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Stock Market Advisory Firms | Applicable Laws | Legal Challenges | Legal Compliances | Legal Remedies |

 > Business Laws  > Stock Market Advisory Firms | Applicable Laws | Legal Challenges | Legal Compliances | Legal Remedies |

Stock Market Advisory Firms | Applicable Laws | Legal Challenges | Legal Compliances | Legal Remedies |

In these uncertain times of pandemic and lack of financial stability for the entire world, there arises a duty towards ones families and oneself to arrive at correct financial decision making. This is not possibly easy for a layman to do by himself rather a help from a financial adviser or investment coach is essential for a healthy financial investment. These moral abiding and customer centric professional play a very important role to help the investors with quality financial strategies thus serving the public at large.
These professionals have a basic knowledge of how to manage ones wealth which helps them to develop a customised plan for the money which is directed to one’s specific financial aims which could be investment for after retirement life or higher education needs of children etc. Investment advisory is a more holistic approach which includes budgeting, research, savings, wealth management and lots more. There exists a dual tracking system that is by the client as well as the advisory company to ensure the developments of the financial plan and analyse the same as and when required.
The experience and expertise of the stock market advisory company is a determinant that tells whether the financial plan is a success or not. The investors must be vigilant in choosing the right investment advisor particularly a SEBI registered one and a reputable company with long years of experienced professionals which will ensure that one’s funds are used to gather long term returns along with reduced risks of losses. The stock market is a volatile market that it is subject to frequent fluctuations so a hand in the form of stock advisors will definitely be a great aid for the investors to invest with confidence and peace of mind.

The litmus test to a good stock advisory firm is that they will not give any assurance of making one rich overnight rather they will help to set one’s desires in the right manner, give proper tutoring regarding the working of the market, the attached risk factor to the investments, they will not mention about making short term gains but will make the investor understand how to pool funds by gradual and wise investments thus giving a non-partial advise to the potential investors.
As per the SEBI (Investment Advisors) Regulations, 2013, an “Investment advisor” is any person who is engaged in a business of giving investment counsel to the potential investors or group of persons and by any name so called holds out him to be an investment advisor in lieu of a consideration. There are certain persons who are exempted from this definition they are pension advisers, mutual fund, distributor’s insurance agents, law firm, stock brokers fund manager, advocate, etc.
“Investment advice” means advice which is written or oral or otherwise relating to, purchasing, investment in, selling or dealing in investment products or securities, and advice on investment portfolio having securities or investment products. This has got an exception that any advice given through newspapers, magazines or electronic mediums shall not be taken as investment advice.

Existing Legal Framework to Regulate Share Market & Stocks Trading
The primary regulatory and monitory bodies for the Indian capital markets are as follows:
• Securities and Exchange Board of India (SEBI).
• Department of Economic Affairs (Ministry of Finance).
• Ministry of Corporate Affairs.
• Reserve Bank of India.

The main function of these regulators is to draft legislation and to issue notifications, guidelines and circulars along with having the futuristic vision on various market participants. In addition to this they also frame their own rules bye laws and regulations for the ease of regulating the market.
Apart from the above mentioned there are some key statutes and regulations that govern the equity securities market in India they are:
• Securities and Exchange Board of India Act, 1992 .
• The Companies Act, 1956 in which the code of conduct for the corporate sector with relation to allowance, transfer and issuance of shares along with the necessity of disclosure in public issues is referred to.
• Securities Contracts Regulation Act, and its Rules, 1956 which denotes the regulation of transactions in securities by monitoring over stock exchanges.
• Depositories Act, 1996 it mentions the electronic transfer and maintenance of ownership of dematerialized share of the clients.
• SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Market) Regulations 2003 (Unfair Trade Practices Regulations).
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Takeover Regulations).
• SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR Regulations).
• SEBI (Prohibition of Insider Trading) Regulations 2015 (Insider Trading Regulations).
• SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018
• The Prevention of Money Laundering Act,2002

And the recently introduced SEBI (Investment Advisors) Regulations, 2013 and its amended legislation of 2020 for the protection of stock market advisory companies and its clients.
In addition to specific legislation the stock market is regulated through various other legislations too such as:
Consumer Protection Act, 2019 and Consumer Protection Rules, 2020
The investors invest in a company taking the aid of many intermediaries who help these investors at different phases of the investment process. At the time of receiving the dividend, selling their shares in the market, transferring the securities, or any other transaction with the company the investors depend on these middlemen for the services they provide to investor in order to enforce their right in a company. Now it is pertinent to know whether such type of service provided by the intermediaries to the investors comes under purview of the Consumer Protection Act, 2019 and related Rules of 2020.

