As India’s wealth landscape matures, affluent individuals are reassessing not just what they invest in, but who they trust to manage their wealth. Central to this evolution is a growing awareness of how advisory models impact long-term outcomes. The debate between fee-based advisory and commission-led distribution is at once financial and behavioural, and the numbers tell a compelling story.

In simple terms, a fee-based advisor (or a SEBI-registered Investment Adviser, RIA) charges clients a transparent, flat fee for providing holistic, goal-based financial advice. This includes everything from mapping life stages and planning for legacy, to devising a customised asset allocation strategy. Their only source of income is the fee paid by the client—no commissions, no backdoor incentives.

In contrast, a commission-based distributor earns money through the products they sell—typically mutual funds, insurance, or structured products. Product suitability can get clouded by the need to meet sales targets.

The cost of “Free”: Understanding the hidden leakages

While distributors may seem cost-efficient upfront, the long-term implications are stark. Consider this: commissions on mutual funds range from 0.9% to 1.5% annually. Over a 20-year horizon, these costs can significantly erode portfolio returns.

In contrast, advisors offer a fee-only model. Their fixed annual fees generally range from INR 10,000 to INR 1,51,000 annually, depending on the number of clients they serve. Advisors are also permitted to charge fees of up to 2.5% of the assets under management (AUM). However, in practice, most advisors keep their fees below 1%.

The advisor fee structure provides greater transparency and predictability, as fees are charged directly to the client rather than being paid as commissions by asset management companies (AMCs), as is the case with distributors. This direct payment model ensures clarity regarding the fees being charged and helps ensure that the advice given is focused solely on the client’s best interests, rather than being influenced by the commission earned.

The role of an advisor

Today’s HNIs often find themselves juggling multiple advisors: a broker for equities, a distributor or a private banker for mutual funds & alternatives, an insurance agent for coverage, a banker for deposits, and a chartered accountant for taxes. But this fragmented approach can lead to conflicting advice and suboptimal outcomes.

An advisor acts as a central architect, aligning all elements of your financial life into a cohesive, goal-oriented plan. From wealth preservation to philanthropy, and from succession to structured exits, the advice is comprehensive and coordinated—free from product-pushing or portfolio churn.

Regulation speaks: What SEBI’s view tells us

India’s market regulator, the Securities and Exchange Board of India, has made clear distinctions between the two models. Mutual Fund Distributors (MFDs) are allowed to provide only “incidental advice”—they cannot offer financial planning or holistic advisory services unless registered as Investment Advisers (IAs).

To safeguard investors, SEBI mandates that only RIAs can deliver investment advice and use terms like “financial planning” in communications. This clear regulatory boundary reinforces one central idea: true fiduciary responsibility lies with the advisors.

What does a 1% difference really cost over 10 years?

When managing substantial wealth, how you pay for advice matters as much as where you invest. Let’s look at a 10-year investment scenario across mutual funds and AIF/PMS portfolios, comparing a Registered Investment Advisor (RIA) with a distribution model.

To ensure a level playing field, we’ve standardised the assumptions across all models: Mutual Funds and AIF/PMS, through both RIAs and distributors.

Mutual Funds

• Fund Type: Flexi-cap (Direct and Regular)
• Returns Used: Actual calendar year returns since 2015
• Expense Ratios: Based on category averages (direct and regular separately)
• RIA Fee: 0.75% annually, charged separately
• Distributor Commission: Based on average AMFI commission data
• Investments: INR 50 lakh at start of Year 1; INR 50 lakh added annually from Year 2 to Year 10

AIF/PMS

• Structure: Model portfolio with standard fee assumptions
• Fees: RIA: 1.25% management + 0.75% advisory; Distributor: 2.5% all-in fee
• Investments:

• INR 50 lakh in Year 1; INR 10 lakh added annually from Year 2 to Year 10

• Exhibit: Commission vs Advisory Fees within the Mutual Fund and AIF/PMS universe.

While a distributor may not charge you a direct fee, they’re compensated through trail and upfront commissions. Trail commissions typically range from 0.9% to 1.5% annually and are deducted from your returns.

The impact over 10 years could resemble:

• In mutual funds, the RIA model yields nearly INR 4.4 crore more in value.
• In Alternative Investment Funds/Portfolio Management Services, the RIA model yields INR 2.2 crore more in value.

A seemingly small difference of 0.75–1% per year adds up due to compounding. In this case, that 1% gap every year reduces your wealth by INR 2 - 4 crore over 10 years. These differences arise not only from lower fees but also from better portfolio efficiency and reduced product churn.

Mature markets prefer fee transparency

Global wealth hubs have already shown us the way. Over the past decade, asset-weighted fees across both active and passive funds have dropped significantly primarily due to the rise of fee-based advisory. In the UK, average fund costs declined by 44% between 2013 and 2023. In the US, which had the lowest baseline fees, costs still fell by 32%.

This global pivot toward fee-only models was driven by investor demand for transparency and value. Top advisory firms responded by shifted their focus from chasing product margins towards generating advisory alpha, and delivering value through behavioural coaching, portfolio construction, and strategic allocation.

The behavioural and fiduciary lens

HNIs need a thinking partner who brings structure to complexity. The best advisors act as behavioural coaches who guide clients through volatile markets, preventing emotional decisions, and helping them stay aligned with long-term goals.

RIA models inherently promote this kind of relationship. With no incentive to sell, advisors can focus entirely on client outcomes/goals. This could mean staying in cash for a quarter, moving to defensive allocations, or advising against a trending (but unsuitable) investment product. More importantly, advisors bring a fiduciary mindset. They are bound, both legally and ethically, to act in your best interest.

Towards a more aligned future

Wealth deserves purpose. As family wealth becomes multi-generational and globally integrated, the need for a trusted advisor who is aligned, transparent, and client-first has never been more important.

Advisory is not merely a differentiated pricing model; it’s a philosophy rooted in clarity, alignment, and respect for client goals. As India’s affluent families chart their own course through succession, legacy, and globalisation, the future of wealth management will belong to those who choose transparency over opacity, and alignment over ambiguity.