Registered Advisor or MF distributor, whom should you go to?

To avoid mis-selling of mutual fund products SEBI (Securities and Exchange Board of India) has asked AMCs (Asset Management Companies) to pay only trail commission by adopting trail-only model and not to pay any upfront commissions or upfronting of any trail commissions directly or indirectly, in cash or kind. Even the contests or sponsorships would be considered as upfront payment.

SEBI has also directed AMCs that the difference between the direct mutual fund plans and regular mutual fund plans must only be the commissions. SEBI has a clear vision to increase the number of advisors rather than distributors. This has led many mutual fund distributors to rethink on whether or not to move on complete fee-based model.

Historically investors were mainly dependant on MF distributors for investment advice but as time went ahead there were advisors who just provide investment advice and were not interested in selling mutual fund product. These advisors usually charge a fee rather than earn commissions from AMC. So with this shift in the industry investors are a bit confused whether to take advice from mutual fund distributor or SEBI RIA (Registered Investment Advisors). Let's compare.

Mutual Fund Distributor (MFD) are registered with AMFI (Association of Mutual Funds, India). They technically are executors of your investments. Just as you ask your broker to buy or sell shares, you ask MFD to buy or sell mutual fund products. How brokers give you tips on which shares to buy or sell, likewise MFD give tips on mutual funds. So you can compare a MFD to a chemist, who has a medical shop and when you go to him and ask for a medicine, he would give you medicine may be the composition will be same, but just because a particular drug manufacturer allows him more margin he gives you medicines from that drug manufacturer. Likewise, MFD may favour and give you certain mutual fund products just because the AMC may be giving him more commission.

On the contrary, SEBI RIA or the person who works 100 per cent on the fee-based model and does not indulge in any sponsorships from the AMCs are the advisors who would recommend or advice to you what is better for you after looking at your complete personal finance scenario and risk profile. SEBI RIAs work as a fiduciary and are bound by SEBI RIA Regulations, 2013, unlike MFDs. So you can compare a SEBI RIA to a doctor who would first try to diagnose you and come to a conclusion as to what has happened to you and then prescribe the medicines, accordingly.

So in future, a situation may come when you would go for advice to SEBI RIA on your personal finance matters, just like you would go to your doctor for health-related matters. Then whatever is prescribed by the SEBI RIA you would execute the same with the help of MFD, just like you would take a prescription from the doctor and get medicines from the chemist.