The National commission in the case of Senior Manager, Delhi Stock Exchange v. Ravinder Pal Singh [2008 Bus LR 127 NCDRC] held that investors can be recognised as consumers and the services delivered by the stock exchange members to the investors for buying and selling of share in the stock exchange is a service as per the Consumer Protection Act, 2019.

In Steel City Securities Ltd. v. Shri G.P Ramesh [REVISION PETITION NO.3060 OF 2011] the tribunal upholding that respondents wouldn’t fit into the definition of ‘consumer’ under the provisions of the Act held that the share business is a commercial activity and the respondents were trading regularly in it with the only motive of earning profits.

The NCDRC in Vijay Kumar Vs. Indusind Bank, [II (2012) CPJ 181 (NC)] upholding the decision of the State Commission in the above mentioned held that the petitioner is trading regularly in the shares with the only aim of earning profits so such an activity is a commercial one and doesn’t come under the Section 2(1) (d) (ii) of the Act.

Intellectual Property Rights Protection
With the arrival such novel concepts of e-stock trading the investors, financial advisors and the stock market brokers are becoming aware of this reality by even giving value to Intellectual Property assets. In order to attract more investors a catchy name and logo is essential for Stock market Advisory Companies which is to be trademarked to use for marketing. Registration of trademarks in the name of one’s services will help to secure and promote the brand.
There is no protection of ideas or concepts in Intellectual property rights rather they protect authentic business assets that are fundamental to success of a business. Intellectual Property is an income generating technique by taking license, initiating sale or commercialisation of secured products or services. Such a technique will definitely enhance the market share or raise profits of the product or services.
While ideas under Intellectual Property rights have very little value but by converting them into commercially accepted products and taking up license for patents or copyrights can lead to a continuous flow of royalties and income which will in turn usher the business from the initial stage. Intellectual Property for stock trading advisory companies can increase the competitiveness in the stock markets thus helping to reach one’s service to the global level.

Compliances under the Information Technology Act of 2000
The Information Technology Act, 2000 is a legislation that gives legal sanctity to all electronic records and related activities that is done by using electronic means. The Act of 2000 expressly says that a legally valid and enforceable acceptance of contract expressed by electronic means of communication must be present in the transaction. E-stock market advisory companies purports to facilitate electronic intercourse in trade and commerce of shares by individuals, eliminating the obstacles on the of electronic commerce. Thus no issue of compliance to IT Act, 2000 will be there since the Act also aims to fulfil objects of promoting and developing the legal and business infrastructure that is necessary to implement in electronic commerce.
In a recent case the regulatory SEBI had filed a case against MIAPL and its head Bhatia for alleged criminal breach of trust, cheating under The Indian Penal Code, 1860 and also for offences under Information Technology Act, 2000. SEBI took up an assessment of MIAPL an investment advisory company, after series of complaints flooded and observed that MIAPL had not disclosed the alteration of their office address or making board of directors to the regulator along with that it lacked a compliance officer too.
MIAPL had even not met the capital adequacy need that is not less than INR 25 lakhs as per the Regulations of 2013 given for investment advisors. Upon another independent assessment SEBI revealed that Minance was bankrupt as of 08-09-2020. Thus SEBI in the interim order held that
the activities of operation of MIAPL, has cast a shadow of doubt on the financial solvency and efficiency of the company thus, allowing MIAPL’s service is detrimental to investors.

