A couple illegally transferred a Gwalior-based senior citizen's ITC shares worth Rs 1.65 crore into their company's account without authorisation, using a power of attorney. Experts tell what checks and balances you need to follow while chosing your broker or wealth manager. In this article, we'll delve into precautions you can take before selecting your wealth management company to protect yourself from such incidents.

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Three years ago, Narendra Singh Falke, a 96-year-old resident of Gwalior, fell victim to fraud involving 79,500 ITC shares valued at more than Rs 1.65 crore. He reported the incident to the Gwalior crime branch, stating that shares were transferred from his demat account at Sushil Finance Company to Sunnes Capital India Private Limited, Bangalore.

Upon not receiving any satisfactory response to his attempts to contact the wealth management company via email, Falke contacted securities depository CDSL to discover that his shares had been debited by Sunnes Capital India Private Limited based on a power of attorney. Investigation by police revealed that the MD of Sunnes Capital India Private Limited, SP Shrisha, and his wife Padmajoti Shrisha planned the fraudulent transfer for illegal gains.

As of April 18, 2024, the worth of the aforesaid quantity of ITC shares stood at Rs 3.33 crore.

Now the question arises, are there any checks and balances that Falke could have used in order to avoid falling prey to such fraud? Should you choose just about any company to be your broker or wealth manager?

Here are basic factors to keep in mind while selecting a brokerage or a financial services company:

  • Look for larger, established stockbrokers with a good reputation and track record
  • Transparency is key: Easy to understand information on the broker's website is a good sign
  • Beware of red flags: Promises of guaranteed returns and hidden fees are bad signs

What else to keep in mind?

“The focus is on choosing a safe and secure broker. The advice is to prioritize larger, well-established brokers with a good reputation. Transparency is a key indicator of trustworthiness. If a broker's website makes it difficult to understand fees and services, that's a red flag. Beware of brokers who promise guaranteed returns or any product not related to traditional investments. These are red flags,” explains Mohit Mehra, VP-Primary Markets and Payments, Zerodha.

“It could be like employees within the brokerage from selling you something which they're not allowed to maybe brokerage structurally selling you something which might be great. Such things also are always red flags,” says Mehra.

"Another important aspect is electronic trails, which make fraud traceable...Even if a broker goes out of business, there is a record of your holdings," he adds.