We have always suggested that you buy direct mutual funds. But many don’t have enough knowledge or time to do some research on direct funds. Also, they think they don’t have any alternative to a mutual fund distributor who sells regular funds. But what if we told you there is another way?
Here comes a Registered Investment Advisor (RIA). Let’s discuss whether RIAs are better than mutual fund distributors.
Estimated read time: 2 minutes and 26 seconds
Buckle up, here we go!
Who are Registered Investment Advisors (RIA)?
An individual who has registered with SEBI to become a financial advisor is RIA.
To get the license from SEBI, they need to pass the eligibility criteria set by SEBI. They need professional qualification/ a post-graduate diploma, an experience of at least five years and certification in the subject related to the advice being offered.
They also have to follow strict compliance guidelines on document management, continuous education, fee models and many more.
As per SEBI Investment Advisor Regulations (Amendment 2020), Registered Advisors can opt for only two fee models. One is a fixed fee, and the other is an AUM/AUA-based variable fee.
Who are Mutual Fund Distributors (MFD)?
An individual or a company registered with AMFI to become a licensed mutual fund distributor. They earn commissions from mutual fund companies to sell their products. Therefore, they don’t charge any fees to their clients.
Any individual above the age of 18 years can act as a mutual fund distributor or agent. The individual should qualify for class 12 or class 10 with three years of diploma. The minimum requirement to become a mutual fund distributor is the completion of NISM Series V-A: Mutual Fund Distributors Certification.
Difference between MFD and RIA
MFD can only advise on mutual funds, whereas an RIA advises on a complete portfolio, which includes many financial products.
For instance, RIA gathers information about the client’s income, total expenses, assets, liabilities, tax status, short-term and long-term goals, etc. Based on this information, the investment advisor creates a financial plan for the client.
Whereas, distributors do not collect detailed information. They understand the investor’s risk tolerance levels and financial goals to suggest a suitable investment plan.
On mutual fund plans:
Distributors will suggest regular plans as they earn commission from the mutual fund house.
RIA will suggest direct plans because it has more economical expense ratios than regular plans. Our calculation suggests direct plans are best for you. Check it out here.
Distributors earn commissions from buying and selling mutual funds. The mutual fund company pays commissions to them. So, they market their service as free of cost.
Investment advisors usually charge an up-front fixed fee or a fixed percentage of the client’s portfolio.
While all these points make RIAs look more positive, you should be careful while selecting an advisor. Check their background, past performance, assets under management and other details.
Also, there is one more problem when talking about RIAs. In India, we only have 1,328 RIAs. This makes it difficult to avail of their services. You can check out the list of advisors registered with SEBI here.
As for us, we always recommend you take some time to educate yourself in investing and managing your personal finance. You can check out our personal finance checklist for beginners here and also read how to simplify your investments here.
And if you want to learn how to find the best RIA for you read here.
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