Role of Artificial Intelligence and Block chain Technology
In stock market trading Artificial Intelligence is used for curating the signals so that the different types of trades that are received from the software can be controlled by the user himself. The evaluation is done on the basis of the given data. Human intelligence combined with the development of computer functions which gives rise to reasoning, problem solving and learning. Stock trading and investing in the stock market is no different than a series of reasoning which is based on a given data and forecasting the future differences in stock prices.
Before this AI and Blockhead technologies came the fundamental and technical analysis was used where everything was done manually from records submitted at the exchange to reconciling the mismatched accounts of the stocks which was a time consuming process. The objective of AI was after all making it better in the way that it is immediately usable. The dynamic and vastly spread data and knowledge which is not organised can only be formatted by the way of such a new age mechanism that is Artificial Intelligence and Blockhead Technologies. As in case of stock market advisory companies such a development has upturned the whole working of the stock market making it speedy, efficient and trustworthy. This technique will aid the user to predict probabilistic outcomes. Man-made mistakes will be eliminated and the mundane features will change allowing one to concentrate on planning and executing.

Analysis of the SEBI (Investment Advisors) Regulations of 2013 & 2020
On January 21, 2013 the SEBI (Investment Advisers) Regulations, 2013 hereafter called IA Regulations was notified which came into effect on April 21, 2013. These regulations give conditions for registration, capital adequacy, and certification, risk profiling, disclosures to be made, records that are to be kept, code of conduct, way of conducting inspection, etc. The objective of the IA Regulations was to address the conflict of interest arising due to the twin role played by distributors of financial products and to lay skeleton form for financial advisers.
Requirement for Qualification and Certification
According to the 2013 Regulations, a person shall have the following qualifications to act as an investment advisor:

  1. One needs to have a professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from any university recognised by the Central or State Government or a recognised foreign institution.
  2. One needs to be a graduate in any discipline along with at least 5 years of industry experience in activities relating to financial products and services.
  3. In addition to it, a certificate on financial planning/fund/asset or portfolio management or investment advisory services either from NISM or from other organisation, which includes Financial Planning Standards Board India or any recognised Stock Exchange in India, with a condition that such certification, has got accreditation by National Institute of Securities Markets (NISM).
    Prior to being an investment advisor the person has to obtain a certificate of registration from the SEBI. There are exemptions to certain individuals such as those who generally share advice in good faith, or advice given by insurance agents their clients incidental to legal practice, from registration and pension advisors,.
    In Regulation 7 of the amended IA Regulations, 2020 the minimum qualification and certification needs for IAs is mentioned. Furthermore, in terms of second proviso to regulation 7 (1), existing individual IAs above fifty years of age (as on September 30,2020) are not mandated to comply with the suitability requirements specified under Regulation 7(1)(a) and 7(1)(b) of the amended IA Regulations 2020. Validity of the certificate of registration of the IA is for 5 years.

Segregation of Advisory & Distribution Activities
According to regulation 15(5) of the IA Regulations, 2013 there casts an obligation on the part of IAs to reveal all conflicts of interest that one faces while serving its client so as to avoid the situation of IA advising to invest in products which shall fetch maximum commission or products that may be risky and less sellable in the market. Under amended IA Regulations, 2020 individual IAs are not permitted to provide distribution or execution services. While, IAs registered for corporate entities can give execution or distribution services on a condition that such advisory services are offered by way of separate identifiable department. As per recently amended regulation, Regulation 22(5) of IA provides that “the family of IA” that is individual IA, children, parents and spouse are not allowed to provide distribution services to the same client as advised by individual IA. In the new amendments a client can either take distribution or advisory services from IA but cannot simultaneously avail other services by the same IA or its entities this is particularly prescribed by SEBI for non-individual IAs to experience a client level segregation at group level.
Group could possibly mean an entity which is subject to controlling interest of a non-individual investment adviser or any entity having controlling interest and as For Company is concerned it could mean a holding, subsidiary, fellow subsidiary, holding, associate or venture partner of this company as per Companies Act, 2013.

