Who offers financial advice in India?

Here's to understanding what the numerous entities that offer financial advice are.
By Ravi Samalad |  12-06-18 | 

Yesterday we looked at the reasons why a financial adviser could well be a necessity.

This post looks at the different types of entities offering their services. 


Mutual fund distributors are registered with the Association of Mutual Funds in India and are required to abide by AMFI guidelines and code of ethics. AMFI issues a license known as AMFI Registration Number, or ARN, which permits distributors to sell mutual funds. This license is valid for a period of three years. You can search the AMFI website to see if the distributor’s license is still valid; you can also check here if the distributor’s license has been suspended for any wrongdoing.

  • How they make money

Distributors earnings are tied to the amount of assets invested through them. For instance, if you invest Rs 10 lakh in an equity fund, a distributor who has opted for full-trail model could earn Rs 10,000 a year, assuming a trail commission of 1%. This commission is paid by the asset management company from the total expenses charged to the fund. If your money grows to Rs 15 lakh in three years, the distributors income will grow proportionately. On Rs 15 lakh, the distributor would make Rs 15,000 a year. Similarly, if your fund value decreases, commissions go down.

While it is in the distributor’s interest to make sure the funds they recommend perform well, some may sell schemes which offer higher commissions or help them qualify for prizes/junkets. Always ask your distributor the rationale behind a recommendation.

A few distributors also charge investors a fee on top of receiving commissions.

  • Qualifications

MFDs are required to pass a basic NISM Mutual Fund Distributors Examination VA Examination. Some distributors might have additional certifications offered by institutions like NISM, Bombay Stock Exchange, National Stock Exchange, Financial Planning Standards Board of India, or FPSB, and American Academy of Financial Management India. But they are not required by regulations.

Though not mandatory, distributors may even have CFP certification which is a rigorous test on personal finance administered by FPSB India.


These advisers are registered with Securities and Exchange Board of India. RIAs are held to onerous rules as compared to mutual fund distributors. However, this does not necessarily mean that MFDs are not qualified to offer sound advice. There are many distributors who are equally qualified as RIAs but have chosen not to register with SEBI due to ambiguity on the direction of RIA regulations. Holding a RIA license is the business call of an adviser.

  • How they make money

RIAs will charge an ongoing fee for their services. Usually, the RIA will charge you a flat fee for preparing your initial financial plan and an ongoing service fee. Here are the two types of fees which most RIAs charge:

  1. Percentage of assets: This fee is similar to the trail commission discussed above. The only difference is that in this case it is directly collected from you and not the fund company. The percentage of fee depends on the size of assets. Generally, it is 1% of assets initially and goes down as your corpus increases.
  2. Flat fee: A fixed fee on an annual or quarterly basis as agreed upon by you and the adviser.

RIAs will prepare your financial plan after understanding your goals and financial situation. Some RIAs also hold ARN licenses through a family member or separate entity. They might charge you a fee and implement your financial plan through the ARN license of the family member by offering you regular plans. Regular plans carry 0.50%-1% higher total expense ratio (depending on the fund category) which eat into your returns. Ideally, RIAs should offer you direct plans since they are already charging you an ongoing fee.

The decision to implement the plan through the RIA is up to you. You may choose to execute it on your own. However, many investors prefer to implement the plan through the RIA.

  • Qualifications

To become RIA, a person must have a post graduate degree in finance related topics or a graduate in any discipline with five years experience in financial sector. Additionally, he/she has to pass these two exams (Level 1 and Level 2) conducted by NISM.  In lieu of these two certifications, the person can pass CFP as well. 

  • Fee only RIAs

There are some RIAs who are purely fee only advisers. Fee-only advisors charge you a fee and are not compensated by fund houses for the products they recommend. But they are few and far between. Lately, many RIAs are transitioning towards moving their client assets from regular to direct plans. There are around 922 RIAs in India. You can find their information here.


Many national distributors like NJ India, Prudent, IIFL Wealth, Bajaj Capital, Karvy, including banks operate as mutual fund distributors.

Over the years, banks have become dominant players in mutual fund distribution. You must have been approached by your bank relationship manager to start a SIP or buy a unit linked insurance policy. Bank sales executives are issued Employee Unique Identification Number, a seven-digit unique alpha numeric number, by AMFI for recommending mutual funds. Make sure you ask for this EUIN and note it down. This will help you trace the person in case you have been mis-sold a mutual fund and the executive has quit his job.

We would advise you to exercise caution while dealing with bank relationship managers as you might end up with a product which does not suit you. Banks have a white list of products to recommend. If you bank with ABC Bank and if the bank also has an asset management business, chances are that the RM would sell you schemes of ABC Mutual Fund. Banks would give priority to their own brand. There’s nothing wrong with it. But you need to see if ABC Mutual Fund has a good track record and suits your goals. 

  • How they make money

Similar to mutual fund distributors, majority of national distributors and banks operate on commission driven models. They are offered commissions by mutual fund companies from the annual fund expenses. Thus, their revenues are tied to the quantum of assets under advisory.

Add a Comment
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SV Prasad
Jun 27 2018 03:22 PM
Hi Mr. Ravi
I didn't miss reading anything that was mentioned. Values based on percentage invariably drop when investment value on which it is applied drops. If a reader doesn't understand this nature of percentage calculations, I agree they would have certainly learnt something from it. But to my mind what was certainly missing to be mentioned is that the same percentages ensure a steady stream of capital erosion for having taken that piece of 'valuable advice', even when investments are badly bleeding with capital destruction, which is much more damaging and impactful to the investor which they need to be aware. It is a matter of value addition you wish to make in the write-up and purely your choice. I did mention the intentions in the write up could be benign. Thanks for your response.
Ravi Samalad
Jun 27 2018 12:37 PM
Hi Mr. Prasad,

We appreciate your feedback on the article. Regarding the point on distributors trail earnings, the article does mention that their commissions drop as the fund value decreases.

Ravi (Editorial)
SV Prasad
Jun 26 2018 09:06 PM
For Good or bad, you should not selectively omit factual information while providing detailed coverage on matters educating investors though authors intentions could be benign. Of course, one need not be judgemental while providing such information nor do I wish to as a pure investor.

1. You should have mentioned clearly that MFDs invariably get their annual trail commissions on percentage basis even when investors make losses on their original investments in any year on an MTM or notional valuation basis.

2. on RIAs: You mentioned that There are many distributors who are equally qualified as RIAs but have chosen not to register with SEBI due to ambiguity on the direction of RIA regulations.

Not fair to extrapolate facts in above expression. No two qualifications are considered equivalent (there can never be two equals) unless a competent authority recognises or declares so., which is not the case here and hence should not be judged from your end unfairly. MFDs are not equally qualified as SEBI RIAs and by the same extension, SEBI RIAs are also not equally qualified as MFDs. Apples are apples and Oranges are oranges. Readers need to know that both are not equivalent, period
AshaKanta Sharma
Jun 16 2018 11:48 PM
Thanks for the article...
Vinamra Gharat
Jun 12 2018 12:53 PM
There is lot of confusion because of ambiguity in SEBI rules. I wish to be a RIA but I am still working as MFD! The rules pertaining to fees especially where I operate, clients are not ready to pay upfront fees, leave alone trail fees on the Assets I manage. SEBI should not overkill the whole concept of RIA's with complicated rules. They should also maintain stability in rules and regulations since its costly to frequently change business model. If the RIA remuneration rules are fair, than I will definitely will complete my Level 2 module of NISM Investment Advisor exam.
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