I met a promoter of an established large wealth management company recently and asked him about his thoughts on the fee-based advisory model. He was frank enough to tell me that he sees a sharp dip in his company’s revenue if they move to an advisory model. For managing a single portfolio size of INR 100 Cr, he gets commission in the range of INR 1-1.5 Cr per annum without the client exactly knowing about it. Whereas, in the advisory model, the same client is not willing to pay a fee more than INR 20-25 Lakhs.
For the uninitiated, the traditional wealth management industry is based on generating commissions by selling investment products. SEBI introduced fee-based registered investment advisors (RIAs) in 2013, who cannot earn commission by selling products under the advisory model. Their only source of revenue is the fee received directly from the clients. SEBI RIAs
The share of zero-commission direct plans in total mutual fund industry assets has grown from NIL in 2013 to 48% in 2025. A significant portion of the direct plan assets is advised by SEBI RIAs or professionals in family offices. This massive shift has happened on the back of two main factors:
1. Conflict-free advisory: The advisory offered by SEBI RIA is unbiased as it is not influenced by which product company is offering higher commissions. It gives a great deal of comfort to HNIs knowing that they don’t need to suspect the motive behind the advice coming from their advisors. It also results in suitable advice that results in better risk-adjusted returns compared to a commission-based model. Many people feel that they can’t be mis-sold, but to be able to hold your guard all the time is not possible, and often mistakes are made. Therefore, having an advisor by their side whom they can rely upon is highly valued.
2. Saving commissions: Since advisors don’t earn from commissions, therefore, they recommend investments in zero-commission investment options like direct plans of mutual funds. The clients end up having higher portfolio gains by saving commissions and paying fees less than the commissions paid. This is applicable primarily for the portfolio sizes above INR 5 Cr.
The wealth management industry is poised to see a gradual shift from a distribution model to an advisory model. This is a big disruption story that is playing out in the wealth management industry that will result in higher accountability, more transparency, and better value addition for the investors.
Originally posted on LinkedIn: www.linkedin.com/sumitduseja
