How to avoid a misuse of PoA by the broker
When Bangalore-based
Ranjith Pillai (name changed), signed a power of attorney (PoA)
agreement with a leading brokerage house, he was looking to ease his
transaction travails. Instead, his problems peaked within a
year-and-a-half, when Pillai discovered he had lost capital worth Rs 5
lakh.
The brokerage had misused the agreement to transact
recklessly while operating the PMS (portfolio management services)
account on his behalf. "It seemed that successive relationship managers
were only concerned with showing large commission earnings," says
Pillai. When he approached Sebi, the brokerage claimed that he had
signed a broker-client agreement, which concealed the papers pertaining
to PMS. The signed agreement papers had not been furnished to Pillai
despite numerous requests. Although he has recovered Rs 1.2 lakh, the
rest of his money is still locked up in a court case.
Does
this mean that one should not sign the PoA agreement while opening an
account with a broker? If you don't want to, the brokerage cannot force
you to sign one while opening an account, but given the advantages it
offers, it would be wiser to have such a pact and be cautious while
operating it.
What is a PoA?
The sheer drudgery of opening an account with a broker and signing a
50-page booklet is enough to deter one from going through the fine
print, but in doing so you could overlook the crucial PoA segment. If
misused, it can not only jeopardise your investments but also subject
you to unnecessary mental agony.
What exactly is a PoA? It is a
legal document executed by a client in favour of a stock broker. The
broker has the authority to trade through the client's demat and bank
accounts on his behalf for easy delivery of shares and settlement of
funds. It also enables automatic collection of margin payments.
The client benefits because he can transact through his bank account
seamlessly, facilitating easy receipt and payment of funds along with
the transfer of securities. He does not have to submit the delivery
instruction slip in person to the broker in case of a sell transaction.
Problems in transactions like non-delivery of shares to the clearing
member's account in time and penalty payment to the stock exchange can
also be avoided.
"A PoA provides ease in execution of
transactions that one cannot do without, particularly if one is
travelling," says Rajesh Jha, CEO, Jain Investments.
Sebi guidelines
"The PoA makes life simpler but can also be easily abused," warns Alok
Churiwala, managing director, Churiwala Securities. There have been
several instances of brokers trading through the clients' account
without their consent. Shares have vanished from investors' demat
accounts as brokers have sold these to prevent losses if the client
failed to meet margin calls.
Source : The economic times
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