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SEBI Takes Strong Action Against Investment Advisor for Violations

KYCSEBI Takes Strong Action Against Investment Advisor for Violations

The Securities and Exchange Board of India (SEBI) took action on September 15, 2023, against an investment advisor, Manu Chhabra, for two violations: overcharging clients and neglecting proper ‘know your customer’ (KYC) records. Chhabra was fined Rs 4 lakh for exceeding the allowed fee limit and failing to maintain Permanent Account Number (PAN) details for two-thirds of his clients.

SEBI’s actions emphasize the necessity of strict compliance with financial advisory regulations and the importance of investor due diligence when engaging with advisors.

Chhabra was found to have charged one client an excessive fee of Rs 5.16 lakh in January 2022, a clear violation of SEBI’s regulations. During that period, SEBI allowed a maximum fee of Rs 1.25 lakh for Registered Investment Advisors (RIAs), with two fee options: a flat fee capped at Rs. 1.25 lakh annually or a fee equivalent to 2.5% of assets under advice per year.

Additionally, Chhabra failed to maintain proper PAN details for 107 out of 157 clients, a breach of KYC norms. SEBI rejected Chhabra’s explanations, such as citing data corruption issues and client refusals to provide PAN details, and held him accountable.

SEBI also proposed a new fee collection mechanism for investment advisors and research analysts on August 25, 2023, aimed at preventing unregistered advisors from misleading investors. As a result, individuals seeking services from SEBI-registered investment advisors are advised to exercise caution, conduct background research, and thoroughly evaluate advisors’ credentials and fees.

It’s important to note that membership in a financial planning association does not guarantee fiduciary status. Clients should inquire about an advisor’s fiduciary status, revenue sources, financial planning approaches, offered services, and clientele during initial meetings.

By FCCT Editorial Team

Disclaimer: The views expressed in this article are independent views solely of the author(s) expressed in their private capacity.

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