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Beware of Impostors!

When it comes to money decisions, a bit of paranoia does not harm.

There have been instances in the recent past where impostors have reached out to investors claiming to be a Registered Investment Advisor (RIA) and solicited money for investments on their behalf. And ran away with investor money causing distress to the victims and adverse ramifications for the RIA (whose details were faked to solicit funds from the victims).

Therefore, it is extremely important to take precautions and ensure that you are dealing with a genuine SEBI Registered Investment Adviser (and not a fraudster or an unregistered person).

How do Fraudsters trick people?

Imposters/fraudsters/impersonators/scamsters/unregistered persons keep finding new ways to trick people. But the modus operandi will be one of the following.

  1. These imposters/fraudsters/unregistered persons create profiles on social media platforms such as Twitter, Telegram, Instagram and Facebook. Post snapshots of good performance on these platforms and lure investors with unrealistic return claims. OR
  2. Reach out to investors over phone, email, or any other mode claiming to be Registered Investment Advisors (RIA). Lure investors with promise of high returns and solicit money for investments on their behalf (and/or as fee). OR
  3. Create fake profiles of popular SEBI registered Analysts/Advisers on social media platforms. Post fake snapshots of performance or reach out to you and give the impression that you are dealing with a genuine adviser.  Thus, the fraudsters misuse the goodwill, visibility, and trust of the genuine SEBI Registered Investment Advisers (RIA) and fleece unsuspecting investors.

It is advised NOT to act on any tips/investment advice offered by such people. You can lose your hard-earned money. Additionally, you must not transfer any money (for investment or as fee) to such people. You WILL lose all such money transferred.

Impersonation/financial fraud is a big problem and is not just limited to Registered Investment Advisers (RIAs). These fraudsters have even posed as SEBI officials and taken money from investors. SEBI, the market regulator, took note of this issue and has cautioned investors via a Press Release (PR No. 16/2021).  The Reserve Bank of India (RBI) has also published a booklet on Modus Operandi of Financial Fraudsters.

What do SEBI Regulations say? 

  1. Any person who wishes to offer investment advice to investors must be registered with SEBI as an Investment Adviser. You can check registration details of all Investment Advisers on SEBI website.
  2. Investment Advisory Agreement between the RIA and the investor (client) is mandatory and must be executed before you transfer any fee to the Registered Investment Adviser (RIA) or the RIA offers you any investment advice.
  3. Before offering any advice, the Registered Investment Adviser (RIA) must conduct a risk-profiling exercise with the investor.
  4. Registered Investment Advisors (RIA) are not permitted to take custody of investor money.
  5. RIAs can only provide Investment Advice.
  6. RIAs cannot transact on your behalf. RIAs are not permitted to accept Power of Attorney from investors.
  7. SEBI regulations permit only two types of fees.
    1. Fixed fee capped at Rs 1.25 lacs per annum. This is a cumulative cap across all products offered by the RIA.
    2. Asset Based Fee: Capped at 2.5% per annum. This is a cumulative cap across all products offered by the RIA
  8. SEBI regulations do not permit any kind of profit-sharing arrangement between the Investor and the RIA.

SEBI has also advised public to deal with only SEBI Registered Investment Advisors and Research Analysts via a Press Release (PR No. 112/2016).

You are dealing with a fraudster if

  1. He/she is not registered with SEBI as an Investment Adviser.
  2. He/she offers advice without signing an agreement with you.
  3. He/she asks you to transfer investment amount to his/her bank account. Please do not transfer funds. RIA regulations only permit transfer of fee (and not the investment amount).
  4. He/she promises guaranteed high returns.
  5. He/she offers a profit-sharing based model. Profit-sharing model is not permitted by SEBI.
  6. He/she charges an exorbitant fee. For instance, an RIA cannot charge Rs 2 lacs for Rs 10 lac portfolio. Fixed fee is capped at Rs 1.25 lacs per annum. Asset based fee is capped at 2.5% of the assets under advice (AUA or portfolio).

Here is what you must do

  1. Ensure you are dealing with a genuine RIA before transferring any funds or acting on his/her advice.
  2. Do not deal/engage with unregistered persons.
  3. Ask the person to share the SEBI registration number.
  4. SEBI website lists down details of all the Investment Advisers. Ask the adviser to send an email or call you from the email or number listed on SEBI website.
  5. Arrange a physical meeting or schedule a voice call (video call preferable) before signing up or transferring any money to the adviser. For instance, you can find my voice sample on this link (or on various video/audio clips posted on this website). You can find my photograph on About us page.

If you are my client or looking to consult an Investment Advisor

  1. I will sign (or have already signed) an Investment Advisory Agreement with you before asking for any fee payment.
  2. I will conduct a risk-profiling exercise before offering any investment advice.
  3. I provide only financial planning and investment advisory services. I do not provide stock advisory services. I do not offer paid stock tips/recommendations.
  4. I will never ask you to transfer money to my account to invest on your behalf.
  5. SEBI regulations explicitly prohibit any monetary transactions between the investor and RIA except for the advisory fee. The only monetary transaction between you and me will be my fee payment. Nothing else.
  6. I send fee payment request only through an email. Such email ids will be mentioned in our agreement. Will not send fee payment request through social media channels such as Twitter, Facebook, Instagram, Telegram etc.

If you are a client, be suspicious if you receive

  1. A payment request from me citing distress on social media platforms such as Twitter, Facebook, Instagram, Telegram etc. It is easy to create fake profiles on such platforms. OR
  2. A fee payment request from me on social media platforms such as Twitter, Facebook, Instagram, Telegram etc. I request fee payment only from official email id (listed in the Investment Advisory Agreement). I may sometimes send a reminder on Whatsapp but will cite my email in the message OR
  3. A payment request from me that seems unreasonable. OR
  4. A message/email from me requesting payment where the language and tone of the message seems different from how I usually write. As I understand, these days, it is not very difficult to spoof email addresses too.
  5. Note (If you use UPI apps for fee transfer): An impersonator can easily copy my name and photo from the public domain. It is also easy to choose a UPI address that reads and sounds similar. Hence, you can be misled if you just focus on the photograph and UPI link.
  6. Note: It is not possible to cover all possible grounds of suspicion. Be careful and when in doubt about veracity of the sender, please call me.

I am not a technology or a security expert. Additionally, the fraudsters keep figuring out new ways of tricking people. Thus, I can’t cover all possible tricks fraudsters use. You need to be careful. Do not take Cybersecurity lightly.

Be alert. Be vigilant. A bit of paranoia won’t harm you.

I hope you have never been a victim and will never be a victim of a financial fraud.