The Hindu Business Line : Regulating advisors

A careful perusal of the Draft SEBI (Investment Advisers) Regulations 2007 shows that if it goes through as it is, it may after all not rein in the vast burgeoning tribe of investment advisers strutting across the media.

Meaning of advice

‘Investment advice’ means advice as to value of securities, or as to the advisability of investing in, purchasing, selling or otherwise dealing in securities. And an ‘investment adviser’ means any person who for consideration is engaged in the business of providing investment advice to others, either directly or through publications or writings or electronic mails, or who, for consideration and as part of regular business, issues or publishes reports or analyses containing investment advice and includes any person who holds himself out as an investment adviser (by whatever name called) to others.

Having begun on the right note by carefully and accurately defining the two crucial terms, the draft should have gone on to rein in the tendency to make self-fulfilling prophecies on the part of investment advisers. The draft requires a wannabe investment adviser to get himself registered with SEBI through a self-regulatory organisation of which he must be a member. And once so registered, he must make a clean breast of his interest, especially the conflict of interest, if any, along with his advice.

Less rigour

But even before adumbrating on the nitty-gritty, the draft dilutes the rigour of the regulations by showing the escape routes. The print and electronic media would be outside the pale of the regulations only if they can prove that there main business is not to proffer investment advice or solicit investors.

All investment advisers would now start operating under the cover of a print or electronic medium so that they are not hauled over coals. The immunity granted to the print and electronic media would naturally wean the wannabe investment advisers from sticking their necks out by having a direct interface with their clients through newsletters, emails, etc.

Instead, they would seek the safe sanctuary of the media almost each one of which can easily make the grade for being exempted from the scope of the proposed regulations given the fact that indeed their main business is not investment advice but dissemination of wide-ranging information impacting on the world of commerce.

Misplaced belief

The draft would have one believe that direct interface is more damaging than an interface buried inside a mass of news and other items. Experience shows that this is not the case. Readers and listeners read, or listen to, what they want. In the case of print media this is easy by simply flipping through the pages and focusing on the relevant material. And in the case of the electronic media, one has to bide his time till the desired information filters in. The point is, it is fallacious to believe that wannabe investors/disinvestors are swayed more by direct interface with the investment adviser than by an indirect interface through the conduit of a print or electronic medium.

These regulations would be a non-starter if investment advisers are allowed to fire from the shoulders of the media whose principal business is not investment advice. What SEBI must do is to make it mandatory for the media to present alternative viewpoints alongside so that the danger of one-sidedness is avoided. In fact this single requirement would rein in motivated extravagant claims.

(The author is a Delhi-based chartered accountant.)

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