The SEBI was surely set up with the main purpose of keeping a check on malpractices and protect the interest of investors.
SEBI is an autonomous body, but it certainly has a preamble which describes in detail the functions and powers of the Board. Most of us as investors know that the preamble very clearly states that it must protect the interests of the investors. In other words, it needs to be a watchdog ensuring that there are no malpractices which would adversely affect the interests of the investors.
But the reality is that apart from protecting the interests of the investors, the SEBI is also duty bound by its preamble to promote the development of, and to regulate the securities market.
Every Individual investor does not have the expertise and the knowledge to understand the vagaries of the securities market and that is where the investment advisers come into play. However, with so many players in the market, it becomes extremely difficult for a lay investor to understand whether the promises made shall be fulfilled.
The testimonials provided by the investment advisers and broking firms based on their actual past performance and the review of their past performance is the only way to judge the capability of these investment advisers in effectively handling the money of the individual investors.
The recent consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations, 2013 has prescribed an advertisement code which clearly prohibits the investment advisers to provide any testimonial about their services.
Such a blanket restriction surely sounds quite illogical since testimonials are the basis on which the investors decide whether to trust these investments advisers to whom they hand over their money to be managed in the securities market.
Testimonials should certainly not contain any untrue or false statement or forecast which can be misleading, but if these are based on factual past data of their services, nothing can be more reliable than these documents to enable an individual investor to take wise decisions on investing his money in the securities market.
It seems that in its zest of protecting the interests of the investors, SEBI seems to have conveniently forgotten its responsibility of promoting the development of the securities market.
In today’s growing scenario, advertising it’s past performance based on factual data is the only way the investment advisers can earn the trust of the investors and lure them to invest in the securities market.
Growing confidence of the investors in the securities market is perhaps the only way to promote its development, it’s imperative that SEBI realises that.
In its enthusiasm of being a watchdog, I hope SEBI should not be turning into a bloodhound.