Implementation of Advice for Execution
IAs also offer execution of advice as provided to the client in lieu of reasonable consideration. Thus, for the client it is one stop destination by availing such services. IA shall declare to the client that it will not seek for any power of attorney from its clients for automatic execution of investment advice. SEBI in the amended Regulations has emphasised that implementation services would be sole choice of client since IA cannot compel its client to make use of implementation services. Only through direct schemes in the securities market that IA shall provide implementation services to its advisory clients. No such direct or indirect charge is levied by the IA or group or family of IA including commission or referral fees for the implementation services provided. A declaration saying that no consideration would be received in return of implementation of advice or execution services is mandatorily directed by SEBI. Such a declaration has been inserted under 5th item of First schedule under IA Regulations.

Terms and Conditions of Investment Advisory Services
In Regulation 19, it is given that IA shall maintain a copy of agreement with the client and other records as specified under the regulation. The need for a advisory agreement is not mandatory as per the IA Regulations because of which many of the clients are unaware about terms and conditions of the advisory services that is provided by IAs.
The SEBI has now mandated as per Regulation 19 (1) (d) of the IA Regulations an execution of agreement between IA and client which specifies the main terms and conditions, regarding stock market advisory services after SEBI received numerous investor complaints as a voice against IAs charging exorbitant advisory fees without disclosing any detailed fee structure and promising false returns, so now the clients or the advisory company can come up with claims with a legal backing of a written agreement between adviser and client thus, ensuring transparency.

Advisory Fees
Under third schedule of IA Regulations the Code of Conduct for IAs is given. According to it, IAs shall charge reasonable fees from the clients for the advisory services provided. As an action to restrain instances of unfair practices and levying of unregulated fees, SEBI in its recent amendment inserted Regulation 15A with regard to advisory fees that can be charged by IAs from its clients.
IAs can either charge fees by opting either Assets under Advice (AUA) as per Regulation 2(aa) of IA Regulations, 2013 mechanism or they can charge fixed fees in the manner that maximum fees shouldn’t exceed more than Rs 1,25,000 per year for per client across all the services offered by IA. As per Regulation 15 A of the amended IA Regulations it is at the discretion of the IA what mode for charging fees is to be chosen, however, any alteration in the mode can only be effected after 12 months of previous change of mode or on boarding.

Eligibility Criteria for IAs
The eligibility criteria for IA will include the qualification and net worth requirement as given in Regulation 7 and 8 of the IA regulations respectively. SEBI has introduced the definition of “persons linked with investment advice” which includes sale staff, service relationship managers, client relationship managers etc. and “principal officer” that shall mean managing director/managing partner, designated director etc. as per the recently amended Regulations of 2020. The qualifications of IAs is as mentioned in Regulation 7(1) but now after the amendment both an individual IA and principal officer in case of non-individual IA shall be required to meet the criteria of having professional qualification/post-graduation along with 5 years’ experience along with certification on financial planning (NISM).

Earlier, for corporate bodies SEBI had fixed a lower ceiling of 25 lakhs for net worth requirement in case of investment advisors and for partnership firms the net tangible assets should not be less than 1 lakh. However, SEBI has increased lower ceiling to Rs 50 lakhs and Rs 5 five lakhs for non-individual and individual IAs respectively. The existing IAs shall have to comply with latest eligibility norms within 3 years from the date of commencement of amended Regulations, 2020.

  1. Conversion of Individual IAs to Non-individual IAs
    Under Regulation 13(e) of the IA Regulations, SEBI has inserted additional proviso which directs individual IA to apply for registration as a non-individual IA, when the number of clients of such individual IA is more than 150 in toto.
  2. Maintenance of record
    As per Regulation 19 (1) of the IA Regulations, 2013 the IA shall maintain the records of the activities such as records of interactions, with all clients including prospective clients before on boarding as an investment adviser wherein, any conversation related to advice has taken place, in the form of written & signed record by client, telephonic recordings, an e-mail from registered email id, the record of text messages, or any other legally verifiable record. Such a service will commence with the first interaction between the client and adviser continuing till the advisory services to the client is finished. All such records are to be maintained for a period of five years by the IAs. In case of conflict, such records shall be kept till resolution of the dispute or if specific records are only to be preserved as directed by SEBI then such records will only be kept till further information.
  3. Audit
    IA shall make sure that annual audit in respect of compliance of IA Regulations, 2013 and circulars issued with respect to it is conducted and completed within 6 months from the conclusion of each financial year, according to Regulation 19 (3) of the amended IA Regulations. Any variations in the report if any, along with the action taken and approved by individual or group IA shall be reported to the respective SEBI office within one month from the date of publication of audit report but not later than October 31st of the particular financial year.
  4. Risk profiling and suitability for non-individual clients
    The Regulation 16 and 17 of IA Regulations denotes that IA shall use the investment policy as ratified by board of such non-individual clients for the purpose of improving risk profiling for non-individual clients.
    The discretion to share the investment policy shall be with the non-individual client while IA shall have the authority not to on board non-individual clients if they are unable to perform risk profiling of the non-individual client when investment policy is absent.
  5. Display of communication details on website and other channels
    In order to bring more transparency in the functioning of investment advisers, IAs shall display the certain information such as name of Investment Adviser as registered with SEBI, mode of registration-Individual or Non-Individual, Registration number, address with telephone numbers, validity of registration, Contact details of the Principal Officer be it phone number or email id and respective SEBI regional office address etc. mainly on its website, mobile applications, printed or other electronic materials, know your client forms, client agreements.
    For stock market advisory companies advisor derives income from a client, and his/her interest is aligned to the person they provide services to. It also aids in forming of a long-term connection where clients can measure the benefit derived from the advice given to them upon payment of the consideration for the same. Such a fiduciary relationship is the pillar stone of financial services and marks the distinction of true breed investment advisors from the others.
    If one entity of a financial service is an investment adviser to a client whereas, another entity is distributing products to the same client, there is a possibility that the advice could be fraught with inherent conflicts. Hence, SEBI after assessing the need for filling up the grey zones has come up with new norms to restrict such investment advisory entities from such practices and to affirm the fact that original advisors should work on a client-centric model where the fee strictly in parlance with the assets under their administration. The amended regulation is also designed to exercise greater control to the client by promoting transparency. The distinction between financial distribution services and advisory services has helped the clients to confidently choose an entity for long-term advice that is customised to one’s financial requirements. It also a means to elevate the quality of financial advice and allows the client to undoubtedly make a decision between a distributor or investment advisor.

Rights & Obligations of the Sock Market/Share Market Advisory Companies as per the SEBI (Investment Advisors) Regulation of 2013
Rights of Stock Market Advisory Company
• To have signature in proper member constituent agreement/ any other
• To possess a valid contract or purchase/ sale note
• To know true and fair information of the client
• To get payment for their services on time
Obligations of the Stock Market Advisory Company
• The investment adviser shall provide suitable counsel to the client after assessing risk profile of the client;
• To act in a fiduciary relation with the clients and to disclose all conflicts of interests as and when they arise.
• To act honestly, fairly and in the best interests of its clients and in the integrity of the market.
• To maintain an arms-length relationship between his activities as an investment adviser and other activities. {Regulation 15(3)}.
• To act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account the available options based on risk profiling and suitability of the client
• To disclose to the client the share position, if any, in the financial products which are subject matter of advice provided.
• To comply with general obligations & responsibilities such as general responsibility, disclosures to clients, maintenance of record
• The investment adviser shall clearly state the terms and conditions of investment advisory services being provided for easy understanding of the potential client.
• The investment adviser shall levy an agreed fee from the clients for availing investment advisory services without assuring, either directly or indirectly, anything return.
• The investment adviser shall obtain an acceptance from the client that he has read and understood the terms and conditions of the advisory services and fee structure.

Liabilities of the Stock Market/Share Market Advisory Companies
As the mandatory statutory warning says investment in equities is subject to market risks. Investors must ensure that they fully understand the risks involved while investing in equities. Hence notwithstanding all the honest effort the advisory company puts to ensure the protection of the client’s funds by way of best research using advanced research tools there always lays an uncertainty regarding the investment since the market is ever fluctuating. Capital market includes conversion of investment into risk bearing instruments. In such case the investor is bound to make self-assessment of the risk and reward.

