By Babajide Komolafe

Before you transact business with any company you must first ascertain its legality. Is it registered as a company in Nigeria? Secondly, you must ascertain if it is licensed or authorized to do the business it is doing.

To find out if the company is registered you need to make inquiries at the Corporate Affairs Commission. To find out if it has license to engage in that particular business, you have to make inquiries at the organization that regulates such business. As mentioned in the last edition, the Securities and Exchange Commission (SEC) is the organization that regulates all investment (capital market) business in Nigeria. And all you need to do is to visit the website of the Commission to find out if a company is licensed to engage in capital market related business.

Now there are different types of capital market or investment activities and SEC issues specific license for specific type of business. As an investor, you need to also know what business the company is specifically licensed to engage in. This is because some operators or companies either in an attempt to make more profit or defraud, do occasionally go beyond the business they are licensed for.

So it is not enough for any company to tell you it is licensed by SEC, you need to know what it is licensed for. Some of the complaints received from investors reveal that many don’t know the difference between a stockbroker, fund manager or a unit trust manager. They just invest and expect returns based on the promise made by the company. This ignorance is what is usually exploited by companies that operate illegally in the capital market.

A stock broker is licensed to buy and sell shares on behalf of investors. The company is to collect money from people that want to buy shares, buy on their behalf on the floor of the stock exchange. The company is also to sell shares on behalf of investors and return the proceeds of such sales into the account of the investor.

There are many companies or individuals who claim to be stock brokers but they are not licensed to do so. Such companies usually prefer you pay cash rather than through a bank account. Some of them are former staff of stock broking firms who have lost their jobs. The advice is to always check the website of SEC, or google the name of such company before handing over your money. But never give cash. Always insist on paying into the company’s bank account.

There are also companies claiming to be fund managers who are not licensed to do so. A fund manager or management company is one licensed by SEC to help investors manage their money by investing it in specified investment instruments. Before such company is licensed by SEC, it must specify how it wants to manage the fund, the kind of investment activities it wants to invest the money into.

The investment activities that SEC would approve for a fund manager to invest are usually money and capital market instruments i.e.  treasury bills, shares, bonds etc. They must be activities or instruments that are regulated or that have rules that govern how they are sold and purchased. It is doubtful if SEC will approve trading in petroleum and similar commodities for a fund manager.

Also, by law, the fund manager is required to inform the investor the kind of investments it would invest the funds under its management. That is why you see advertisement of some funds for equities (shares), some for bonds while some are for money market instruments. The purpose is to make sure that the investor knows what his/her money is to be invested in, and be assured that there is an authority that authority that governs that investment.

Hence there is some form of certainty and security. The above implies that whenever a company or group of individuals claim to be a  fund manager and it  cannot tell you how it will  manage the funds, what investment activities or instruments it will employ to  manage the fund,  it may likely be an illegal or fake fund manager.