Seek Financial advice only from an RIA(Registered Investment adviser)

Should you be seeking financial advice from a Distributor/Agent or should go with only a Registered Investment adviser


Whenever you come across the term Investment Adviser, I am sure you will imagine either an Insurance agent wanting to sell you a policy or a stockbroker eager to give you tips on what shares to buy, at best you might think of a mutual fund distributor who wants to sell you Mutual funds.

Well it’s not your fault, the title “Investment adviser” is the most misused term in financial services, Irrespective of the credentials, qualification or the experience one has, the title “Financial Adviser” is being widely used, rather I would say, it’s mostly abused.

A distributor /broker/agent is the one who works on sell side which means, he gets a commission from the companies he represents, whereas an investment adviser works on the buy side that is he works for you & will have to be remunerated by you for the advice he gives you.

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An ordinary investor had no yardstick to differentiate between an investment adviser and Broker/agent/distributor. In 2013, SEBI (Securities and Exchange Board of India) enforced new regulations that made a clear distinction between advisers and distributors. These regulations set a clear demarcation between intermediaries who distributed mutual funds and earned a commission, and Investment Advisers who provided financial advice for fee.

Who are Registered Investment Advisers (RIAs)?

RIAs can be an individual, a corporate or a partnership firm.  SEBI mandates the below prerequisite qualifications to register as a RIA:

  1. Professional/Post-graduate degree/Post-Graduate Diploma in finance or related topics.


Graduate in any discipline with minimum 5 years of experience in financial advisory.

  1. Certification in Financial Planning/Portfolio Management or Investment Advisory such as NISM Series XA and Series XB.

SEBI verifies the credentials of each applicant and provides an RIA number if found satisfactory.

RIAs are mandated to act in a fiduciary capacity and disclose all conflicts of interest to the clients. They can charge an advisory fee to the clients and cannot earn commissions from any of the schemes they recommend.

Also read: Mutual Funds: Direct Plans vs. Regular Plans

How does investors benefit

Investors were at a significant disadvantage and many a time were the victim of miss-selling and wrong selling by agents and distributors. Moreover, the minimum qualification of an MF distributor is only 12th Pass.  He does not need not have relevant qualification or experience to advise on investments and his role is more of an executor of the transactions between an individual and AMC.


Also, in case you have grievances, there is no mechanism for redressal with a distributor. Though a distributor is also mandated to act as a fiduciary, there is no one to check his compliance.

However, a person who is RIA has to compulsorily have relevant certifications in investment advisory and also should be at least a graduate with relevant experience. RIAs have to act in a fiduciary capacity at all times as any unsuitable advice can lead to investors approaching SEBI for grievance redressal.  Also, since you pay fees to the advisor, the total cost of the advisory and transactions are very transparent to you.

As an investor, you are benefited from the right advice from the right person at the right fees, with rights for grievance redressal.

Why should you seek financial advice from only RIAs?

Below are few reasons why you should take financial advice only from RIAs.

  1. SEBI has mandated that an RIA will act in a fiduciary capacity to the clients and shall disclose all conflicts of interest as and when they arise. An RIA is directed to act honestly, fairly and in the best interests of the clients(A distributor may or may not act in your best interest. Also, there is no guarantee that he has adequate knowledge to give the right advice for you.)
  1. If you have any grievance about the services provided by an RIA or feel that the adviser has not acted on your best interests, you can lodge your complaints to SEBI on Your grievances would be taken up by SEBI to be followed up for redressal with the RIA.
  1. There is no regulation by SEBI on the fees that can be charged by RIAs. The adviser and the client have to mutually agree on the fees to be paid. The adviser has to ensure that the fees are fair and reasonable.(As an investor, you will benefit from transparency in the fee structure. You can also negotiate the fees and can choose to pay if you are satisfied with the services.)
  1. An RIA is responsible for compliance with the SEBI regulations. If the RIA is a corporate or a partnership firm, they are required to appoint a compliance officer who is responsible for monitoring the compliance by the RIA. A yearly audit by a Chartered Accountant is also needed.

Since the RIA’s compliance is also monitored by SEBI, as an investor you can be assured of fair and unbiased advice.

RIA Distributor/Broker/Agent
Has to be graduate with relevant certification Has to be12th pass plus 3 years of diploma with relevant certification
Represents the buy side that is you Represents the sell side that is the company he represents
Remunerated by you in the form of fee Remunerated by the company in the form of commission
No conflict of interest Conflict of interest exists
Legally eligible to give comprehensive advice including financial planning Eligible to give only incidental advice about the product he distributes
Grievance redressal system in place for No grievance redressal in place

Paying a fee for advice

Investors need to understand there is no free lunch in this world, and the truth is FREE advice could prove to be most expensive one.

If you go through a distributor, you may not have to pay from your pocket. The AMC pays the commission to the distributor. The expense ratios are higher in regular plans as the commissions paid to the distributors also constitute the expense ratio. You may not be aware of how much commission your distributor has received from your transactions.

In the RIA model, you have to pay fees to the adviser for providing recommendations just like you would pay consulting fees to a doctor. After taking the advice from an RIA, you can still choose to invest in either regular or direct plans. However, you would be again paying commission to the distributor if you opt for regular plans.

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Final Words

The concept of RIAs,  is no doubt a boon to investors. They are shielded from mis-selling, conflict of interest and also are provided with a mechanism for grievance redressal.

It is always better to pay a fee and get the right advice suitable for your risk profile and goals rather than obtaining free advice which might not be in your interest.

One important thing that you should note is that only RIAs are eligible to give you comprehensive advice like goal-based financial planning.


This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.

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