The compensation cannot be determined as if one assigns the advisory company to give a list of the newly launched mutual funds and upon investing in one of those schemes the person loses money then the company cannot be held liable since he merely informed you about your choices. Also, no specified compensation could be visualised for such investors whose investments are lying in risk bearing instruments. Similarly, investment in a fixed return instrument necessitates a careful review of the capacity of the borrowing entity. The capital market provides an opportunity for an investor to exit at any time but in order to exercise the investors’ exit options a proper and healthy market operations in a reasonable and equitable environment is essential.

The liability of the Stock Market Advisory Companies will mainly be analysed in a two-fold manner. Firstly, the liability of the investment advisory company in the event where the client has taken the advice of the company to invest in particular share but results in incurring losses. Secondly, the assessment of liability in the event of non-adherence to the initial advice to invest in a particular share but later invests in that share and incurred losses.
The remedy to avoid liability to be borne by Stock advisory companies is to ensure that an agreement as per Regulation 19 (1) (d) of the IA Regulations should be executed mentioning all the key terms, conditions and the risk profiling of the investment especially with a clause stating that the advisers cannot be sued if the recommended investments fail. Secondly, the company must ensure proper and timely disclosures of material information on a continuous and equitable basis by the companies for safeguarding the interests of the investors as well the company since there is any dispute this statement of trade accounts can be used as an evidence to prove the innocence of the advisory company. The companies should particular in disclosing routine information on a periodic basis and price sensitive information on a continuous basis in order to keep the trust of its client intact. Thirdly, for this purpose lifting of corporate veil may be enabled by the law. Fourthly, using modern technology, internet, computers, should be encouraged to improve the efficiency of the disclosure process. Electronic means is a viable option to dispense financial and non-financial information to the potential users.

The Bombay High Court, in the case of Kotak Securities Limited v. Gaurav Goel & Another[Arbitration Petition No. 310 Of 2007] a held that the stock broker cannot be expected to act on vague and complex instructions of the client. As in this case written instructions were given to the petitioners by the respondents to carry out the transaction as the respondents was busy, but to give such instructions for one month by mentioning everything in writing, including the rate, date without assessment, and without verifying the position of the day and/or of the week, is quite impracticable and impossible. The court opined that this resulted in an unnecessary burden on the trader to keep check and exercise his discretion and commercial sense in case of change of circumstances. Hence the petitioner was not held liable.

In case of Pandey R.K. v. Arcadia Securities Pvt. Ltd. [2005(2) C.P.R. 15 (St.c) Karnataka] the complainant had purchased shares and according to the bye laws, the said share was to be transferred to the Demat account of the complainant in Canara Bank but rather the company those sold shares. The company appropriated the sale proceeds towards the loss that incurred at the time of purchase and sale of shares which was performed without the instructions of the complaint or the authority of law. The company was made liable for its actions by the state commission.
The stock market advisory company can be held liable if the client can prove there is professional negligence on the part of the investment advisory company. In order to establish negligence it is to prove that the adviser doesn’t possess the adequate skill or competency to give proper financial advise. Another case of professional negligence is claiming to be certified financial planner with fake credentials and providing investment plans thus resulting in incurring losses. At the time of deficiency in providing services for example the client gives instructions to the advisor to invest in a particular instrument but the advisor fails to do so which resulted in missing of the opportunity then also the financial adviser can be sued by the client. Apart from these civil issues if there is a case of proven cheating or criminal breach of trust as per sections 405-409 of the Indian Penal Code like swindling clients’ money or investing in bogus schemes then also the Stock market advisory company can be held liable.

Remedy for Breach of Liability
A new web based centralized grievance redress system called SEBI Complaint Redress System (SCORES) has been launched by SEBI. By clicking in the SCORES url link http://scores.gov.in. investors can lodge their complaints. Upon, receipt of complaints, the regulatory takes up the issue with the concerned investment adviser and follows up with them for redressal of the matter.
• The investment adviser company shall provide the client with the relevant contact details of the designated person especially the relationship manager allotted to each client and one who is responsible for dispute solving including the name, e-mail id and phone number.
• The investment adviser and the clients shall co-operate in redressing grievances of each-others issue in respect of advisory services.
• The client and the investment adviser shall refer any claims, to arbitration in accordance with the Arbitration and Conciliation Act, 1996.

