When it comes to managing wealth and achieving financial goals, a critical decision lies in choosing the right financial guide. While many opt for Mutual Fund Distributors (MFDs), it is a no-brainer case for shifting to Registered Investment Advisors (RIAs). The choice between RIAs vs MFDs is more significant than many realize. Most investors unknowingly lose lakhs, even crores, due to mutual fund expense ratios and advisory structures.
If you’re investing via a Mutual Fund Distributor (MFD) instead of a SEBI-Registered Investment Advisor (RIA), you might be missing out on a significantly higher return.
RIAs provide a comprehensive, unbiased, and legally grounded approach to financial planning, far surpassing the limited scope of MFDs. Let’s explore the benefits of working with RIAs, focusing on expense efficiency, holistic financial planning, and legal nuances that differentiate them.
One of the most glaring differences between working with MFDs and RIAs is the expense ratio—a critical factor in long-term investment performance. MFDs typically sell regular mutual fund schemes that include distribution costs, marketing expenses, and commissions embedded into the expense ratio. These higher expense ratios directly erode investment returns over time.
On the other hand, RIAs predominantly recommend direct mutual fund schemes. These schemes eliminate distribution fees, significantly lowering the expense ratio. Let’s illustrate this with an example:
Imagine you invest ₹10 lakhs in a mutual fund scheme. Assuming that the regular mutual fund scheme has an annual expense ratio of 2%, while a direct mutual fund scheme has an expense ratio of 0.8%. Assuming a 15% annualized growth rate before expenses, let’s calculate the end values over 20 years:
The difference of ₹1.8 crores highlights the significant impact of lower expense ratios in direct mutual fund schemes, showcasing how RIAs help optimize returns for investors by recommending direct schemes. And the funny part here is that 1.8 Crores is stolen from client’s own NAV without clients realizing about it and this money keeps compounding when one continues with a SIP.
We even checked with a leading CFO who didn’t know about this difference and continued investing through a bank (which also only sells regular schemes)
While MFDs focus solely on mutual fund distribution, RIAs adopt a 360-degree approach to financial planning. Here’s how RIAs elevate wealth management to the next level:
With expertise across asset classes, RIAs craft balanced portfolios that withstand market fluctuations and cater to long-term aspirations.
A fundamental distinction between RIAs and MFDs lies in their legal and ethical obligations. RIAs are bound by fiduciary duty—legally required to act in the best interests of their clients. This ensures transparency, unbiased advice, and prioritization of your financial well-being.
Conversely, MFDs are not fiduciaries. Legally, they are not allowed to provide investment advice and must confine their role to distributing mutual funds. This limitation often leads to conflicts of interest, as MFDs may prioritize schemes with higher commissions over those suitable for clients’ needs.
Partnering with an RIA opens doors to strategic financial planning, lower expense ratios, and diversified investment opportunities. Their fiduciary responsibility ensures alignment with your financial goals, unlike MFDs, whose capabilities are limited to mutual fund distribution.
In today’s complex financial landscape, every rupee saved and every strategic decision matters. RIAs provide the expertise and accountability needed to navigate this landscape effectively, empowering you to achieve financial freedom with confidence. If your aim is wealth preservation, growth, and a secure financial future, working with an RIA is undeniably the superior choice.
Want to find out how much wealth you’re losing through regular mutual funds? Switch to CrispIdea’s SEBI-Registered RIAs and see your real potential.
Malay Shah is a Founder and a Principal Advisor at CrispIdea (www.crispidea.com/ai-first-wealth). He is a SEBI registered Investment Adviser with more than 24 years of work experience with professional services firms like EY, McKinsey, Alvarez & Marsal bringing in a wealth of knowledge about market trends, economic cycles, and investment strategies.
He is on a mission to democratize wealth for the ambitious professionals in India by bringing the best AI technology combined with powerful capabilities of large fund-houses and financial institutions to retail clients, ensuring capital protection, tax-optimized asset allocation, and market outperformance.
