SEBI RIA - Flat % Commission model for Mutual Fund Investment Advisory

(updated 20 Nov 25)

Working paper by

Col Abraham Cherian, Retd

Founder 360° wealth advice

SEBI RIA, Regd No: INA000019594

Executive Summary

1.      This paper comprehensively examines the reasons why fee-based Registered Investment Adviser (RIA) models have not scaled in India, details the strengths and weaknesses of the current mutual fund commission system, and proposes a flat commission framework as a solution for delivering unbiased investment advice to a broader population investing in mutual funds.

2.      Despite regulatory advances, fee-based RIA advice remains largely inaccessible to the typical Indian investor due to high and visible minimum fees, operational and compliance complexity, and entrenched market behaviours that favour “free” distributor-led solutions. Distributors benefit from easier onboarding, commissions invisibly embedded in mutual fund expense ratios, multi-AMC agency status, wider reach, and persistent advisory activity under the guise of “distribution.” These factors create a dual ecosystem where robust, unbiased advice is outcompeted by scalable, commercially incentivized product-selling models. Additionally, regulatory requirements such as deposit obligations, audit and advertising compliance, and fee collection mechanisms add further barriers for independent RIAs, especially those focused on smaller investors or digital advice delivery.

3.      The widely used trail commission model for mutual fund distributors has undeniably deepened market penetration, expanded access for new investors, and fuelled robust distributor engagement. However, this system often sacrifices impartiality—rewarding product pushes, portfolio churning, and the mis-selling of higher-commission products at the expense of suitability for the investor’s actual financial situation and risk profile. The lack of clear cost transparency for investors and the absence of a fiduciary standard further exacerbate these conflicts, leading to suboptimal investment outcomes and eroding faith in the advisory process.

4.      In this context, the document charts a way forward with a flat commission model for RIAs advising on mutual fund portfolios — set at a uniform percentage (e.g., 0.5–0.6% the % that works best needs to be determined) across all fund categories and providers. This approach is designed to balance the accessibility and cost-predictability of the commission model with the fiduciary discipline, transparency, and client alignment expected of the RIA framework. By eliminating product-linked commissions, mandating full disclosure, requiring investor elections on fee preferences, and conducting regular regulatory audits, this model can simultaneously democratize quality advice for smaller investors and uphold the standards necessary to avoid conflicts of interest.

5.      Consideration is given to making this model sustainable for all stakeholders: The proposed flat commission maintains viability for RIAs across varying AUMs, ensures competitiveness within AMC expense ratio limits, and creates a fair marketplace for both established distributors and new-age advisers. It also allows straightforward regulatory monitoring to safeguard investor interests and foster trust. At the same time, it allows co-existence of fixed fee, AUA based advisory and financial planning services by RIAs, while complementing the trail commission based mutual fund distribution model.

6. The RIA-Advised Direct Plan (RADP) model attaches a uniform 0.50% (for eg.) flat commission to a direct mutual fund scheme's Total Expense Ratio (TER) only when an investor actively links an RIA code to their account, creating a transparent fee structure that automatically reverts to the lower base TER (e.g., 0.30%) when the RIA relationship terminates. This dynamic TER mechanism—shifting from 0.30% to 0.80% with RIA linkage and back again—eliminates the need for hidden costs or separate advisory fees while maintaining RIA business viability through performance-based incentives.

7. Ultimately, this paper advocates for regulatory, business model, and process reforms that will create a more inclusive, scalable, and conflict-free environment for mutual fund advice in India—benefitting not just larger investors, but the millions of everyday savers essential to the nation’s long-term financial growth.

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I - Why Fee-Based RIA Advice Has Not Gained Traction in India

1. Fee Structures and Cost Barriers

Registered Investment Advisers (RIAs) in India operate primarily on an upfront or recurring fee model unlinked to product commissions, whereas mutual fund distributors earn embedded trail commissions ranging from 0.10% to 1.95% annually. RIAs commonly charge:

Fixed fees (e.g., ₹25,000–₹50,000+ annually, limited to 1.51 lakhs) or

AUM-based fees (0.50%–1.25% of assets under management)

These fee levels often exceed the effective cost to investors under the commission model, where advisory “freebies” are bundled into existing expense ratios. Smaller retail clients, especially those with AUM below ₹10 lakhs, find RIA fees prohibitive relative to perceived value, driving preference for “free” distributor advice. ​The largest numbers of potential investors who can be brought into guided mutual fund investing have been priced out of the financial and investment advice services opportunity. The gap in financial and investment advisory services due to pricing is being covered by a product sales model, which may not be in the best interest of investors. The lack of unbiased advice is affecting long term financial growth and stability of the families who need it the most.

2. Regulatory and Compliance Burden

The SEBI Investment Advisers Regulations, 2013 amended from time to time impose extensive requirements on RIAs, including:

a. Enrolment and deposits: RIAs must maintain lien on fixed deposits up to ₹10 lakhs based on client counts.

b. Periodic audits: Annual compliance audits by chartered accountants and public disclosure of adverse findings

c. Advertisement approvals: Prior‐approval processes for all marketing materials, with non‐trivial processing fees. Each instance of marketing material needs to be approved by BASL, a process that takes a few weeks to a month, due to which any meaningful marketing activity by an RIA is either non-compliant, expensive or ineffective.

d. Fee collection: CeFCOM is an optional mechanism phased in for non-fintech RIAs since October 2024, with full digital integration still pending. Alternatively, a SEBI approved UPI handle (@valid) has already been implemented. However, these only highlight the ‘fee payment’ aspect in the customer journey, vs no ‘fee payment’ step in the commission model.

3. Competitive Dynamics with Distributor Model. Mutual Fund Distributors benefit from:

a. Simplified onboarding: No agreement, fee negotiations or disclosures, leading to quicker client conversion.

b. Higher distribution reach: Banks and brokerages leverage branch networks and incentives for markets, where commission margins remain attractive. RIAs are independent of banks and brokerages – and hence are not visible to investors.

c. Receive trail commissions directly from AMCs, which are seamlessly embedded within the fund's expense ratio and paid out monthly, regardless of whether the advice provided to the investor is comprehensive or product-focused. This structure allows MFDs to offer "free" advice and onboarding services, as investors do not see any separate charge or invoice. In contrast, RIAs must charge explicit, visible fees for investment advice, causing clients to balk at paying upfront fees even if overall costs are ultimately lower. The hidden nature of distributor commissions thus minimizes resistance from investors and provides a key commercial advantage to MFDs.

d. Status as Agents of Multiple AMCs. MFDs are recognized agents/brokers by multiple AMCs and can offer any scheme across the market, enabling wide product placement and strong relationships with asset managers. AMCs actively incentivize MFDs with marketing support, special schemes, and promotional rewards, thereby allowing distributors to serve a much larger set of clients and geographies, including B-30 (beyond top 30 cities) regions. In contrast, RIAs must remain strictly product-agnostic and maintain firewalls against AMC incentives; their operations tend to be more localized, and scaling to serve multiple client segments without embedded institutional support is expensive and operationally complex.

e. Providing De Facto Financial Advice. Despite regulatory separation, MFDs routinely offer investment "advice" under the guise of distribution, recommending which schemes to buy, how to allocate portfolios, and even when to switch funds. Enforcement against unauthorized advisory by MFDs is difficult [can a car dealer be banned from giving advice on a car’s features and comparisons?], as AMCs benefit from higher AUM and commission flows, while clients remain unaware that such recommendations should only be provided by RIAs. The result is a dual ecosystem where distributors dominate actual advisory relationships and RIAs struggle to communicate their unique fiduciary value to investors, further limiting fee-only advisory business growth.

f. Lack of Investor Willingness and Awareness. Most Indian investors remain unfamiliar with fee-based advice models and do not appreciate the difference between commission-driven recommendations and unbiased, fiduciary-aligned advice. Rather than pay a visible fee (e.g., ₹15,000/year or 0.5%–1% of assets), clients prefer "free" distributor services, missing the long-term benefits of cost transparency and unbiased recommendations. Even technology platforms have struggled to scale true RIA models, owing to high client acquisition costs, regulatory friction for onboarding, and inadequate digital infrastructure for secure, efficient payment collection. The investor mindset, shaped over decades by product sellers rather than pure advisers, remains the biggest barrier to RIA business scale.

g. In contrast, RIAs must actively justify fees, present detailed suitability reports, and compete on service quality rather than product access. The distributor model’s entrenched incentives and scale thus overshadow fee-only offerings.

h. Many large RIAs are actually distributor cum RIA businesses, with the RIA business contributing a relatively smaller proportion of the revenue. However, the branding of an RIA is perceived to be more acceptable (“we are financial advisors accredited with SEBI” instead of “we distribute or sell mutual funds on commission”), hence many distributors register as RIAs too to call themselves advisors. Their services are separated by regulation but marketing and sales lines blur conveniently - in reality, they sell mutual funds on commission. The lines being blurred, the regulator is not able to make a distinction and police this at scale.

4. Technological and Platform Constraints. Despite India’s fintech boom, few platforms have built sustainable businesses around RIA advice due to:

a. Exploiting technology platforms to lower costs: The current upfront fee model does not encourage seamless use of technology to provide low cost financial and investment advice at scale, as compared to the distributor commission model.

b. High customer acquisition costs: Without embedded commission incentives, platforms must subsidize initial advice to attract users, eroding unit economics.

c. Regulatory friction: Each RIA platform navigates complex advertisement approvals, data privacy, grievance matrices, and deposit tracking, delaying time-to-market

Platforms such as robo-advisors therefore lean on hybrid commission models or partner with distributors rather than pure RIA fee structures, limiting growth of truly fee-only digital advice.

5. Cultural and Market Behaviour

Investor mindset in India emphasizes “free” advice bundled with product distribution. Key behavioural factors include:

a. Lack of fee awareness: Many investors undervalue advisory services, perceiving direct plan expense ratios as the only cost metric.

b. Trust in incumbents: Longstanding relationships with distributors and banks outweigh willingness to pay separately for advice.

c. Perceived complexity: Fee-based models require understanding of AUM calculations, billing cycles, and regulatory charters, deterring mass adoption.

d. Until investor education deepens around cost transparency—highlighting the long-term benefit of fee-aligned advice—RIA models will struggle to shift entrenched behaviours.

In sum, the combination of relatively higher client fees, stringent regulatory compliance, rigorous commission-based competition, technological bottlenecks in fee collection, and cultural inertia explains why fee-only RIA advisory has yet to attain critical mass in India. Only with streamlined regulations, full digital infrastructure for fee processing, and widespread investor education can the RIA model gain sustainable traction.

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II – Analysis of the Mutual Fund Commission System

The current mutual fund commission system in India creates significant conflicts of interest that often prioritize distributor earnings over investor welfare. While the trail commission model introduced by SEBI has improved transparency, structural issues persist. The system generates over ₹21,000 crores annually for distributors, yet, it largely fails to ensure impartial investment advice. This analysis examines systemic problems and proposes comprehensive reforms to level the playing field between commission-based distributors and fee-based RIAs.

This paper focusses on the large population that can invest small amounts of money every month, and has relatively smaller saved amounts – these are currently not served by RIAs and do not have many options for actionable and specific advice on their own investment decisions at all. Reasons are many, and already discussed above. The superset of RIAs caters to all kinds of investors who may invest in stocks, mutual funds, PMS, AIFs and foreign investments etc, however, they effectively cater to the well-off, who are open to and can afford to pay the upfront fee.

This paper is attempting to address the specific issue of making high quality, unbiased investment advice related to mutual fund investment on a large scale for average, small ticket size investors via re-design of business model, rather than depending on advisor or MFD behaviour to provide unbiased advice. At present, the commission model allows bias to creep in by design – higher commission for equity, NFOs, thematic schemes encourage them to load client portfolios with these schemes. All MFDs do not mis-sell or provide biased advice – however the structure of incentives is designed for the opposite.

1.      The Current Commission Structure: A Detailed Breakdown

a.      Trail Commission Framework. The Securities and Exchange Board of India (SEBI) mandated trail commissions as the sole compensation mechanism for mutual fund distributors, replacing upfront commissions in 2018. Under this system: ​

Commission Rates by Category:

·        Equity Funds: 0.10% to 1.95% annually.​

·        Debt Funds: 0.01% to 1.48% annually.​

·        Hybrid Funds: 0.25% to 1.70% annually​.

·        Index Funds: 0.08% to 0.80% annually.​

Commission Calculation: Trail Commission = [Number of Units × NAV × Commission Rate × Days Invested] ÷ 365​. This structure generates approximately ₹2.05 daily commission per ₹1 lakh invested at 0.75% annual rate, compounding to substantial long-term costs for investors. ​

2.      Pros and Cons Analysis of the Current Mutual Fund Commission System. The existing commission system in the Indian mutual fund industry brings distinct benefits and clear drawbacks for investors, distributors, asset management companies (AMCs), and the broader financial ecosystem. The following detailed analysis explores these aspects in depth, offering practical examples where possible.

3.      Advantages of the Current System

a.      Ongoing Engagement and service. For investors, the trail commission structure has proven to be a robust lever for ongoing engagement and service. Distributors are incentivized to provide continued post-sale support, rather than seeing each client relationship as a mere one-off transaction. For instance, regular follow-ups and portfolio reviews are standard practice since distributors’ income depends on the sustained value of clients' investments and their satisfaction. This creates a model where both parties’ interests are often aligned over time, compared to upfront commission arrangements which can encourage short-term, transactional advice.

b.      Accessibility. The commission-based approach allows millions of small investors to access financial products and qualified guidance without paying upfront advisory fees. This model has been critical in expanding mutual fund penetration beyond affluent urban centres, making investment services affordable and available to those with limited investible assets. For example, a first-time investor with ₹10,000 can start investing in a regular plan

and benefit from distributor guidance, whereas a fee-only RIA (Registered Investment Adviser) may set prohibitive minimum fee thresholds out of reach for this segment.

c.      The simplified entry mechanism is particularly relevant where financial literacy remains uneven. Entry-level investors, often with little investment knowledge or confidence, face no barriers to commencing their investment journey—with their distributor acting as both guide and intermediary in the product selection, application, and onboarding process.

d.      On the distributor side, predictable regular payouts through monthly or quarterly trail commissions form the foundation for a sustainable business model. The direct link between assets under distribution and regular revenue motivates client retention and growth. Distributors that build long-lasting relationships with families and communities benefit from persistent compensation aligned with investor loyalty and growth in assets under management (AUM).

e.      Long-term compensation via trail commissions means distributors focus on ensuring investors persist with suitable products. This mitigates the risk of abandoned portfolios and aligns with AMCs’ interests in stable, growing assets. It also provides growth incentives: as distributors help existing clients grow their investments and acquire new clients, their income increases proportionally, rewarding business expansion success.

f.       AMCs clearly benefit from the distribution network, which remains critical to mobilizing retail assets. Hundreds of thousands of distributors operating in both urban and rural markets extend reach and facilitate the onboarding of new investors. Through B-30 incentives and targeted commission structures, fund houses penetrate smaller cities and towns. The regulatory push towards trail-only commissions also fulfils SEBI’s requirements for improved transparency and accountability, reflecting evolving best practices globally.

