‘Regulate financial advisers and wealth managers’ | india | Hindustan Times
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‘Regulate financial advisers and wealth managers’

india Updated: Jan 16, 2011 21:17 IST

Mint, Hindustan Times and NDTV, bring you a personal finance show, “Let’s Talk Money”. The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, editor and senior anchor, special programmes, NDTV, aims to answer viewers’ questions about money-related issues. Here are edited excerpts from the show that aired over the weekend on NDTV Profit and NDTV 24x7.

Natarajan: ...We’re all surrounded by news of several investors getting duped...be it Citibank or EndMark Forex. Our agenda is to enable you to figure out what are the points at which your money is vulnerable, when should your red alerts go up and scream there’s something fishy and how to keep a tab on your investments... My panel has Ambareesh Baliga, vice-president, Karvy Stock Broking and Rohit Mahajan from forensic services, KPMG. Let’s get to the Citi fraud first, but to sum it, (Shivraj) Puri took about R300 crore, leveraged it to R1,200 crore and brought it down to R375 crore, simply put, isn’t it?

Halan: This has been happening at a smaller level across thousands of accounts, but this just hit the headlines now. You have a situation where there is a regulatory crack, where wealth managers and advisers are unregulated entities and you have banking staff selling insurance products and mutual funds, but there is no umbrella regulation. So there is a regulation crack mix with that a product which allows the bank to operate a product which works on general power of attorney, so you are taking money in the name of somebody else and not the financial product and pulling it in and acting on behalf of the customer...

You have customers who are happy to hand over the keys of their locker to a person representing a bank. Then into this mess there is a person with intention to defraud, this is what happened with Citi. Unless we have regulation of financial advisers, wealth managers in India, this will continue to happen.

Natarajan: So regulation is needed. Let me get Rohit Mahajan. Rohit, I like the point which Monika mentioned that the locker keys were handed over to Puri. The fraud happened because you trusted someone so much and you need regulation to control frauds like that. Is that something that is possible? Do you think there should have been red alerts within the Citibank system which could have prevented that level of fraud?

Mahajan: Yes, I think in terms of Citibank having processes in place to minimise the risk of this kind of a fraud, I am sure they are there. There should be a back-end which actually follows up or calls to a customer to get a confirmation whether the customer has given approval to those kind of transactions. So these kinds of checks and balances from an organisation stand point in the back-end would be necessary in a situation wherein there is a relationship manager and the client.

Baliga: Basically you should not give general power of attorney to your broker. It has to be (a) very specific power of attorney, he can only execute that deal or transfer from your account to the broker account... and I mean even the client should not sign anything blank, he should see...what he is signing.