A month after directing mutual funds to not assure returns to investors, the Securities and Exchange Board of India (Sebi) has come out with an advertisement code for investment advisers (IAs) and research analysts (RAs).
Under the new code of conduct, IAs and RAs have been barred from promising or guaranteeing assured or risk-free returns to investors or making a reference to their past performance in their communications.
These entities will not be able to use superlative terms such as best, No. 1, top adviser/research analyst, leading and one of the best among market leaders. However, factual details of awards received from independent organisations may be mentioned. The IAs will require prior nod for the advertisement material from a Sebi-recognised supervisory body before issue.
These compliances are part of the regulator’s new code to strengthen the conduct of IAs and RAs while issuing any advertisement.
“The advertisement shall not imply any assured return or minimum return or target return 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 or 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,” the regulator said on Wednesday.
The regulator has prohibited extensive use of technical or legal terminology or complex language and the inclusion of excessive details, which may distract the investors. It has also prohibited statements which are false, misleading, biased or deceptive, based on assumptions, projections and deceptive testimonials.
The IA/RA shall not engage in games, leagues, schemes, competitions, etc, which may involve distribution of prize monies, medals, gifts, etc.
In the event of suspension of any IA/RA, the entities so suspended shall not issue any advertisement either singly or jointly with any other IA/RA during the period of suspension.
The advertisement code will apply to communication in the form of pamphlets, circulars, brochures, notices, research reports or any other literature, document, information or material published, or designed for use in any publication or displays, in any electronic, wired or wireless communication such text messaging and social media platforms and audio-visual formats.
The provisions of this circular will be applicable with effect from May 1.
The regulations for IAs and RAs were introduced in 2013 and 2014, respectively.