Sebi warns unregistered investment adviser; here’s why investors should seek advice only from RIAs – an explainer

Capital markets regulator, the Securities and Exchange Board of India (Sebi), often issues warnings to unregistered investment advisers to prevent them from offering advisory services to investors. On May 8, Sebi issued a warning to Rajni Kumari (name changed), a resident of Muzaffarpur in Bihar, for providing unregistered investment advisory services without obtaining registration as an Investment Adviser under Sebi regulations.

The warning letter states that such unregistered activity is a violation of various provisions of the Sebi Act, 1992, as well as related regulations, rules, and circulars.

“This has been viewed very seriously and you are therefore warned to be careful in future and not to indulge in any kind of unregistered securities market-related activity, failing which action may be initiated in accordance with provisions of SEBI Act, 1992,” reads the letter.

Notably, this is not the first time that Sebi has issued a warning of this kind. The market regulator keeps issuing such warnings to unregistered investment advisors from time to time. A new report by the CFA Institute states that only 2 per cent of influencers are registered by the SEC.

If we recall, Sebi in January this year issued fresh directions for finfluencers who provide stock tips on social media platforms camouflaged as ‘investor education’.

The Sebi directive in January stated that the stock prices used in investor education must be three months old, and live prices cannot be used. Additionally, registered entities are not allowed to pay influencers for direct or indirect ‘association’. These regulations have been in force since August 29, 2024. Read this Livemint article for further details.

This raises the question of why investors should seek advice from registered investment advisors (RIAs) only.

Who are RIAs?

These are investment advisors registered by the Securities Exchange Board of India (Sebi) to give their advice to investors for a fee with regard to making investments in securities markets. The rules relating to investment advisors are given in the SEBI Regulations, 2013.

Under IA regulations, anyone who is engaged in or willing to engage in the business of providing investment advice to clients or other persons or groups of persons is required to make an application.

“Following advice from an unregistered – instead of a registered investment advisor – is similar to taking medication based on Google’s recommendation. If you are not well, you are recommended to see a doctor instead of asking Google. Likewise, for wealth generation, investors must understand different products that are suitable and, based on a fair analysis, personal advice is given by a registered investment adviser. No wonder then it is referred to as ‘personal finance’,” explains Sridharan S., a Sebi-registered investment advisor and Founder of Wealth Ladder Direct.

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