4.      Disadvantages and Conflicts.

a.      Higher Costs – lower returns over time. Despite these advantages, material drawbacks for investors are embedded within the system. One significant concern is the hidden cost: trail commissions are wrapped into the mutual fund expense ratio, causing a direct reduction in portfolio returns. For equity funds, this additional cost can range from 0.5% to 1% annually—a gap which, compounded over years, leads to substantial wealth erosion. For example, where a direct plan yields a 12% annualized return, the same investment in a regular plan (with higher expenses) might deliver only 11% annualized, resulting in a notable difference over a decade or more.

b.      The commission structure gives rise to biased recommendations. Because their compensation depends on product selection, distributors naturally develop preferences for:

i.     High-commission equity funds over lower-commission debt funds.

ii.     Sectoral, thematic, or NFO schemes (which often offer enhanced commissions at launch) over broadly diversified, lower-cost products.

iii.    For example, a distributor might receive four to five times as much annual remuneration for placing a mid-cap fund as compared to a short-duration debt fund of the same investment amount.

iv.     This bias undermines the principles of fair advice and optimal product selection.

c.      Product churning further compounds the problem. Incentives exist for distributors to actively encourage their clients to switch between schemes, as every new scheme offers higher commissions to improve sales, and increased AUM generates fresh trails. Investors may thus experience frequent switching, often incurring exit loads, tax inefficiencies, or missing out on long-term compounding. The result is fragmented portfolios and diminished investment outcomes.

d.      Mis-selling remains a persistent concern, with vulnerable groups such as seniors often being placed into risky portfolios that are equity heavy, for the sake of higher commissions. Such inappropriate sales raise significant investor protection issues and damage trust in the advisory process. SEBI has repeatedly intervened when evidence of widespread mis-selling emerges.

e.      For the broader financial ecosystem, the lack of fiduciary duty is a central conflict. Distributors are not legally obliged to act in the client’s best interest. Their product recommendations—while subject to regulatory suitability standards—are ultimately sales-driven, not advisory-first. This stands in contrast to RIAs, who must always prioritize the investor's interest above their own or any product provider.

f.       Information asymmetry further compounds these issues, with investors rarely aware of how much commission distributors earn off their investments and how it affects their returns. The lack of transparent cost disclosures makes it challenging for investors to compare direct plans, regular plans, and fee-based advice on an "apples-to-apples" basis.

g.      Finally, the overall market can experience distortion. Product innovation may be steered toward schemes with higher commission structures, regardless of genuine investor need or market relevance. This misalignment shifts focus from truly innovative or low-cost investment options to those simply more lucrative for intermediaries.

h.      In summary, while the current commission-based mutual fund system has enabled widespread market access and distributor-driven growth, it continues to generate significant conflicts for investors in the form of hidden costs, potential mis-selling, advice bias, and opacity. Regulators and market participants must address these concerns as they contemplate future reforms for the benefit of investor outcomes.

Incentive Analysis: A Three-Way Impact Assessment

5.      Investor Incentives. Investors in regular plans unknowingly subsidize distributor compensation while receiving potentially conflicted advice. The system creates a false economy where "free" advice costs significantly more through reduced returns.​

a.      Impact on Returns: Direct plans outperform regular plans by 30-190 basis points annually.​ Over 15 years, this difference compounds to substantial wealth erosion. A ₹10 lakh investment loses approximately ₹50,000-₹1.9 lakh to additional expenses purely on commissions. If the scheme underperforms, that is additional loss to the investor.

6.      AMFI and Regulatory Incentives. AMFI and SEBI aim to balance investor protection with market development. However, the current system creates regulatory challenges:

a. Enforcement Complexity: Monitoring mis-selling across thousands of distributors proves difficult.​

b. Due Diligence Burden: AMCs required to oversee distributor conduct, creating compliance costs.​ A distributor is not required to certify that they have not provided any financial or investment advice, or recommended any schemes. In addition, distributor is not tied to any one AMC – there is no control or oversight by AMCs over their distributors.

c. Market Development vs. Protection: Tension between encouraging fund distribution and preventing investor exploitation.​

7.      Distributor Incentives. Distributors naturally gravitate toward (the commission structure creates perverse incentive for):

a. Higher-commission products regardless of investor suitability.

b.      Frequent portfolio churning to maximize higher commissions in newer products.​

c.      New Fund Offers (NFOs) offering enhanced initial commissions.