Investments made through Portfolio Management Services (PMS)
Portfolio Management Service (PMS) is a customised solution provided by professional money managers called Portfolio Managers, to informed investors especially high net-worth individuals to meet their specific investment objectives. PMS providers invest directly in shares through focused portfolios offering greater flexibility with investor’s money and higher returns but greater returns are accompanied higher risk which can be mitigated by adopting long term investment horizon.
Portfolio Management Service uses a Demat account for each client and a separate bank account. The minimum investment amount needed for PMS is INR 50 lakh. Under this mechanism one can check the portfolio daily through ones’ individual Demat account. As compared to mutual funds this system allows the fund managers to take focused calls on their high-return stocks without indulging with too many regulatory and operational ties which is prevalent in a mutual fund portfolio.

In this PMS system the investor and portfolio manager enter into a contract detailing the goals, risk appetite, investment strategy in the investment policy statement. The investor has the freedom to offer either a sum of up to INR 50 lakhs or stocks worth that amount. The stock market is affected by economic slowdown and market fluctuations. Proactive decision making by the PMS secures the investor from such falls marginally.
Under the SEBI (Portfolio Managers) Regulations, 1993 the Portfolio Managers are registered and they can only provide advisory services to those clients which have entered into the terms of the portfolio management agreement. In addition to it a SEBI registered portfolio manager offering only investment advisory services as per the Portfolio Manager Registration can continue it until the expiry of such registration. For getting registration the portfolio manager is required to make an application as an investment adviser under IA Regulations prior to at least 3 months of the cessation of certificate of registration as a portfolio manager.

Pros of PMS:
• Higher consistent returns
• Higher transparency
• Tailor made investment plans
• Regular reporting
• Diversified portfolio
• Easy monitoring of investment activities in real time
• Hold direct interactions with fund managers,
• Strong risk management flexibility
• Ideal Investment path for high net worth investors

Cons of PMS:
• Greater responsibility of decision making
• Greater risk
• Higher cost
• Greater diligence required
• Higher capital investment
• No performance guarantee

Road Ahead for Investment Advisors (IAs)
Under IA Regulations, 2013 no express prohibition is provided for the use of automated advice tools by SEBI registered investment advisers. It is mandatory to check the risk profiling of the investor and all investment advice is provided shall be true to the risk profile of the client. Apart from the mundane regulations under the IA regulations of SEBI the investment advisers providing online investment advisory services by using automated tools which are also cost effective, shall also ensure the following compliance requirements:
• To make sure that the automated tools used for the purpose is ideal for it or not
• Active systems and checks to be put in place to make certain that any advice made using the tool is suitable for the clients and in the best interest of the client
• Only for the target clients these automated tools are to be used, especially for the ones it is designed
• The client must be made aware as to how the tool works and its limitations with respect to the outputs it generates
• A comprehensive audit system is to be used
• The investment adviser using the automated tool shall be held responsible for the advice given with it
• These automated tools that is used by advisers shall also be
Robots will be a normal scene in the near future hence blending robotic techniques into the stock market had paved the way for Robo advisors which are wealth management companies that give an automated support without any human intervention for all financial advisory services. Whether it is trading, portfolio rebalancing, investment, tax saving, etc. these robo advisors can come for rescue for the investors eliminating human interference but efficient stock trading tool. The working of these Robo advisors is with a pre-determined algorithm, analytics, along with the calculations for the best return plans for each individual according to ones’ choices. In the United States of America, these are regulated in parlance with the independent advisers who have physical offices and clients on a regular basis. They have to get registered with the U.S. Securities and Exchange Commission and are considered “fiduciaries” that put their clients’ interests above their own.

The responsibility shouldered by these Stock market advisory companies is not something to be seen low since their decisions have got the value of a lot of money which could soar up if the decision and the market is favouring. On the contrary, huge financial losses could be possible even if the advice is plausible but the market fails to support. Most investors steer away from stock market investment because of the thought that it is complicated and murky. The issue could be resolved by finding trusted stock market advisory services, which can help them to trade with confidence and peace of mind. Stock investment is a long-term investment channel to attain ones’ financial aspirations.
Authored By: Adv. Anant Sharma & Jyotsna Jose

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