How Much Do Financial Advisors Charge? Understanding Their Fees

Working with the right financial advisor can put your wealth-building journey on a fast track, whether it is saving for retirement, investing wisely, or managing taxes. But, financial guidance is not free of cost. 

Mutual fund distributors work on commissions, while SEBI-registered financial advisors charge fixed fees or a percentage of assets. That’s why knowing how a financial advisor charges ensures you get the best advice without overpaying. 

Let’s break down financial advisor fees in India. 

Understanding Financial Advisor Fees

SEBI registered financial advisors (RIA) offer comprehensive financial planning, which includes:

• Risk Management
• Investment Planning
• Retirement Planning
• Estate Planning, etc.

These advisors levy a fee in exchange for offering these services. Financial advisor fees can differ depending on the advisor’s expertise, services offered and credentials. 

Types of Financial Professionals and Their Fees

1. Commission-Based (e.g., AMFI-Registered Mutual Fund Distributors)

These are intermediaries registered with AMFI (Association of Mutual Funds in India) who are permitted to distribute mutual fund products. They do not offer personalised investment advice across asset classes unless separately registered as SEBI-registered Investment Advisers (RIAs).

Mutual fund distributors receive only trail commissions from the mutual fund houses with whom they are empanelled to sell mutual fund plans. These commissions are embedded within the Total Expense Ratio (TER) of regular mutual fund plans and are disclosed in the scheme documents. This trail commission, also known as an ongoing fee, is a small percentage of the distributor’s assets under management. It is paid every month, and respective mutual fund houses decide the structure. 

For example, a mutual fund house pays a trail commission of 1% per annum to the distributor. Now, if the distributor has an AUM of ₹10 lakh, he/she can earn around ₹10,000 per year. 

2. Based on Only Advice (SEBI RIA) 

SEBI RIAs are individuals/firms registered under the SEBI (Investment Advisers) Regulations, 2013, and are legally authorised to provide personalised advice on securities such as stocks, mutual funds, and bonds. They act in a fiduciary capacity, putting clients’ interests first.

SEBI RIAs charge only based on the advice offered. As per SEBI regulations, RIAs can choose between:

• Asset-based fee: Capped at 2.5% per annum of Assets Under Advice (AUA) per client.
  
• Fixed fee: Capped at ₹1.25 lakh per annum per client

Note: SEBI RIAs cannot distribute products such as mutual funds unless they operate a legally distinct distribution arm with separate branding and operations, in accordance with SEBI’s guidelines on conflict of interest.

How to Choose the Right Fee Structure for Your Needs? 

Follow these four steps to choose the right fee structure for your needs. 

1. Learn About Different Fee Structures 

Commission-based (MFDs) may seem cost-effective but could be biased. Fee-only (RIAs) may cost more but offer conflict-free advice. Know who you are dealing with.

2. Know Your Needs 

The next step is to consider why you need a financial advisor. If you only need help choosing mutual fund schemes, an AMFI-registered MFD may suffice. But a SEBI-registered RIA is required for comprehensive portfolio advice or financial planning.

3. Estimate Your Budget 

Financial advisor fees can be exorbitant at times. That is why it’s better to estimate how much you’re willing to pay based on your financial situation. 

4. Look for Transparency   

Always look for advisors who can clearly explain their fees and potential conflicts.

Conclusion 

Ultimately, financial advice is not free, and you might pay too much for it if you are not paying attention. Every fee system has pitfalls. That’s why knowing how financial advisors charge is not just useful; it is a must.

Take your time before selecting an advisor. Because when it comes to your money, you don’t want to pay a premium for poor advice.

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