What Makes a Mutual Fund Distributor Distinct from an RIA?


Differentiating between the two can be challenging because they aid in making financial decisions. That also includes picking up MF plans. Both are legally recognized businesses under the supervision of a governing authority. Since AMFI (Association of Mutual Funds in India) regulates and oversees the Mutual Fund Distributor. The Securities and Exchange Board of India (SEBI) regulates investment advisors.

To set the stage, let’s define who precisely a mutual fund distributor and investment advisor are.

Financial and financial advice is provided by an “Investment Advisor,” who may be an individual or a company. Provides securities analysis for a charge, including but not limited to handling client funds and publishing findings. If he manages at least $1 million in client assets, he meets the requirements to call himself a Registered Investment Advisor (RIA). “Financial Advisors” are another name for “Investment Advisors.” Advisors analyze their client’s financial situations and make recommendations based on their findings.

A distributor for a mutual fund is any individual or organization that helps investors acquire and sell mutual fund units. Commissions are the primary source of income for those who generate new investors for mutual fund (MF) schemes. The advisor’s job is to assess the client’s needs and risk tolerance, then recommend an investment strategy that fits those parameters.

A Mutual Fund distributor may never sell the MF plan to investors only to earn a commission. In any case, the rules are pretty stringent in this regard.

Here are eight ways a Mutual fund distributor differs from an Investment Advisor.

Mode of payment for guidance
You may rest assured that your assets are in good hands with a mutual fund distributor because they are members of AMFI. The investor commissions the MF distributor to make purchases and sales on their behalf. The AMC pays the MFD a commission for this service. The SEBI has instructed AMCs to prevent the improper sale of mutual fund products. Employing a model that only commissions on the trail will save you money. In addition, no direct or indirect commissions on the course should be given upfront. Payment in total would be considered to have been received for any contests or sponsorships. These financial advisers typically charge clients a fee instead of accepting commissions from AMC. As a result of the shift in the market, investors.
Deposit Obligation
The depositary obligation that binds advisors sets them apart from distributors. This means they are dedicated to providing investors with truthful guidance, unlike distributors under no obligation.

Testing and Accreditation

There is a distinction between the mutual fund distributor and investment advisor exams. It is recommended that those interested in MFD obtain a certificate from the National Institute of the Securities Market. Having passed the required certification exam for Mutual Fund Distributors, NISM Series V-A. One must pass both tests to work as an investment advisor. Two tiers:
Investment Advisor, Level 1 (NISM Series X-A)
Investment Advisor, Level 2 (NISM Series X-B)
The advisor to the mutual fund should be certified in financial planning.
Consultants can only offer suggestions and not make actual purchases.
The ability to provide advice on the finest MF schemes is a significant strength of an MFD. The advantages of mutual funds, the many kinds of MF, and the risk element are all explained in detail. They advise the investor on matters about the MF investment and strive to fulfill the investor’s needs. Then, they pitch the prospect of putting their money in a mutual fund. The mutual fund strategy is still being disseminated.

In contrast to distributors, investment advisors can only offer guidance on which mutual funds to buy. All they have to do is offer advice. After that point, it is ultimately up to the investor. However, the distributor should encourage investors to purchase mutual funds.
Separation of responsibilities
However, a mutual fund distributor’s primary concern is disseminating funds. Advisors have additional responsibilities beyond those of MFs.
Facilitating a Portfolio Rebalancing for the Investor

Capital Risk Capacity Assessment
How to Pick the Best Investment
Plan Direct vs. Plan Regular

An investor might expect to receive a regular plan and an invitation to invest from a mutual fund distributor. Investment advisors, on the other hand, typically suggest putting money into direct programs. In the past, investors could only buy MF with the guidance of distributors. However, SEBI ordered that AMCs launch immediate plans of mutual funds beginning in January 2013. This paves the way for advisors to do more than advise investors; they can help them make direct MF plan investments. The expense ratio of immediate plans is lower than that of traditional methods. Distributors, motivated by commissions, may pique your interest in the standard procedures, but advisors will not.

When comparing their levels of information harvesting, keep in mind that.
Good financial planning begins with recognizing that you need to find basic information about your financial profile. Therefore, you should make sure the individual you are entrusting your money with is curious enough to ask pertinent questions. Tell me more about your aspirations, finances, plans, long- and short-term objectives, assets, liabilities, tax situation, etc. In addition to providing product-based advice, they should give need-based solutions to help you achieve your financial goals. MFD will discuss your needs with the things they are asked to sell. A financial advisor must provide objective recommendations that meet your specific requirements.

Risk and return are topics that will be discussed.

The advisor typically provides a more in-depth discussion of this topic than the investment advisor. High, low, moderate, etc., risk factors for MF will be discussed. Then he’ll watch for the MF scheme’s historical returns. We’ll recommend the strategy to you after that. The financial planner will work with the distributor to help the client invest in the appropriate mutual fund (MF) strategy. Your risk tolerance is more important to a financial advisor. Similarly, it’s essential to manage people’s expectations regarding financial rewards.

Whether or not a mutual fund distributor or advisor is required is a matter of debate. Both are valuable in selecting the best mutual fund investment. According to MF rules, any individual or business that applies for and receives an ARN from AMFI is considered a mutual fund distributor. They need guidance in several areas of MF schemes, including scheme selection, asset allocation, tax planning, etc., to effectively distribute MF schemes from various AMCs. The decision to seek mutual fund advice from a distributor or make an independent investment is ultimately up to the individual investor.

“Spend now, reap rewards tomorrow.”

WealthBucket content contributor Shrishti Jain penned this piece. It’s a top destination for investors and can help you get started as an MF Agent. There is a wide range of options available, including liquid funds, income funds, equity funds, and more. Please visit our website for further information and to start investing for a brighter future immediately.

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