Sebi has done its bit to make these specific; you need to do the rest to check potential misuse.
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 client's approval. At times, brokers who paid the exchange on behalf of the client but didn't 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.
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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 Rs 400 crore-fraud by Citibank's employee should come as a wake-up call.
With more than Rs 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.
