The growing number of unregistered investment advisors in Indore are being attributed to the city becoming an education hub and the relatively affordable infra
Indore may well be the city that has bagged the title of the cleanest city in the country for a record six times but that is not the reason why it has come under the scanner of the capital markets regulator Securities and Exchange Board of India (Sebi).
Indore, which is famous for its street food culture, has also become infamous for the number of unregistered investment advisors that have mushroomed all over the city in Madhya Pradesh and are reaching out to potential investors across the country, offering schemes with claims of assured returns and profits.
In the last six months starting February, the capital market watchdog has issued nearly 40 warning letters to unregistered investment advisors. The number of unregistered investment advisors being warned, however, is higher as at times the regulator warns 3-4 such entities by way of a single communication.
More importantly, around 35 of the entities that have already received Sebi warning letters have their base in Indore.
Indore-based unregistered investment advisors that have already been issued a regulatory warning include names like Learnovate, BN Factor Enterprises, Moneybull Global Research, Global Wealth Financial Services, Investing India Info, Wealth India Research and Dream Research Services among others.
Apart from these, many individuals have also been issued a stern warning that clearly states that if they do not desist from the unregistered advisory business, then further action would be initiated against them.
“The aforesaid unregistered investment advisory carried out by… have been viewed very seriously and you are therefore warned to be careful in future and not to indulge in any kind of unregistered securities market related activity, failing which action may be initiated in accordance with provisions of Sebi Act 1992 and Regulations, Rules and Circulars made thereunder,” state the Sebi warning letters.
Interestingly, people familiar with the development say that while Indore has been the hub of spam or junk calls for long, the last couple of years have seen the emergence of such investment advisors who are trying to profit from the influx of first-time investors coming to the stock markets.
Indeed, as junk or spam calls are a common occurrence nowadays and, more often than not, the number flashing on the phone screen starts with +91-731, which is the STD code of Indore.
Incidentally, the growing number of unregistered investment advisors in Indore is being primarily attributed to two key factors – the city becoming an education hub with the presence of many B-schools and the relatively affordable infrastructure in terms of real estate and manpower.
Kapil Jain, who is a chartered accountant practising in Indore for more than 15 years, says that the so-called advisors are able to get cheap yet well-educated staff in Indore as B-school pass-outs are always looking for local opportunities to make some money.
“The pool of freshers with an MBA degree is huge in Indore and they are ready to work for such firms that are trying to capitalise on the huge number of new investors coming to the markets. But to be fair, many a times, these youngsters may not even be aware that they are working for an unregistered entity or are abetting in an illegal activity. For them, it is just another tele-marketing scheme of sorts,” explains Jain.
“Also, the fact that real estate is still affordable in Indore and commuting within the city is still not too cumbersome as is the case in most cities across the country is a huge catalyst for the growing number of such unregistered advisors here,” adds Jain.
Sources also say that many such advisors initially contact people with courses or modules to teach them about stock market investing and once they agree to it or are half-way through it, they try to lure them into higher priced schemes with guaranteed profits.
“The recent past has seen Sebi taking a very strict stance when it comes to unregistered advisors or the ‘finfluencers’ community. Hence, many claim to offer only educational content as Sebi is fine as long as there is no stock recommendation or trading aspect being bundled. But that is only a front as many try to trap their existing clientele with packages offering sure shot returns within a fixed time frame,” said a person familiar with the development.
Indeed, as the period around 2020-2022 saw the emergence of various such entities that tried to trap gullible first-time investors with schemes offering assured returns from the stock market.
Experts, meanwhile, also believe that the regulator should do a deep-dive into the data and check if the trend is limited to certain cities or has become a nationwide problem.
“Sebi must determine whether this trend is concentrated in specific local offices or if data from all Sebi Regional/Local offices reflects a similar pattern. Such insights and data analysis are crucial for informed policy-making and effective regulatory oversight,” says Sumit Agrawal, Founder, Regstreet Law Advisors while adding that the trend also highlights the growing need for advisory and financial guidance.
“The mushrooming of investment advisors in Indore and Bhopal, despite numerous advisories and enforcement actions by Sebi against unregistered advisors, is a testament to the state’s growing financial literacy and the increasing demand for personalised financial guidance,” says Agrawal, who is also a former legal officer of Sebi.
While some of the Sebi warning letters have gone to other cities as well, the concentration of such unregistered investment advisors seems to be in states like Madhya Pradesh, Rajasthan and Gujarat.