8. Business Model Conflicts:

a. Revenue depends on product sales rather than investment outcomes for the investor.

b. Success measured by AUM growth, not client portfolio performance.

c. Limited accountability for long-term investor results.​

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III – SEBI RIA Flat % Commission model for Mutual Fund Investment Advisory

The proposal for a uniform 0.5 to 0.6% (or any other) flat commission structure across all fund houses and scheme types represents a paradigm shift that could fundamentally address many conflicts plaguing India's mutual fund distribution system. This model, with potential differentiation between RIAs and distributors based on fiduciary standards, offers compelling benefits but requires careful implementation to avoid unintended consequences.

1.      Key considerations to decide on flat commission model:

a.      Alignment with Investor Interests and Fiduciary Standards. The commission rate must be set to avoid incentivizing RIAs to recommend unsuitable schemes or excessive portfolio churning. The chosen flat percentage should not distort advice quality; it must enable unbiased, client-focused recommendations and be simple for investors to understand and evaluate, as highlighted by SEBI’s regulatory emphasis on investor-first principles. ​

b.      Sustainability for RIA Businesses Across Client Segments. The flat fee needs to be financially viable for RIAs serving both high- and low-AUM clients. If set too low, RIAs may only cater to large-ticket investors, undermining inclusion. If set too high, the model could price out small investors or burden funds—so the rate should reflect realistic service costs, business scalability, and market diversity, as discussed in SEBI’s compliance guidance for investment advisers.

c.      Competitiveness Relative to AMC Margins and Expense Ratios. The commission must be affordable within existing AMC expense ratios, especially for low-cost products like debt and index funds. The rate should be tested for margin impact across equity, debt, and hybrid funds so that AMCs can sustain their business, maintain product diversity, and still have capacity to invest in investor support and technology, without inflating overall investor expenses. ​

d.      Market Parity and Level Playing Field With Distributors. The flat commission for RIAs must foster a level competitive field with mutual fund distributors (MFDs). If RIAs are subject to stricter fiduciary standards, a marginally higher rate may be justified, but the gap should not cause channel distortion or regulatory arbitrage. The rate-setting process should align RIA and distributor models towards transparent, non-conflicted advice.

e.      Ease of Regulatory Oversight and Transparency. A flat commission model should be easy for regulators, AMCs, and investors to implement and monitor both from a technology and regulatory point of view. The structure must allow for straightforward reporting, public disclosure, and periodic review, preventing hidden cross-subsidization or backdoor incentives, and enabling SEBI to conduct effective audit and enforcement for investor protection.

The Proposed Model: Structure and Mechanics

2.      Commission-Based Fee Model for RIAs Ensuring Unbiased Advice. To allow RIAs to receive compensation via commissions while ensuring unbiased mutual fund advice, the following model can be adopted, drawing on regulatory best practices and investor protection principles from SEBI circulars and the current advisory framework:

a.      Single Uniform Trail Commission Model – applicable to RIAs specifically opting for mutual fund investment advisory services

i.        Uniform Rate: All AMCs shall pay RIAs a single, flat trail commission (0.50 to 0.60% per annum, for example), irrespective of scheme category, fund house, or asset class.

ii.        No Upfront or Scheme-Specific Commission: Upfront commissions, scheme-linked incentives, or any bonus structure shall be banned for RIAs.

iii.        Objective: This removes financial incentive to favour higher-paying funds or churn portfolios, aligning RIA and investor interests.

b.      Mandatory Dual Disclosure and Explicit Fee Election.

i.        Transparent Disclosure: RIAs must disclose their compensation method (commission, fees, or a combination) with clear, investor-facing documentation at the time of client onboarding, as required by the SEBI Investor Charter and circulars. ​

ii.        Client Option: Every client must elect in writing—before receiving advice whether to pay the RIA via trail commission (built into fund expenses) or pay an out-of-pocket, explicit fee. This “explicit election” prevents conflicts and enables investor choice.

