How Do Financial Advisors Make Money in India? (Fees, Commissions & What You Should Know)

When it comes to managing your money, financial advisors can be helpful guides. They help you plan your investments, insurance, and long-term goals like retirement or buying a house. But here’s a basic question many people forget to ask:

How does your financial advisor make money?

It’s important to know this because the way an advisor is paid can affect the kind of advice they give you. Some earn commissions by selling financial products. Others charge you a direct fee for their advice. Some do both.

In India, financial advisors may be registered with SEBI (as Registered Investment Advisors or RIAs) or work as product distributors. Understanding the difference can help you choose the right person and avoid biased advice.

This article breaks it down in simple terms, so you can make informed, confident decisions.

1. Commission-Based Advisors

One of the most common ways financial advisors earn money in India is through commissions. These advisors are often not charging you directly - they get paid by the company whose product they recommend.

How it works:

Let’s say your advisor suggests a mutual fund, insurance policy, or a ULIP (Unit Linked Insurance Plan). If you invest in it, the advisor receives a commission from the company managing that product.

There are two types of commissions typically involved:

• Upfront Commission - a one-time payment when you first invest.
• Trail Commission - a recurring payment every year you remain invested.

Example:

If you invest ₹10 lakh in a mutual fund through a distributor:

• They might earn ₹5,000–₹10,000 as upfront commission.
• They may continue to earn 0.5%–1% annually as a trail commission. That’s ₹5,000 to ₹10,000 every year as long as your money stays invested.

The catch:

This model can lead to conflict of interest. Since different products offer different commission rates, some advisors may be tempted to recommend what pays them more - rather than what suits your goals best.

That’s why this model is sometimes associated with mis-selling - especially when clients don’t understand what they’re being charged.

2. Fee-Only & Fee-Based Advisors

While commissions are common, many modern financial advisors in India follow a fee-based or fee-only model. In this setup, you pay the advisor directly for their time, advice, or portfolio management - similar to how you'd pay a doctor or a lawyer.

Fee-Only vs Fee-Based: What's the Difference?

• Fee-Only Advisor
  Charges only a fee. Does not accept commissions from any product provider. This model is usually seen with SEBI-registered investment advisors (RIAs).
• Fee-Based Advisor
  Charges a fee, but may also earn commissions on some products. It's a mix of both models.

How Do the Fees Work?

Advisors may charge you in different ways:

• Flat Fee: A fixed amount per year (e.g., ₹10,000–₹1,25,000 as per SEBI cap).
• Hourly Fee: You pay based on the time spent (common in one-time consultations).
• % of Assets Under Management (AUM): You pay a small percentage of your total investment managed by the advisor.

Example:

If your portfolio size is ₹1 crore and the advisor charges a 1% AUM fee, you pay ₹1 lakh per year for their services - regardless of which mutual fund or stock they recommend.

Benefits of This Model:

• Aligns the advisor’s interest with yours.
• Reduces bias in product recommendations.
• Offers more transparency - you know exactly what you’re paying for.

Things to Watch For:

• Not all “fee-based” advisors are truly unbiased. Some still earn hidden commissions.
• Always ask for a fee disclosure document and check if they’re a SEBI-registered RIA.

3. Hybrid Models: A Mix of Both Commission and Fees

Many financial advisors in India follow a hybrid model - they charge a fee for some services and earn commissions on others. This is especially common among advisors who also act as mutual fund distributors or insurance agents.

How it works:

• The advisor might charge you a flat fee or AUM-based fee for creating a financial plan.
• At the same time, they may also suggest products like mutual funds or insurance, where they earn a commission.

Why advisors use this model:

• It offers flexibility for clients who may not want to pay large upfront fees.
• It allows the advisor to earn enough to offer more ongoing support.

Example:

Let’s say an advisor charges you ₹10,000 for planning your finances and then recommends a ₹5 lakh mutual fund investment. They may still earn a trail commission from the mutual fund company in addition to your ₹10,000 planning fee.

What to be careful about:

• Advisors might lean toward recommending products that offer better payouts.
• Fee and commission structures may not always be clearly disclosed.
• Clients may end up paying both direct and indirect charges unknowingly.

What you should do:

• Ask your advisor to clearly list all sources of compensation.
• If they earn both fees and commissions, ensure their recommendations are in your best interest - not theirs.

How Mutual Fund Advisors Get Paid

If you’ve ever invested in a mutual fund through an advisor, you may have heard the term “distributor.” These are mutual fund agents who earn commissions from the fund house when you invest through them.

Unlike SEBI-registered RIAs, mutual fund distributors are paid by the AMCs (Asset Management Companies) - not by you directly.

How the commission system works:

• Upfront commission (now mostly banned by SEBI to prevent mis-selling)
• Trail commission - ongoing percentage of the amount you’ve invested, paid out annually

Trail commissions vary by product type and AMC, but typically range from 0.3% to 1% per year.

