India Wealth Management: Commissions Trump Advice Amidst Regulatory Gaps
Overview
Despite a decade-old regulatory push for transparent advisory fees, India's wealth management sector remains dominated by lucrative commissions. Executives cite high compliance costs and investor reluctance to pay out-of-pocket fees as key barriers. This persistent model creates potential conflicts of interest, impacting client trust and financial advice quality in the booming Indian market.
Regulatory Push for Transparency
India's wealth management firms continue to favor commission-based revenue over transparent advisory fees, a trend persisting a decade after the Securities and Exchange Board of India (Sebi) mandated a shift. The regulator aimed to curb conflicts of interest inherent in wealth managers acting as both advisors and product distributors. However, industry executives report that higher compliance burdens and clients' aversion to direct fee payments have stalled widespread adoption of the advisory model.
The Allure of Commissions
Leading wealth managers illustrate this preference. Nuvama Private Wealth derives minimal revenue from advising clients, while Anand Rathi Wealth does not offer advisory services at all. For 360 One Wealth Management, commission-driven revenue is growing at a significantly faster pace. Under the distribution model, wealth managers earn commissions from product creators for selling their schemes. This structure offers a clear financial incentive to promote certain products over others, potentially compromising unbiased advice. In contrast, advisory fees are fixed, offering no such monetary benefit to prefer one scheme. Experts note that distributors often serve a broader client base, including those with smaller portfolios, which pure advisors might overlook.
Higher Costs, Lower Adoption
For Nuvama Private Wealth, advisory services contributed only 2% to its total annual recurring revenue (ARR) in the second quarter of FY26, down from 10% in FY21. Its advisory revenues remained flat at ₹9 crore between FY21 and FY25. Similarly, 360 One Wealth Management saw advisory contribute 36% of its total wealth ARR assets in Q2FY26, a slight decrease from FY21. The firm's advisory revenue grew at an annualized rate of 34% between FY21 and FY25, trailing behind the 41% rise in distribution revenue.
Feroze Azeez, joint chief executive officer at Anand Rathi Wealth, points to substantial compliance costs associated with the advisory model, estimating 15-20% of revenue is spent on regulatory adherence. Advisory requires meticulous client profiling, documentation, and suitability checks, expenses not typically mandated for distributors. Furthermore, commission payouts are substantially higher. A relationship manager with a ₹100 crore portfolio could earn ₹1 crore via commissions (up to 1% AUM), versus ₹20-30 lakh as pure advisory fees (20-30 basis points). This financial disparity reinforces the industry's reluctance to fully embrace the advisory framework.
Market Growth Amidst Conflict
India's wealth management market is projected to triple from $3 trillion in FY25 to $9 trillion by FY35, driven by economic growth and rising affluence. Yet, this expansion occurs within a system where inherent conflicts of interest persist, raising questions about investor protection and the true evolution of financial advisory services in the country.
