What Is the Difference Between Mutual Fund Distributor and Investment Advisor

The Indian financial marketplace is where people invest their capital in various financial instruments to multiply their wealth and earn better returns. However, the first step in starting the investment journey is to choose an ideal asset. The financial market includes numerous financial instruments such as equities, mutual funds, commodities, currencies, derivatives etc. For a new investor, it becomes difficult to identify the ideal investment tool among numerous such instruments. Without having the needed financial knowledge to analyse every instrument and its market factors, such investors turn to financial experts.

However, the world of finance is riddled with similar-sounding job descriptions for service providers. A layman may be easily confused by all these terms: financial adviser, wealth manager, mutual fund distributor, broker, agent, investment advisor, etc. But if you intend to become an investor, it is important that you familiarise yourself with these professions and understand the difference between each profile. Here, we will discuss mutual fund distributor vs investment advisor to let you know the answer to what is the difference between mutual fund distributor and investment advisor.

The first step in understanding investment advisors vs mutual fund distributors is to learn about their basic definitions.

Mutual Fund Distributor vs Investment Advisor: What is a mutual fund distributor?

A Mutual Fund is a form of investment that collects or pools money from multiple investors. The money is used by the Mutual Fund houses and their portfolio managers to invest in different types of asset classes, such as stocks and debt. However, there exists a need for an entity to assist customers in buying mutual fund units. A Mutual fund distributor is a person or group that facilitates the purchase and sale of mutual funds and earns a commission for the sale of each scheme. These distributors assist clients in making investment decisions by offering the scheme best suited to their needs after an assessment of their assets and financial condition.

Mutual Fund Distributor vs Investment Advisor: Who is an investment advisor?

The difference between mutual fund distributors and investment advisors extends to various other financial instruments apart from mutual funds. Unlike mutual fund distributors who assist in the sale of mutual fund units, investment advisors provide assistance to clients regarding other financial instruments such as equities, debt etc. Investment advisors can be individuals or groups and provide services where they evaluate the assets of their clients along with their financial condition and assist in identifying ideal investment instruments to achieve their financial goals. These investment advisors charge a flat fee or commission.

Earn Upto Rs.1 Lakh* Per Month

Duties of mutual fund distributors and investment advisors

To understand what is the difference between mutual fund distributor and investment advisor,it is vital to know the duties they undertake. Mutual funds financial advisors ensure that their clients are explained and understand the benefits of mutual funds, their different types, and risks. Then, they present them with potential options of schemes that best fulfil their needs and help them find the perfect mutual fund investment. Once the right choice has been made, the chief responsibility of mutual fund distributors is to provide the plan and its benefits to investors along with assisting them in investing their funds in the selected mutual funds.

Meanwhile, the duty and role of investment advisors are to help clients manage their finances, assets, and investments to deliver optimum gains. They provide guidance in all investment matters, whether stocks, commodities, mutual funds or others. Investment advisors manage investor portfolios, record-keeping, evaluate risk-taking capacity and choose the right investment options. The key factor in investment advisor vs mutual fund distributor is that investment advisors do not provide you with any investment schemes.

Mutual Fund Distributor vs Investment Advisor: Direct plan vs regular plan

A mutual funds plan bought directly from a distributor is called a direct plan, whereas a regular plan is bought through a broker, advisor or other intermediaries. When you are dealing with a mutual fund distributor, you will buy a direct plan from them. Conversely, if your investment advisor recommends that you invest in a mutual plan, it will be a regular plan.

Qualifications and certificates

The difference between mutual fund distributors and investment advisors is also seen in the qualifications and certificates they hold. Mutual fund distributors are regulated by the Association of Mutual Funds in India (AMFI) and investment advisors under the Securities and Exchange Board of India (SEBI). To become a mutual fund distributor, one must qualify for the National Institute of Securities Market (NISM) Series V-A: Mutual Fund Distributors Certification Examination. However, an investment advisor must clear the NISM Series X-A: Investment Advisor- Level 1 and NISM Series X-B: Investment Advisor- Level 2 exams.

Regulatory actions

Here are some regulatory actions taken by SEBI to check malpractice and establish clarity for the answer to what is the difference between mutual fund distributors and investment advisors:

    • Distributors may often indulge in “mis-selling” of mutual fund products. This refers to the sale of a mutual fund scheme that is not suitable for an investor simply for earning a commission. In order to check this malpractice, asset management companies (AMCs) have been instructed by SEBI to pay only trailing commissions to distributors.

    • Traditionally, a trailing commission is a fee paid to advisors each year that you have an investment in your possession. In doing so, SEBI aims to increase the number of registered investment advisors (who earn fees for their services) in comparison to distributors (who make commissions).

    • Meanwhile, in order to clear any confusion regarding the roles of advisors and distributors, SEBI has also asked distributors to refrain from identifying themselves as “wealth advisors” or “independent financial advisors” unless they are registered investment advisors.

    As mentioned earlier, mutual funds financial advisors are likely to mis-sell products solely to earn commissions. RIAs, on the other hand, work for a fee and are under no pressure to make a larger quantity of sales. This enables them to advise you according to your own needs. Moreover, investment advisors are regulated by the SEBI RIA Regulations, 2013. Ideally, you should first consult with an investment advisor before approaching a distributor for a mutual fund product. The above actions clearly establish all the factors to understand investment advisor vs mutual fund distributor.

Conclusion

Mutual fund distributors are likely to discuss the provisions of their products with you with the intention of selling the mutual fund units. Investment advisors, on the other hand, will discuss your income, expenses, long- and short-term goals, tax obligations, and income to tailor your investment plan in an unbiased manner. If you want to invest in mutual funds exclusively, you can consult a mutual fund distributor for identifying the best mutual fund schemes. However, if you intend to invest in other financial instruments, it is wise to consult an investment advisor. As far as the risk factor is concerned, investment advisors will discuss your capacity for it and scrutinise your mutual fund scheme performance over the years. Meanwhile, mutual fund distributors will primarily be concerned with meeting their own financial needs.

Ans: Mutual fund distributors assist in the purchase and sale of mutual fund units which they present to the clients after analysing their financial conditions, assets and financial goals.

Ans: An investment advisor provides financial and investment assistance regarding various financial instruments to ensure the right returns. They analyse their existing assets and financial condition to assist clients in achieving their financial goals.

Ans: Investment advisors mostly charge a flat fee for providing advisory services. However, some investment advisors charge a commission based on the invested capital.

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