Example:

If you invest ₹10 lakh through a distributor in a regular mutual fund plan, and the trail commission is 0.75%:

• Your advisor will earn ₹7,500 each year, as long as your money stays in that fund.
• You won’t get a separate bill, but the cost is indirectly deducted from your fund returns (via the expense ratio).

Regular Plan vs Direct Plan:

• Regular Plan: Includes the distributor’s commission.
• Direct Plan: No commissions. You invest directly with the fund house or through a SEBI RIA.

Difference in returns over time can be significant - direct plans usually offer 0.5%–1% better returns annually than regular plans.

What You Should Know:

• If your advisor says their services are “free,” check whether they are selling regular mutual funds and earning commissions.
• Ask for a comparison between regular and direct plan returns.
• SEBI mandates disclosure of commissions - ask for the exact % before investing.

What Is a SEBI Registered Investment Advisor (RIA)?

In India, not all financial advisors are the same. Some are distributors who earn through commissions. Others are SEBI-registered Investment Advisors (RIAs) who are legally bound to work in your best interest.

SEBI (Securities and Exchange Board of India) introduced the RIA regulation in 2013 to bring more transparency and trust into the advisory space.

Who is an RIA?

A Registered Investment Advisor is someone who:

• Is registered with SEBI (you can verify on SEBI’s website)
• Is allowed to give unbiased financial advice
• Cannot earn commissions from product sales
• Must disclose all fees and conflicts of interest
• Follows the fiduciary standard - meaning they must act in your best interest

Fee Structure for RIAs

SEBI has defined clear limits:

• Flat fee model: Maximum ₹1,25,000 per client annually
• AUM-based model: Maximum 2.5% per year of assets under advice

RIAs can’t mix both for the same client. They must disclose the structure upfront.

RIA vs Distributor: What’s the Difference?

Why choose a SEBI RIA?

• You get advice tailored to your goals - not what pays the advisor more
• Clear and upfront fee structure
• Better alignment of interests

Pro Tip: If your advisor claims to be “fee-only,” ask for their SEBI RIA registration number.

Direct vs Indirect Costs: What You Actually Pay

When you work with a financial advisor, it’s not just about what they charge you openly. There are often hidden or indirect costs that affect your overall returns.

To make smart decisions, you need to understand both the direct and indirect costs involved in financial advisory.

Direct Costs

These are charges you pay out of your pocket or are billed to you clearly:

• Fixed fee (₹10,000–₹1,25,000 annually for SEBI RIAs)
• Hourly consulting fee
• Percentage of Assets Under Management (AUM) - often 0.5%–1% annually

You’ll know exactly how much you're paying and what it’s for.

Indirect Costs

These are not charged to you directly, but are deducted from your investments or are embedded in the products you buy:

• Expense ratios of mutual funds (especially regular plans)
• Commissions paid to advisors from product companies
• Hidden charges in insurance-linked investments (like ULIPs)

Example:

If a mutual fund has an expense ratio of 2% (regular plan), and the direct plan version has 1%, you are losing 1% every year - even if the advisor told you their service is “free.”

Why it matters:

Over 10–15 years, these small differences can lead to big gaps in wealth creation.

Imagine losing ₹1 lakh every year in hidden costs on a ₹1 crore portfolio. That’s ₹10–15 lakhs over a decade!

Tip:

• Always ask: “Is this product commission-free?”
• Prefer direct plans with fee-based advice for full transparency
• Review all expense ratios, fees, and lock-ins before investing

AUM Thresholds & Who Advisors Work With

Not all financial advisors work with every investor. Many have a minimum portfolio size, especially those who charge based on Assets Under Management (AUM).

This is known as an AUM threshold - and it's a key factor to consider when choosing an advisor.

Why do advisors have minimum thresholds?

Managing a portfolio takes time and effort. For advisors who charge 1% on AUM, a ₹10 lakh portfolio gives them ₹10,000 per year. That might not justify the work involved.

To stay profitable, many advisors set a minimum AUM requirement, commonly in the range of:

• ₹25 lakh
• ₹50 lakh
• ₹1 crore or more

This doesn’t mean they won’t help you at all - but they may offer limited or simplified services to smaller clients.

Common examples:

• A SEBI RIA might only accept clients with ₹50L+ investment potential.
• A hybrid advisor may offer planning to smaller clients but reserve investment management for higher AUM clients.

What if you’re below the AUM threshold?

Don’t worry - there are still options:

• Opt for hourly or flat-fee sessions instead of ongoing portfolio management.
• Use direct mutual fund platforms with SEBI-registered RIAs offering plan-only advice.
• Robo-advisors and DIY tools are emerging as low-cost options for beginners.

Pro Tip:

When approaching an advisor, ask upfront:

"Do you have any minimum portfolio size or investment commitment?"

This avoids surprises and helps set the right expectations from the start.

How Much Do Financial Advisors Make? (For Aspiring Advisors)

If you're considering becoming a financial advisor - or just curious about how much they earn - this section is for you.