c.      Universal Fiduciary Standard

i.        Fiduciary Duty Mandate: Regardless of compensation method, RIAs should be legally bound to act in the best interest of the investor, as described in the recent SEBI Master circular and Investor Charter. This is stricter than the “suitability” standard applied to distributors. ​

ii.        Investment Rationalization: Any recommendation must be accompanied by a written rationale, portfolio review, and suitability analysis (not just transactional advice).

d.      Audit and Compliance Mechanisms

i.        Periodic Audits: SEBI will conduct annual audits of RIA practices, focusing on portfolio allocation, advice outcomes, and evidence of unbiased behaviour.

ii.        Commission Reconciliation: AMCs must publish RIA commission payout data to SEBI on a quarterly basis. Any “outlier” portfolios (e.g., those favouring certain fund houses or schemes disproportionately) will be flagged and investigated.

e.      Ban on Ancillary Non-Trail Incentives

i.        No Promotions, Soft-Rupee, or Indirect Benefits: RIAs are prohibited from receiving any form of indirect AMC compensation (marketing support, conferences, referral bonuses, etc.) outside the standardized trail commission.

ii.        Advertising Standards: All AMC marketing and communication material must comply with SEBI’s code of impartiality and no exaggerated performance claims.

f.       Commission Cap Review and Adjustment - Periodic Rate Review: To maintain fairness, SEBI will review and, if necessary, reset the uniform commission rate every 2–3 years based on market conditions and advisory outcomes, ensuring sustainability for both investors and advisors.

3.      Investor Benefits of this Model

a.      Affordability: The smallest ticket size investors can also avail of unbiased advice from RIAs, whether technology based or in person. The pricing barriers are brought down significantly as investors do not have to pay any upfront fee in this model. To simplify the process for large investors, advisory fees are now deducted directly from their mutual fund investments. This streamlines the old model where investors had to pay fees separately, which involved additional tax steps.

b.     Transparency: All advice costs are visible and standardized, yet they are not upfront.

c.      Choice: Investors can opt for either fee-based or commission-based advice— never both for the same asset. Advisors can also choose the pricing model based on their services. Those RIAs providing investment advice on stocks and other SEBI regulated products can continue to follow the fixed fee or AUA model.

d.      Unbiased Recommendations: No fund or AMC pays an RIA more, so there’s no incentive to push unsuitable products. This also creates a healthy competition among RIAs and MFDs to provide better service, as the result of unbiased advice will reflect in portfolio performance over time.

e.      Ongoing Monitoring: Consistent compliance audits limit mis-selling or portfolio churning.

By enforcing a single trail commission, mandating disclosures, binding all RIAs to fiduciary standards, prohibiting hidden incentives, and establishing a robust audit framework, RIAs can use a commission model without bias—delivering genuine, investor-aligned advice. This approach will truly level the playing field with distributors, bolster trust in advisory services, and safeguard investor interests. The fixed commission model for RIAs will fit into the advisory spectrum as below:

Model Type	Fee/ Commission Nature	Example	Conflict of Interest Risk	Cost Predictability	Accessibility for Small Mutual Fund Investors
Pure Fixed Fee RIA	Fixed fee upto 1.51L pa / 2.5% of AUA (no commission)	Fee-only financial planning, AUM/ advisory fee	Very low	High	Low (due to minimum fees)
Fixed % Commission Model for RIA	Uniform trail commission (e.g., 0.5%)	New proposed RIA model, no product/ scheme bias	Low (much less than variable)	Moderate-High	High
Traditional Variable Commission Distributor	Varies by fund/scheme, paid by AMC	Trail/Upfront commissions tied to product	High	Low	High

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Modified Direct Mutual Fund Scheme with Dynamic RIA-Linked Commission Structure

1.    The innovation lies in attaching a flat commission to a direct scheme's Total Expense Ratio (TER) only when an RIA code is actively linked to the investor account, creating a transparent, performance-accountable advisory fee structure that automatically adjusts based on actual advisory engagement.

