Distributors/Agents
A distributor or agent sells mutual fund schemes and insurance policies to investors on behalf of AMCs and insurance companies. Primarily they represent the interest of AMCs and insurance companies and sell products on commission basis.
Model: In addition to the upfront commission, AMCs pay trail commission that is typically a small percentage of net assets attributable to the units sold by them. Distributors rarely charge fees directly to clients.
Expertise: Basic product knowledge. At present, mutual funds distributors have to compulsorily clear NISM’s distributor’s module to get an ARN registration number from AMFI.
Value Add: These distributors provide basic product knowledge to their clients and are likely to use their own judgment rather any financial planning or risk profiling tools in ascertaining product suitability. Their primary value addition is facilitating execution of transactions.
Investment Advisers
In the recent SEBI Investment Advisers Regulations, an investment adviser has been defined as one who offers advice on buying, selling and dealing with securities and investment products for a consideration. An investment adviser is to act in a fiduciary capacity towards their clients. Simply put, an investment adviser is someone who uses a professional and client-centric approach in managing or advising clients on investments.
Model: Typically, they charge flat fees for their advisory services or a percentage of assets being managed to the clients. By law, they are now debarred from receiving any compensation from the product manufacturers.
Expertise: Sound product knowledge, professional qualification of at least post-graduation level or if graduate, they must have five years of experience in finance profession and/or certificates in any of these subjects - financial planning, fund, asset, portfolio management or investment advisory services from NISM or any other recognized body.
Value Add: Investment advisers are obliged to develop a comprehensive understanding of their client’s financial goals, risk profile and priorities. Advisers are required to obtain necessary information from clients like age, investment objective, income details, existing assets, risk appetite and liability.
Financial Planner
As their title suggests, a financial planner draws up a wholistic plan of finances. Unlike other categories of distributors they look at both the assets and liabilities of the client in order to improve the client’s financial health.
Model: Financial planners generally work on a fee based model. Some financial planners also help in the execution of plans by selling financial products while others don’t prefer hawking products.
Expertise: Financial planners generally have high qualifications and diversified experience in the financial profession. Many financial planners hold CFP. They are required to have a sound knowledge of asset allocation, tax planning and portfolio management.
Value Add: A good financial planner helps their clients in managing debts as well as investments. Their primary value addition is to protect their clients against risk and help them achieve their financial goals. Like legal advisors, the financial planners sometimes help their clients in doing estate planning of their properties and liabilities.
Wealth Managers
A wealth manager deals with HNIs clients. As the ticket size is much higher compared to financial planning, a wealth manager may need to deal with wider range of products such as art, real estate, structured products, private equity, venture capital etc.
Model: Wealth managers provide wide range of services like financial or investment advice, accounting or tax services and legal or estate planning for fee. Their fee structure is generally based on percentage of AUM they are managing with some of them charging a performance based fee too.
Expertise: In-depth product knowledge, diversified experience in financial profession, sound knowledge of domestic as well as international market, financial accounting, equity valuation and corporate financing.
Value Add: A wealth manager always tries to preserve and maximize the wealth of their clients. Some wealth managers aim to deliver a performance as per the pre-agreed terms which are irrespective of market conditions, very often getting directly involved in the active investments of their clients’ wealth.
