RIA vs Distributor vs Fee-Based Adviser

In short: a SEBI Registered Investment Adviser (RIA) is paid by you and gives advice. A mutual fund distributor (MFD) is registered with AMFI, is paid commission by the fund house, and helps you invest in mutual funds. "Fee-based" is not a category in SEBI's rules; ask exactly who pays the person and how. Each serves a different need, and knowing which one you are dealing with helps you judge the advice.

The three side by side

SEBI Registered Investment Adviser

An RIA gives investment advice, including financial planning, for a fee paid by the client. For individual and HUF clients, SEBI caps the fee for advice on SEBI-regulated securities at ₹1,51,000 a year per family in fixed-fee mode, or 2.5% a year of the assets advised on, excluding statutory charges such as GST. An RIA must recommend direct plans where available, may not take commission, and, if an individual, may not distribute products. You can check the registration on SEBI's list of investment advisers.

Mutual fund distributor

A distributor holds an ARN from AMFI after passing a NISM certification (Series V-A, or the newer V-D), and follows AMFI's code of conduct. Distributors are paid trail commission by the fund house out of the scheme's expenses, which is why regular plans have a higher expense ratio than direct plans of the same scheme. Your consolidated account statement shows the commission paid on your investments every half-year.

A distributor may give advice only incidental to selling mutual funds. SEBI does not allow distributors to call themselves "Independent Financial Adviser", "IFA" or "Wealth Adviser"; AMFI requires them to display the tagline "AMFI-registered Mutual Fund Distributor" with their name and ARN. Many investors value a distributor's help with paperwork, transactions and service, and pay for it through the commission. You can check a distributor on AMFI's distributor search.

"Fee-based" adviser

Neither SEBI's adviser rules nor AMFI's rules define "fee-based". People use it for different arrangements: some charge only a fee, others charge a fee and also earn commission. An individual RIA cannot do both, and a firm that does both must keep advice and distribution with separate clients. So when someone describes themselves as fee-based, ask:

1. Are you registered with SEBI as an investment adviser, with AMFI as a distributor, or both?
2. Will I pay you a fee, will a product provider pay you, or both?
3. Will you recommend direct plans or regular plans?

Other titles you may see

• Research analyst: registered with SEBI to publish research and buy, sell or hold recommendations on securities, rather than advice for your overall situation.
• Insurance agent or broker: works under IRDAI's rules (agents are appointed by an insurer; brokers are registered with IRDAI) and is paid commission or remuneration by insurers. SEBI's rules don't cover insurance.

Which one do you need?

If you want help deciding what to do with your money (how much to save, how to invest for each goal, how much insurance to hold), you are looking for advice; for advice on securities such as mutual funds and shares, an RIA is the registered route. If you have already decided and want help buying and servicing mutual funds, a distributor provides that. Whichever you choose, check the registration and ask how the person is paid.

About SahajMoney

SahajMoney is the advisory practice of Abhishek Kumar, an individual SEBI Registered Investment Adviser (INA100008045), enlisted with BSE Limited (IAASB), enlistment number 1686. We are paid only by our clients, a fixed fee of ₹15,000 for the first year and ₹7,500 a year to renew, both including GST, per couple, and recommend direct plans. Read how to choose a SEBI investment adviser.

Registration granted by SEBI, enlistment with IAASB and certification from NISM in no way guarantee performance of the IA or provide any assurance of returns to investors.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing.