SEBI puts out strict norms for investment advisors, research analysts amid rising complaints

The Securities and Exchange Board of India (SEBI) has listed dos and don’ts for advertising by investment advisors and research analysts in its recent circular. Prominent among the list is restricting the usage of - Best, Number 1 etc. in advertisements by IAs and RAs. This comes after many investors took to social media complaining about misleading return expectation and projections by various IAs. SEBI has put out an exhaustive list of compliances and prohibitions for both IAs and RAs.

Among other prohibitions, SEBI has asked IAs and RAs to not make any promise or guarantee of assured or risk free return to the investors.

"The advertisement shall not imply any assured returns or minimum returns or target returns or percentage accuracy or service provision till achievement of target returns or any other nomenclature that gives the impression to the client that the investment advice/recommendation of research report is risk-free and/or not susceptible to market risks and/or that it can generate returns with any level of assurance," SEBI said in the circular.

Sebi has also prohibited the usage of superlative terms such as "Best", "No. 1", Top Adviser/Research Analyst, "Leading", "One of the best amongst market leaders", etc. so as to provide any endorsement of quality or standing of the IA/RA. However, factual details of awards received by the IA/RA from independent organisations may be included.

The market regulator has also asked IAs and RAs to seek prior approval for the advertisement from SEBI recognised supervisory body like the BSE Administration & Supervision Ltd. (BASL) in case of IAs before issue.

In the past, investors have been misled due to lack of knowledge of investment products. The circular also crackdown on the usage if statements designed to exploit the lack of experience or knowledge of the investors. SEBI has also asked IAs and RAs to refrain from extensive use of technical or legal terminology or complex language and the inclusion of excessive details which may distract the investors.