The Securities and Exchange Board of India (SEBI) has taken disciplinary action against Wealth Factor, a registered investment advisor (IA), for serious regulatory violations including the promise of guaranteed profits, providing misleading investment advice, and non-compliance with core compliance mandates like risk profiling and anti-money laundering procedures.

Background of the Case

Wealth Factor is a sole proprietorship firm run by Snehil Sharma and is registered as an Investment Advisor (IA) under SEBI. The market regulator conducted an inspection of its operations for the period between April 1, 2020, and July 18, 2022. The inspection was part of SEBI’s broader effort to crack down on unethical practices among investment advisors and ensure that investor interests are protected.

SEBI’s Findings: Misleading Investment Promises

One of the most glaring violations highlighted in the order was that Wealth Factor had been assuring clients of guaranteed or unrealistic returns, thereby creating a false sense of security and luring clients under misleading pretenses.

Despite the firm stating in its welcome email and website that no profits were guaranteed and that investments are subject to market risk, employees of the firm were caught assuring clients of guaranteed profits.

In fact, what made this case particularly notable was that the firm submitted an email to SEBI on July 25, 2022, which included recordings where their staff explicitly promised profits to clients. This effectively became self-incriminating evidence, which was highlighted in SEBI’s final order.

“It is clear that he accepted that his employees guaranteed profits to clients and cannot question the authenticity of the call recordings at this stage,” SEBI Adjudicating Officer Amit Kapoor wrote in the April 8 order.

How the Violations Were Committed

The inspection revealed several unfair trade practices:

• Promising guaranteed/unrealistic returns to clients.

• Creating an impression that investment advice was risk-free.

• Selling the same advisory service repeatedly to clients for the same service period, thereby overcharging them.

• Offering the same service to multiple clients regardless of their risk profile, in violation of the suitability norms.

• Luring clients by falsely claiming connections to Nifty/Bank Nifty, and implying they received exclusive tips or calls.

• Failure to maintain an anti-money laundering policy.

• Lack of employee training on the Prevention of Money Laundering Act (PMLA).

These violations clearly breached the provisions of SEBI (Investment Advisers) Regulations, 2013, and the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003.

Defence and Contradiction by Wealth Factor

Initially, Wealth Factor denied the allegations, stating they included appropriate disclaimers and that no profit guarantees were given. They also contested the evidence by questioning the authenticity of the call recordings, saying they were not forensically verified and only selected parts of conversations were used without context.

However, the situation dramatically shifted when the IA itself submitted an email to SEBI, stating:

“Sample call recordings in which profit is committed/guaranteed attached with respect to ongoing inspection…”

This contradicted their earlier defence and essentially confirmed that unfair and misleading practices were being conducted by its employees.

Final Verdict and Penalty

Based on the evidence and the IA’s own admission, SEBI concluded that Wealth Factor was in clear violation of regulations. The regulator imposed a penalty of ₹8 lakh under Section 15EB of the SEBI Act, 1992, for multiple infractions, including:

• Misrepresentation of investment risk.

• Assuring returns.

• Repetitive and unjustified fee collection.

• Ignoring client-specific risk profiles.

Key Takeaways from the Order

• Investment advisory businesses must strictly adhere to SEBI’s IA regulations, which prohibit the assurance of returns or misleading promotions.

• The discrepancy between website disclaimers and actual conduct can lead to regulatory penalties.

• Internal controls and training on compliance and AML regulations are non-negotiable for registered advisors.

• Submitting self-incriminating material, even unintentionally, can severely backfire in legal and regulatory proceedings.

Implications for the Investment Advisory Industry

This case serves as a cautionary tale for other investment advisors operating in India. It shows that SEBI is increasingly willing to take action based on:

• Client complaints,

• Evidence found during inspections, and

• Inconsistencies between stated policies and actual business practices.

Advisors must ensure:

• Transparent communication with clients.

• Strict adherence to regulatory norms.

• Proper documentation and staff training.

The case of Wealth Factor will likely be referenced in future enforcement actions by SEBI, as it offers a textbook example of misrepresentation, poor compliance culture, and a breakdown of ethical standards.

SEBI’s Message: Zero Tolerance for Misleading Advisors

With this enforcement, SEBI has reaffirmed its commitment to investor protection. The regulator is making it clear that misleading marketing tactics, risk misrepresentation, and unethical fee practices will not be tolerated, regardless of disclaimers or self-defensive claims.

Conclusion

The penalty imposed on Wealth Factor underlines the importance of full regulatory compliance and ethical conduct in the advisory space. Investment advisors must not just say the right things—they must practice them consistently across every client interaction.

This incident also serves as a reminder for investors to thoroughly verify the credentials and claims of advisors, avoid schemes that promise guaranteed profits, and report suspicious activity to SEBI through its investor grievance redressal platform.

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