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• He will act in best interest of clients and integrity of market

The recommendations provided to the client and transactions made on behalf of him (if the client has signed a Discretionary Account) should be based on the best interest of the client. There are unacceptable practices of trading simply to earn a brokerage fee. Investors should be well informed on the transactions made. Read the transaction notes received by the stockbroker firm. If you come across certain irregularities in the transaction, question him (however small the value of the transaction may be). Even if you do sign a Discretionary Account, you still hold the right to ask him for reasons for the transaction made.
There is another segment of investors who shows a blind eye to such irregularities when earning profits and complains if they incur losses. Such individuals can’t expect any form of remedies.

An investment adviser’s trading practices and recommendation on stocks should at all times maintain the integrity in the market/best interest in the market. In the recent past, certain stakeholders were involved in illegal trading practices. It resulted in the loss of confidence in the market, financial panic and price distortions and finally led to investors losing their money.

Investment advisers should refrain from pumping penny stocks on investors. Further on, if they recommend stocks with low capitalization, they should at all times inform the client on the high risk involvement. The same rule applies when companies that incur losses, companies with liquidity constraints, companies with questionable management or even companies that are taken to courts, are recommended. You may come across individuals who will promise you unusually high returns within a small time frame. Be vigilant when you obtain the services of such an individual. In some instances, these unusual returns are materialized through engaging in illegal trading practices. You may earn a profit in the short run but it will influence the market adversely and might result in financial losses in the long run. At face value, it may seem that your adviser is acting in the best interest of you. Yet, it could lead to inefficient markets and your downturn.  Be a smart investor and don’t encourage any form of conduct that would affect the market adversely.  
 

• He will take all reasonable steps to execute client orders promptly

An adviser is expected to enter the order as soon as he is informed by his client. If they are not in a position to execute these orders, they are expected to inform you about it and make the necessary arrangements to execute the order.
 

• He will execute client orders on best available terms

In some cases, even if the client gives him instructions to purchases a share, he might not give a specific price to purchase it and instead will ask the adviser to purchase the share at the most suitable price. In such a situation, he is expected to execute the order at the best available terms. If he is reasonably certain that the price will go down to Rs.10, it is not ethical to purchase it at Rs.15.

The best way to overcome this is by asking him about the buying and selling quantities at different price levels. It will send out signals that you are aware of the price movements and will at all times maintain the trust kept on him when executing your order.
 

• He will put client’s interest before his own interest and will avoid any form of conflict of interest

Employees in stockbroker firms are entitled to invest in the market. However, they are expected to first trade/invest on behalf of the client and thereafter invest their money. We should bear in mind that all investment advisers are human. There can be instances where they would come across a good investment opportunity and it is natural for them to maximize a certain opportunity by investing prior to executing his client’s order.
 

• He should be responsible for accuracy of all orders entered into ATS

The Automated Trading System (ATS) is the electronic system by which advisors enter the buy and sell orders. It could be used only by licensed certified investment advisers. They should trade on this system with caution as once a transaction is entered and if executed, it is not usually possible to cancel the transaction.

When giving the order, it is best to inform him in writing and thereby avoid unwanted problems. If you by any chance inform him verbally, make sure that he writes it down clearly. Having said that it is also important to note that at times errors can occur and in such situations investors should understand.
 

• Ensure that orders are entered in accordance with ATS rules and any procedures prescribed in ATS  

The Colombo Stock Exchange (CSE) has given out rules applicable when trading though the ATS system in order to maintain an efficient market. It includes rules on crossings, general trading, cancelling of orders, trading halts, etc. Investment advisers are expected to follow these rules and as a responsible investor, you should not persuade your adviser to break these rules.

He shall not share directly or indirectly the profits or losses in any account of a client.  

At times certain clients approach the adviser and promise a certain percentage of the profits, provided they give them the expected returns. Investors should refrain from such practices as it is against the code of ethics of investment advisers.
 

• He should not guarantee a client that the client will not suffer any loss as a result of carrying out transactions with stockbroker firm

At times, advisers might encourage you to invest by giving you the false hope of risk-free returns. He might represent a stockbroker firm that is well equipped with well trained and experienced staff but they could only assist you in minimizing your risk. They could never eliminate the risk factor.
A good investment adviser would instead patiently explain to you the risk involved in the market and tell you how you could maximize your returns.


Making most of relationship
Think of your relationship with your adviser as a partnership, with both of you working to achieve your financial goals. As stated above, you’ll want to keep the lines of communication open and meet at least monthly if you are an active investor. Ask questions when you don’t understand something. Be honest with yourself and your adviser about your financial situation. Your adviser needs accurate information to recommend the best investments for you.

Investors expect a great deal of commitment from their advisers. Similarly there is an equally important role to be played by investors if they are to maintain a healthy partnership. The tips given below will enable you to play a more proactive role.   
 

• Be prepared for each meeting

Treat each meeting with your adviser like a business meeting. Take some time before the meeting to review your investments and jot down what you want to discuss. Bring all relevant information, such as recent account statements.
 

• Ask questions and take notes

Make sure you understand the investments your adviser recommends and how they fit with your plan. If you don’t understand something, ask for clarification. Take notes of conversations you have with your adviser and what you agree to.
 

• Be informed

Read documents that you receive about investments you’re considering. Learn as much as you can about the investment world through courses, books, newspapers, websites and other media.
 

• Stay on top of your investments

Keep a file of all account-related documents such as transaction confirmations, account statements, etc. Review these documents as soon as you get them. Make sure they reflect what you discussed and contact your adviser right away if there are any problems.
 

• Keep your adviser up to date

Tell your adviser when your personal or financial circumstances change, especially change of contact details.