Financial advisors in India can make anywhere from ₹3–30+ lakhs per year, depending on their business model, client base, and experience. Some top advisors managing high-net-worth clients even earn in crores.

Income Sources for Financial Advisors

1. Commissions from Products
   - Mutual funds, insurance, NPS, ULIPs, etc.
   - Commission can range from 0.5% to 2% or more.
   - Example: ₹1 crore mutual fund book at 0.75% = ₹75,000/year
2. Fees from Clients
   - Flat fees, hourly consulting, or AUM-based fees
   - SEBI-registered RIAs may charge up to ₹1.25 lakh per client annually or 2.5% of AUA
3. Hybrid: Both commissions and fees
   - Many advisors combine both to improve earnings

Sample Earnings Based on Practice Type

Factors That Influence Earnings:

• Years of experience
• Number of clients
• Type of clients (retail vs HNI)
• Location (metro advisors often charge more)
• Business model (fee vs commission)

Final Word:

Being a financial advisor is both a profession and a business. The more value you deliver, the more trust and income you can earn over time.

What to Ask Before Choosing an Advisor (Checklist)

Choosing the right financial advisor can make a big difference in your financial journey. But with so many types of advisors out there - some fee-only, some commission-based - it’s important to ask the right questions upfront.

Here’s a simple, practical checklist to help you make an informed decision.

Key Questions to Ask:

• Are you a SEBI-Registered Investment Advisor (RIA)?
  ➤ Ask for their registration number and check it on SEBI’s website.
• Do you earn commissions from any product providers?
  ➤ This helps you identify any potential conflicts of interest.
• What is your fee structure?
  ➤ Fixed fee, hourly fee, AUM-based, or commission? Ask for clear numbers.
• Will you recommend direct plans of mutual funds?
  ➤ Fee-only advisors usually do. Commission-based ones typically won’t.
• Do you follow a fiduciary standard?
  ➤ Fiduciaries are legally bound to act in your best interest.
• What is the total cost I’ll pay - including indirect charges?
  ➤ Don’t stop at the advisor’s fee. Ask about product-level costs too.
• Is there a minimum investment or AUM requirement?
  ➤ Saves you time if they only work with larger portfolios.
• How often will you review and rebalance my portfolio?
  ➤ Regular check-ins are key to staying aligned with your goals.
• Do you provide a written financial plan?
  ➤ A formal plan shows seriousness and professionalism.
• Can I see a sample of your work (without personal details)?
  ➤ Helps you judge quality, clarity, and depth of advice.

Tip: Don’t hesitate to interview 2–3 advisors before making a decision. This is your money - you deserve clarity and trust.

Final Takeaways

• The way your financial advisor gets paid matters. It can shape the advice you receive.
• Always ask about fees, commissions, and conflict of interest disclosures.
• Prefer SEBI-registered RIAs if you're looking for transparent, fiduciary-first advice.
• Understand both direct and indirect costs - not just what you pay, but what’s deducted behind the scenes.
• If you're unsure, start with a one-time consultation or fee-based plan-only session.

The goal is to find an advisor who works for you, not for the products they sell.

FAQs

We’ve compiled some of the most common questions people ask to make this topic even clearer.

Q1. How do financial advisors make money in India?

They typically earn money through:

• Fees (charged directly to clients), or
• Commissions (paid by financial product companies like mutual funds, insurers)

Q2. What are financial advisor charges in India?

Charges depend on the model:

• SEBI-registered RIAs: up to ₹1.25 lakh flat per client/year or up to 2.5% of assets advised
• Mutual fund distributors: earn commission from AMCs, not charged to you directly

Q3. What is the commission percentage for mutual fund advisors?

Trail commissions range from 0.3% to 1% annually, depending on the fund type and AMC. These are paid by the fund company from the expense ratio.

Q4. What’s the difference between a fee-based and commission-based advisor?

• Fee-based: Earn directly from clients, may also take commissions
• Commission-based: Earn only through product sales
• Fee-only (RIA): Earn only from you, no product commissions allowed

Q5. How do I know if an advisor is SEBI-registered?

Visit SEBI’s website and search by their name or registration number.

Q6. Is it better to choose direct mutual funds with a fee-only advisor?

Yes - direct plans have lower expenses and no hidden commissions. With a fee-only advisor, you pay a transparent fee and usually get unbiased advice.

Q7. Do financial advisors make good money?

Yes, experienced advisors with a solid client base or AUM can make ₹10 lakh to ₹50+ lakh per year, depending on their model and clientele.

Related Reads:

• Mutual Fund Advisors: Meaning, Responsibilities, and How to Choose the Right One
• Understanding Mutual Funds: The Complete Beginner’s Guide
• How to Become a Mutual Fund Advisor (And Help Clients Invest Better)

Disclaimer: This article is for informational purposes only and does not constitute investment, tax, or legal advice. Readers are advised to consult a SEBI-registered financial advisor before making any financial decisions. Finnovate does not recommend or endorse any specific financial product or advisor compensation model.