2.    RIA-Linked Commission Attachment:

a.      When an investor creates a mutual fund investment account and links it to an RIA's unique code (registered with SEBI), the scheme automatically shifts from a base direct plan TER to an RIA-Advised Direct Plan (RADP) TER.

b.      The RADP TER = Base Direct Plan TER + RIA Commission (e.g., 0.30% + 0.50% = 0.80%.

c.      When the RIA code is removed or the advisory relationship terminates, the TER automatically reverts to the base direct plan level.

3.    Key Design Features Ensuring Unbiased Advice

a.      Uniform Rate Across All Products

i.      Single Rate: All RIAs receive identical 0.50% (or other agreed rate) across equity, debt, hybrid, and index fund variants.

ii.       No Scheme Bonuses: No special commissions for NFOs, thematic funds, or specific AMCs.

iii.       Benefit: Eliminates incentive to recommend products based on commission levels.

b.      Explicit Investor Election

i.      Written Consent: Investors must actively choose RADP variant and provide RIA code in writing before account opening or conversion.

ii.       Full Disclosure: Mandatory clear disclosure of TER difference (0.30% vs. 0.80%) and what the additional 0.50% covers.

iii.       Benefit: Ensures informed consent and prevents mis-selling or hidden charges.

c.      Reversible Code Linkage

i.      Easy De-linkage: Investors can remove RIA code at any time via simple digital request, automatically reverting to base direct plan TER.

ii.       No Penalties: No exit loads, locks, or switching restrictions tied to TER change.

iii.       Real-time Reversion: TER change takes effect on the next NAV calculation date post de-linkage.

iv.       Benefit: Empowers investors; creates accountability for RIA performance and service quality.

d.      Fiduciary Safeguards

i.      Mandatory Documentation: RIAs must maintain written advisory records for each RADP account, including suitability analysis and investment rationale.

ii.       Performance Disclosure: Quarterly performance reports comparing RADP advice outcomes against relevant benchmarks.

iii.       Compliance Audits: SEBI conducts annual audits of RIA account recommendations and commission payout patterns to detect bias.

iv.       Benefit: Creates accountability and reduces mis-selling risk.

4.  Advantages of This Model

a.      For Investors.

Advantage	Mechanism
Cost Transparency	Exact TER difference (0.50%) clearly disclosed; no hidden costs
Accessibility	Affordable advisory at 0.50% flat (vs. 0.8-1.5% in regular plans)
Flexibility	Easy de-linkage to revert to direct plan costs if unsatisfied
Accountability	RIA incentivized to deliver superior advice since code removal = income loss
Lower Overall Cost	0.80% TER (direct + RIA) cheaper than traditional regular plan (0.80-1.5%)

b.      For RIAs

Advantage	Mechanism
Scalable Business Model	Access to direct plan infrastructure; no separate platform build needed
Transparent Revenue	Direct commission tied to investor linkage; no AMC discretion
Competitive Parity	Uniform 0.50% removes need to compete via higher commissions
Performance Incentive	Better advice → investor retention → sustained commission; poor advice → de-linkage → loss
Cost Efficiency	Leverage AMC's payment, compliance, and reporting systems

c.      For AMCs

Advantage	Mechanism
RIA Ecosystem Growth	Provides RIAs scalable distribution channel; attracts fee-based advisors
Product Differentiation	Offers middle-market solution between direct and regular plans
Regulatory Alignment	Supports SEBI's transparency and investor protection objectives
Simplified Commissions	Uniform rate removes complex scheme-level incentive management
AUM Growth	Attracts underserved segment (small ticket, advised investors)

d.      For SEBI and Regulators

Advantage	Mechanism
Transparency	Real-time visibility into RIA-investor linkages and commission flows
Conflict Reduction	Uniform rates eliminate product-based bias by design
Scalability	Simple model enables regulatory monitoring without complex audits
Investor Protection	Automatic de-linkage option and reversion to lower costs protects against mis-selling
Market Efficiency	Competition on service quality, not commission rates, drives better outcomes