Taking a serious action against errant RIAs, SEBI has barred Indore based RIA firm CapitalVia from undertaking advisory business with immediate effect.
In its explanation to SEBI, CapitalVia has said that they provide investment advisory in intra-day trading and offer tailor made advisory services to HNI clients.
An on-ground inspection by SEBI found that the company was charging an annual advisory fee of Rs.25 lakh from clients by promising an assured return of 10%.
Further, the market regulator found that the company has charged exorbitant fees from clients. While the minimum annual advisory fee for retail investors was Rs.1 lakh, the minimum fees for HNIs started from Rs.3.20 lakh onwards. The highest fee charged by the company was Rs. 34.55 lakh from one of its clients without giving the rationale behind this fee.
In fact, CapitalVia had collected an annual fee of Rs.3.40 crore from just 43 clients.
In one such instance of collecting exorbitant fees, the company had collected an advisory fee of Rs.24.59 lakh from a client who had invested Rs.6-10 lakh with the company. This client had lodged complaint with SEBI. SEBI said, “It appears that the advisory fee charged from the complainant is exorbitant and without any rationale vis-a-vis his total intended amount of investment.”
According to SEBI norms, an investment adviser may charge fees from the clients but it has to fair and reasonable.
CapitalVia had violated numerous norms under RIA regulation. Here are some key violations:
- Not following KYC procedures
- Not conducting assessment of the risk profiling of clients
- Not ensuring suitably of the advice provided. The company didn’t have a documented process for recommending investment instruments based on client investment objective and financial situation.
- Carrying out advisory and distribution under one roof. Not maintaining arms-length distance between both these activities.
- Non-compliance with fiduciary obligations
- Not keeping records
- Soliciting business through many bogus websites without disclosing identity, registration number and contact details.
- Not disclosing correct information on website. The company had disclosed that it has a team size of over 750 advisers and offices in Singapore and USA. However, SEBI found that the information provided on website was factually incorrect.
SEBI has directed CapitalVia to submit compliance report within three months i.e. by 11 February 2017. An employee of this company told Cafemutual that his company is not allowed to take new business during this period but can continue to service the existing clients.
