Indore case exemplifies how RIA licence can be misused

Sebi has cancelled Money Market Manthan's licence for cheating investors, fined it ₹8 lakh

- Shreedhar Manek

Investors are a gullible lot. In their quest for bigger returns, they fall easy prey to a host of financial intermediaries such as mutual fund distributors. Many wary investors have instead opted to deal with investment advisers—the ones who have registered with the Securities and Exchange Board of India (Sebi) and have to comply with several guidelines before they can offer advice for a fee. Yet, what if such advisers themselves were to commit fraud. That is exactly what Indore-based investment advisory Money Market Manthan Financial Services did, as per an investigation by the market regulator.

There are 1,329 Sebi-registered investment advisers in the country. And, despite all the regulations put in place by the market regulator to ensure the protection of investor, Sebi discovers that some of them are, well, scamming their clients. Last month, Sebi released an order against Money Market Manthan Financial Services, once upon a time a registered investment adviser. Sebi had exactly 11 reasons to justify that the company was defrauding its clients.

Being deceptive

One way to make money in the stock market is to be really good at understanding financial statements, macroeconomic factors, making financial models. You take some risk and make some money if things work out. An arguably better way to make money is to not invest your own money in the market and instead advise someone else to invest theirs, and charge them for the advice. The only thing that matters here are good marketing skills. So, how exactly does an investment adviser be good at marketing?

Fund managers can point to their past fund performance and wink while they put out the disclaimer that past performance isn’t indicative of future returns. But investment advisers don’t manage money, they just give out advice!