Market tips from unqualified ‘advisors’

This can be a trap to rob you of your hard earned money
Market tips from unqualified ‘advisors’
"There is a chain of unregistered and unqualified market consultants in J&K who are making hay by pushing their market tips to the local investors through various social media platforms." Pxhere [Creative Commons]

Let me begin today’s Straight Talk about investment matters directly in the context of local (J&K) investors. Over a period of time, people in J&K have found the stock market as a new ‘lucrative’ investment avenue.

We have been witnessing the number of these local investors surging to new heights. Among these investors there is a huge number which is active in trading shares to make quick bucks.

During the course, most of them suffer trading-induced losses as they lack market knowledge and fall victim to stock market tips of self-styled share market advisors.

There is a chain of unregistered and unqualified market consultants in J&K who are making hay by pushing their market tips to the local investors through various social media platforms.

Precisely, the gullibility of these investors stands exploited by these fastest growing breed of pseudo market experts by wooing them to social media platforms like WhatsApp, Telegram etc. to sell their market tips to them against a fee.

It is worth mentioning that the bull-run in the share market has been a luring factor to see innumerable first-time retail investors making investments in shares of various companies.

Here a breed of unqualified and unregistered market counselors, including a good number of those locals who didn’t have an iota of technical knowledge about the share market, come into play and graze on the innocence of the gullible investors by selling them their market tips.

Today, we witness a huge rush of retail investors across social media, where dedicated groups have been created and people are sharing market information.

However, most of the time, everything being shared on these groups is not matching the actual market movement. Gullible investors, who are either less-informed or even have no basic knowledge of the market, are falling prey to the tips of the pseudo market advisors. These market tips are mostly unverified.

Meanwhile, we have seen that a single market tip received by an investor goes viral when he/she unmindfully forwards it to others on different social media platforms such as WhatsApp, Telegram etc.

But little they know that forwarding unverified tips from an unregistered/unqualified market advisor is illegal and could land them in trouble. The market regulator, Securities Exchange Board of India (SEBI), rules envisage that if one receives the tip from someone else and he/she just forwards, would be held for illegal market tip circulation.

It also won’t matter if one has not used the tip to make money, and in this case too much penalty is inescapable.

An acquaintance who is a lawyer by profession says it is illegal to share any market tips with others over social media even if the person doesn’t intend to make a profit out of such tips. Law states that handling such type of price-sensitive information is an offense.

Notably, SEBI has geared up its teams to monitor social media platforms like WhatsApp for tracking the circulation of illegal market tips. The regulator has already started crackdowns on the entities and individuals engaged in illegal market tip activity. Since digital evidence is key in this illegal activity, seizure of electronic devices like laptops and mobile phones cannot be ruled out in any such crackdown.

So, who can give share market tips on social or any other media?

Unless registered with Securities Exchange Board of India (SEBI), a person cannot represent himself/herself as an investment advisor. SEBI investment advisor rules state that those who are not registered with the regulator cannot give investment advice in ‘closed groups’ on social media platforms such as WhatsApp etc. For this they have to get themselves registered with SEBI.

Investment advisor rules also envisage that any investment advice given through television (TV) channels to the general public is not investment advice. However, such investment advice on social media platforms and other ‘closed groups’ is illegal and warrants penalty for those involved in the act.

Can a stock broker function as an investment advisor?

I have come across instances where I found an investor entirely banking upon a stock broker for building up his investment portfolio. So you may be thinking about stock brokers as an investment advisor. I suggest you stop thinking like this immediately. Stock broker is not at all an investment advisor, even though he may be sharing some useful investment tips with you. Stock brokers simply work for broker-dealers or brokerage houses having a traditional role to facilitate, or broker customer transactions in financial products such as stocks, bonds and mutual funds. They are compensated by charging a commission on products and services sold. Precisely, stock brokers are not investment advisors.

Why bank upon investment advisors?

Modern financial system is illuminated in such a way that even small investors get attracted to explore investment opportunities and expand their portfolio. The ‘hefty’ returns on investment are highlighted which lure a common man to take a dip in the market by hook or crook. The greed to make easy money has now become so intense that most of the time it overpowers their financial wisdom.

After the outbreak of coronavirus, millions of raw investors have boarded the capital market to reap the benefits of surging markets. These raw investors, which are mostly first-time investors lack proper knowledge of the market and entirely bank upon unverified market tips to make investments. Under these circumstances, the role of investment advisors is inevitable. They need to think about the importance of an investment advisor as they think about a doctor who prescribes medicines for treatment of their illness. To be precise, an investment advisor is like a medical doctor for an investor.

The general rule should be that investors should not go in the stock market without a professional financial consultant. One may think of himself as the knowledgeable investor for having access to financial information on the internet, but the fact is that advice from an investment advisor in the matters of the stock market definitely makes a difference.

Does that mean investment advisors’ tips are foolproof?

Since financial markets are unpredictable, we cannot say these advisors will give foolproof advice. However, his advice based on your particular situation and goals can help you to minimize the financial risks. To get maximum out of your investment advisor, you have to at least let him know about your level of conservativeness and your appetite for risk. Precisely, you have to make your advisor understand you better so that his financial plan for you includes a diversified portfolio of various instruments to meet your goals. It’s he who will help you to strike a balance by making you aware of various options.

However, engaging an investment advisor doesn’t exonerate you to remain aloof from your investment portfolio. Once you are on board with an advisor and your portfolio is put together, you need to monitor that portfolio. You should have a regular performance review of your investment portfolio with your investment advisor. Don’t forget to update him about any life situation change which you may undergo at any point of time.

How can investors go alone in the market without an advisor?

The basic aim of every investor is to see their investment multiples decently over time. An investor can certainly go for it all alone. Doing it yourself is, of course, a brilliant idea, but mastering money management skills especially vis-à-vis stock market requires intensive research and learning. Day by day as you get busier, your financial goals get more complicated. It’s here a financial consultant’s role emerges and he can help you to remain disciplined about your financial strategies.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK

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