The Truth Behind Investment Ads: What They Won’t Tell You

SEBI’s Advertisement Code for Investment Advisers and Research Analysts: 

The Securities and Exchange Board of India (SEBI) issued a circular on April 5, 2023, introducing an Advertisement Code for Investment Advisers (IAs) and Research Analysts (RAs). This initiative aims to enhance transparency, ensure compliance, and protect investor interests.

Scope and Forms of Communication

SEBI’s Advertisement Code applies to all forms of communication that may influence investment decisions, including:

• Printed Materials: Pamphlets, brochures, notices, research reports.
• Digital and Online Platforms: Websites, social media, messaging platforms, emails, and text messages.
• Audio-Visual Media: TV commercials, videos, motion pictures, and audio recordings.
• Physical Displays: Hoardings, signboards, and advertisements in newspapers and magazines.

Key Information and Disclosures

To maintain transparency and accuracy, advertisements must include the following:

1. Essential Details: Name of the IA/RA as registered with SEBI, registered office address, SEBI Registration Number, logo/brand name, and CIN (if applicable).
2. Accurate Information: Content must be true, complete, and unambiguous.
3. Standard Risk Warning:
   • Must state: “Investment in securities markets are subject to market risks. Read all the related documents carefully before investing.”
   • Font size must be at least 10 in written communications and clearly audible in audio-visual formats.
   • Must be accurately translated if issued in regional languages.
4. Disclosure for Specific Securities: Advertisements showing examples of specific securities must include the disclaimer: “The securities quoted are for illustration only and are not recommendatory.”
5. Hyperlink in Digital Media: If full details cannot be included in SMS or social media posts, a hyperlink to the official website containing all required information must be provided.
6. Performance Disclaimer: Ads must state: “Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee performance or provide assurance of returns.”

Prohibited Content in Advertisements

SEBI’s guidelines prohibit certain content to safeguard investors:

1. False or Misleading Claims:
   • No false, biased, or deceptive statements.
   • Avoid testimonials designed to mislead.
2. Exploitation of Investor Inexperience:
   • Ads must not exploit lack of knowledge or guarantee risk-free returns.
3. Unfair Comparisons:
   • Discrediting competitors or making unfair comparisons is prohibited.
4. Complexity and Distraction:
   • Avoid excessive jargon, legal terms, or complex details that confuse investors.
5. Misrepresentation of Free Services:
   • Services labeled as “free” must have no hidden obligations.
6. Use of SEBI Logo:
• Ads must not include SEBI’s logo to prevent misleading associations.

The following are not allowed under the advertisement code:

• References to past performance.
• Assured or guaranteed returns.
• Superlative terms like “Best” or “No. 1,” unless supported by independently verified awards.

Implications of SEBI’s Advertisement Code

1. Enhanced Transparency and Trust

The mandatory disclosures and risk warnings provide investors with accurate, essential information to make informed decisions. This reduces the chances of misrepresentation and builds investor confidence.

2. Protection Against Misleading Practices

By prohibiting false claims, deceptive testimonials, and exaggerated language, the code ensures that investors are not misled. This promotes fair practices among investment advisers.

3. Encouraging Ethical Conduct

The guidelines discourage unfair comparisons and the exploitation of investor inexperience, fostering a competitive but ethical marketplace.

4. Uniformity in Communication

Standardized risk disclaimers and information disclosures across all platforms ensure consistency, making it easier for investors to understand the terms and risks involved.

5. Strengthening Regulatory Oversight

Requiring approval from BASL before issuing advertisements adds an additional layer of regulatory oversight, further reducing the chances of malpractice.

Overall Impact and Improvement

The introduction of SEBI’s Advertisement Code marks a significant step toward protecting retail investors and enhancing the credibility of investment advisers and research analysts. By mandating accurate information and eliminating misleading content, the code creates a level playing field and promotes ethical business practices.