BEFORE YOU HAND OVER A POWER OF ATTORNEY
Thanks to the Securities and Exchange Board of India (Sebi) guidelines that
came into effect from September 1, the Power of Attorney (PoA) you give to
your broker has been restricted. While this would reduce the scope for
misuse, unscrupulous traders could still shortchange investors.
Sebi says PoAs must be more specific, being only used to buy and sell
shares, mutual funds and subscribe to Initial Public offers (IPOs) on behalf
of their clients.
Earlier, brokers who followed a generic PoA format, could not be hauled up,
when authorised sub-brokers carried out trades without the clients approval.
At times, brokers who paid the exchange on behalf of the client but didnt
receive payments from the clients on time indulged in selling shares to
recover their receivables, without informing . The more the churning, the
higher the commissions earned by the broker.
Brokers are now mandated to make confirmation calls for all trades at the
end of each day. They are supposed to send physical or online copies of the
contract notes within 24 hours, besides maintaining proof of dispatch. The
big brokers also send SMS alerts at the end of the day.
Yet, the scope for discretionary trades is still possible, says Santanu
Syam, executive director-operations, Angel Broking. "There is no way, the
central office would know if the trade was initiated by the client, until
there is an audit or complaint by the customer," he said.
Soon, investors will also get SMS alerts from stock exchanges on which their
trades are carried out. But, Syam fears, those intending to cheat may
intentionally register a wrong mobile number on the client database, so that
the client misses out on the SMS alerts.
"Investors, especially high net worth individuals (HNIs), have paid a big
price for trusting brokers blindly without reading the details of the PoA,"
says advocate Ashwin Ankhad of Ashwin Ankhad & Associates. The `400
crore-fraud by Citibanks employee should come as a wake-up call.
With more than `4.5 crore of average investible assets each, HNIs are sought
after by private bankers and stock brokers. Portfolio management services
offered by brokers invest in equities, and aim to give returns four-five per
cent ahead of their benchmark. Wealth managers or private bankers invest
across asset classes and even specially designed structured products.
Ideally, the financial advisor is supposed to get an approval for any
redemption or purchase he makes, but most get these forms signed in advance.
Without specific permission, the investor loses control over where he
intends to invest his funds.
According to Ankhad, clients need to take the necessary precautions and run
an identity check on the relationship manager when they sign up. Investors
could schedule meetings with department heads to keep a tab on the
investments being made on their behalf. Finally, clients need to ask for the
requisite account statements from wealth managers.
Sebi has done its bit to make these specific; you need to do the rest to
check potential misuse
SEBI SAYS PoAsMUST BE MORE SPECIFIC,
being only used to buy and sell shares, mutual funds and subscribe to IPOs
on behalf of their clients
*ALL COMPANY SECRETARIES - PROUD TO BE A MEMBER OF 10000 MEMBERS OF CS
BENEVOLENT FUND FOR NOBLE CAUSE*