising caution and entering any contract after understanding it. A part of the RIA’s job is to explain to you fully the nuances of a product and why it is the right fit for you. If you are not aware enough to cross check that, you could find yourself at the other end of the complaint cycle, in case you end up with one of the bad apples.

How do you exercise caution? By reading up relevant material from genuine sources and keeping certain thumb rules in mind. Along with that, having a list of red flags you should sidestep can always help you not fall for wrong or fraudulent advice.

In the last 26 years, Outlook Money has consistently tried to highlight what’s good for you and what you should avoid. So, we thought, it would be apt to celebrate our 26th anniversary by making you aware of as many spiels that you—the investor, consumer, taxpayer and buyer—should avoid. Some of you may already be aware of a few or all of them, but it never hurts to remind yourself of what’s not good for you.