How not to get fooled by fake investment advisors

Remember this: If it’s too good to be true, it is in fact too good to be true On March…

How not to get fooled by fake investment advisors
How not to get fooled by fake investment advisors

Remember this: If its too good to be true, it is in fact too good to be true

On March 20, an interim order was passed by Securities and Exchange Board of India, three individuals, Rishabh Jain, Ubaidur Rahman and G Kadar Hussain were banned from offering any investment advice to anyone.

It also directed them to remove all advertisements, banners, brochures and other forms of communication that spoke about their so-called investment advisory business. And it barred them from securities market.

They defrauded several gullible investors, in between three of them. They offered investment advice for which they got their fees totaling in excess of Rs 10 crore. But their investment advice was fake and many investors complained to SEBI that they didn’t work. But still, the advisors did not pick up their phone calls, and instead kept on advertising their fake success.

Many of us have get calls from assorted stock brokers, particularly those based in Madhya Pradesh and in the city of Indore who call and offer stock trading and advisory services and make fake promises. Moneycontrol gives you a cheat sheet on how to prevent being duped by fake investment advice.

Does your advisor guarantee returns?

If the investment advisory firm allude to a guarantee of returns by a way of promise or giving tips. Or they rely on new to give tips, these are mere warning signs of hypothetical advice than hardcore and solid research.

SEBI Investment Advisor guidelines of 2013 and SEBI mutual fund regulations clearly specifies that no mutual fund, distributor or investment advisor is supposed to give any assurances or make promises about the sort of returns either of them could generate in future. No invest advisor could make any promises they can only provide a track record of their performance but they can’t claim any promises for future returns. It is a clear case of fraud if your advisor assures returns from market-linked instruments, such as shares or mutual funds.

Check for credentials

Ascertain- from your online firm’s website- whether it is a distributor or a SEBI-registered investment advisor. Then, visit the websites of Association of Mutual Funds of India which is the mutual fund industry’s trade body, if you want to validate a distributor. Visit SEBI if you want to validate a SEBI-registered investment advisor.

Enter the name of the person or the website or the registration number and you’ll get more details. Most of the records have contact numbers and email IDs of a contact person associated with your advisor. Try getting in touch with them, ask questions and see what sort of responses you get. Then, try and see if the details match what you see on the website to ensure they’re the same set of people. If they don’t thren you may have a problem.

Avoid stock tips

This is the most lucrative trap that most of us fall into. We feel that buying and selling equity shares swiftly or what is popularly called as stock-trading- is a sure shot way of success. There are no short-cuts in reality one must keep that very clear in their minds.

Most reputed financial planner or investment advisors suggest a holistic financial advice. This involves not just your investments, of which equity shares is just a part, but also your expenses, earnings and even spending.

SEBI’s Investment Advisor guidelines 2013 specifies that investment advisors are supposed to do risk profiling of their customers. They are meant to offer products that are best suited to them. And a SEBI-registered investment advisor is supposed to a detailed risk profiling.

Investors too should not go for quick bucks. This is a classic problem that exists where customers feel they want more and more returns. Some investors might be in a bad situation financially and they feel they can overcome it by making it somewhere else. Fraudsters are always around to take advantage. Where they give fake advises and gobble up all their money once they get a chance.

Stock tips are not evil. It’s when the advisor just offers derivative instruments in equities or fixed income is when the problem lies. If the advisor offers long-term stock advisory and ensures that only the right-minded people are offered equity shares, especially derivatives, then it’s okay.

Testimonials

The bigger problem is there is not much you can do and separate the genuine from the fake testimonials. A better way to check testimonials is to search for it on the internet, elsewhere.A simple way is to just run a google search on the internet. If you find references of the website or the firm, or its key officials being quoted in the press or have written blogs, you atleast know that these people exist and are genuine, then you can carry forward with that firm. But if you don’t find any other reference of the firm other than its own website, it should raise a red flag.

Online payments

You should remember those incidents where people ordered a mobile phone online and got a brick inside the package. That’s the tricky part of ordering something online. This includes making a financial payment to an online advisory firm you have little knowledge about.

Experts say that there’s a risk here of your advisor running away after taking your money. Yakaranam of Artha Yantra says that most credible online financial firms have a dedicated call centre. Once they take payments, they call you to confirm or get our Know-Your-Customer documents picked up physically. A good and professional call centre interaction inspires confidence, experts say.