Mutual Fund Distributor vs Registered Investment Advisor

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Mutual Fund Distributor vs Registered Investment Advisor

Registrationwala

Mutual Fund Distributors (MFDs) and Registered Investment Advisors (RIAs) are individuals or business entities that help people with financial advice and investments, while ensuring compliance with SEBI rules. They earn money through fees or commissions for the services they provide. However, MFD and RIA are not the same. When we compare MFD vs RIA, MFD earns a commission by selling mutual funds whereas RIA charges a fee for unbiased investment advice. RIAs are fiduciaries that act in the best interest of their clients. 

Investors seeking financial advice must understand the difference between mutual fund distributor and registered investment advisor, so they can make informed decisions that align with their goals.

Who is a Mutual Fund Distributor?

A mutual fund distributor can be described as a firm or an individual who facilitates buying and selling of units within a mutual fund between an AMC and interested investors. For every investor they bring in, an MFD gets paid. They offer investors assistance with the mutual fund plans they choose. 

An MFD license from the Association of Mutual Funds in India (AMFI) is required to become an MFD. When making recommendations, a mutual fund distributor must be aware of the investor's circumstances and risk tolerance in order to provide products that meet the investor's demands.

When explaining features of a mutual fund scheme, an MFD cannot make false claims or conceal crucial information. A mutual fund distributor cannot offer financial or goal planning services or give advice on investments in securities or products which do not fall in the mutual fund category. 

Who is a Registered Investment Advisor?

A registered investment adviser can be described as a firm or an individual who advises clients on securities investments. To become a registered investment advisor, RIA license must be secured by filing an application with the Securities and Exchange Board of India (SEBI).

RIAs can advise on securities and instruments governed by financial sector regulators. However, SEBI has proposed that advice offered by RIAs should be limited to these areas, and they should not provide advice on gold, real estate, wills and estate planning. The reason for this is that these goods and services are outside of SEBI’s purview. Hence, SEBI would be powerless to address a customer's complaint about a problem with them.

An RIA can only advise investors on mutual funds. They cannot act as a distributor, unlike MFD. A registered investment adviser can only recommend. Ultimately, it is the investor’s choice whether they want to invest or not.

Key Difference between MFD and RIA

Both MFDs and RIAs help investors to invest their money. Both of them are regulated by the Securities and Exchange Board of India. Now, let’s understand how MFD vs RIA differ.

The first difference between MFD vs RIA is that, an MFD is involved in distribution and sale of mutual funds whereas an RIA offers personalized investment advice and financial planning based on client’s requirements, risk appetite, budget, etc. Mutual fund distributors are regulated by both SEBI and AMFI. However, RIAs are regulated by SEBI only. An MFD earns commissions from mutual fund companies whereas an RIA charges fees directly from their clients. 

A registered investment advisor acts in the client’s best interest, and there is lower conflict of interest due to fiduciary duty. But a mutual fund distributor might face potential conflict of interest due to the commission-based model. An RIA focuses on advising clients on financial goals, but an MFD is majorly focused on selling financial products. An MFD isn’t legally bound to act as a fiduciary for clients the way an RIA is. 

Another MFD vs RIA difference lies in the fact that MFDs offer mutual fund products only while RIAs can advise on a wide range of financial products. To become a mutual fund distributor, AMFI certificate and registration is required. To become a SEBI registered investment advisor, SEBI prescribed exams such as NISM-Series X-A and X-B and higher qualification standards are required. 

That’s pretty much all for the key difference between Mutual Fund Distributor and Registered Investment Advisor.

Conclusion

Both mutual fund distributors and registered investment advisors are financial firms or individuals engaged in offering assistance to investors regarding investment decisions. However, as their name suggests, a mutual fund distributor is focused on mutual fund products, whereas a SEBI RIA may focus on a broader basket of financial products. MFDs are regulated by AMFI as well as SEBI. However, RIAs are only regulated by SEBI.

If you aspire to become a SEBI-registered Investment Adviser (RIA) or Mutual Fund Distributor (MFD) and wish to obtain registration from SEBI or AMFI, please contact Registrationwala for professional assistance.

Frequently Asked Questions (FAQs)

Q1. Who is a Mutual Fund Distributor?

A. A Mutual Fund Distributor is a professional licensed by AMFI to help investors in buying mutual funds by offering advice and guiding them in picking the right schemes that align with their financial objectives and risk appetite.

Q2. Who Regulates the Mutual Fund Distributors in India?

A. The MFDs are regulated by SEBI (Securities and Exchange Board of India) and AMFI (Association of Mutual Funds in India). SEBI ensures MFDs’ compliance with regulations, while AMFI oversees MFD registration.

Q3. How are SEBI RIA regulated in India?

A. SEBI RIAs are regulated under the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) notified on January 21, 2013. These regulations came into effect from April 21, 2013. These rules outline requirements for registration, certification, capital sufficiency, risk assessment, disclosures to be made, a code of conduct, documents to be kept, inspection procedures, etc.  

Q4. Is a net worth certificate needed for registering as a SEBI registered investment advisor?

A. To register as a registered investment adviser with SEBI, a net worth certificate from a chartered accountant is required. The certificate shall be no more than six months old at the time of filing an application.

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