Execution only services
A distribution model where the firm does not charge for advice and earns instead from commission on what it sells or executes, distinct from the fee-only advisory route an Investment Adviser must follow.
In plain language
An Investment Adviser earns a fee for advice, paid directly by the client. That is only one of the business models operating in India's financial services industry. Another one is execution only services.
A firm running this model does not charge the client for advice at all. Its core business is distributing financial products, and its income comes from the commission it earns on the products it sells, or from executing transactions that another financial adviser has already recommended.
Such firms are not limited to securities. They may distribute investment products, insurance, and banking or loan products together — which means they can answer to several different regulators at once, not just SEBI.
How it works
Some execution-only firms organise themselves into an aggregation model. The aggregating entity signs up several distributors and offers them a shortlisted range of products, often selected by a central research and advisory team after its own data analysis. A distributor who joins shares part of its revenue with the aggregator, in exchange for research, execution platforms, training and CRM software it would otherwise be expensive to build alone.
A related but distinct model is wraps and platforms — technology-based, standardised execution tools where a client or adviser invests through model portfolios, and the platform charges a fee it shares with the adviser executing the transaction. This sits apart from an individual Investment Adviser, who is barred by regulation from also offering distribution services, and who may only help a client execute through direct schemes with no commission earned at all.
A worked example
Illustrative, since the workbook gives no commission figures. An execution-only distributor sells an insurance policy with an annual premium of Rs 50,000 and earns a 15% first-year commission from the insurer — Rs 7,500 — with no separate advisory fee charged to the client.
Contrast this with an Investment Adviser managing a Rs 50,00,000 portfolio for the same client, who instead charges an advisory fee of, say, 1% a year — Rs 50,000 — paid directly by the client, and takes no commission from any product sold. Both models are legitimate; the workbook's regulatory point is that an individual Investment Adviser cannot run both at once.
Why NISM asks about it
Chapter 1 (Introduction to Personal Financial Planning), in the section distinguishing business models available to distributors and advisers, sets out execution only services alongside the aggregation model and wraps and platforms, immediately after describing why an individual Investment Adviser cannot mix advisory and distribution income. Expect a question matching a described income model — commission versus fee — to its correct label.
Common exam traps
- An execution-only firm earns commission, not an advisory fee — this is the core distinction the exam tests, alongside the fact that an individual Investment Adviser cannot legally run this model themselves.
- The aggregation model is one specific structure within execution-only services, not a synonym for it — do not use the two terms interchangeably.
- Execution-only firms can be regulated by multiple regulators at once if they distribute insurance and banking products alongside securities, unlike an Investment Adviser, who answers to SEBI alone for advisory work.
Where this is taught
Free preparation for NISM Series X-ARelated terms
- Direct and regular plansThe two routes into the same mutual fund scheme: a direct plan with no distributor and a lower expense ratio, and a regular plan that pays distributor commission — same portfolio, separate NAVs.
- Aggregation modelA distribution model where a central company selects and shortlists products for a network of affiliated distributors, who share revenue with it in return for research, technology and support.
- Direct investmentBuying a security or commodity directly from its issuer or a dealer, without going through a pooled investment vehicle such as a mutual fund, AIF or portfolio manager.
- Fee-only adviserAn investment adviser who earns income from fees paid by the client — not commissions from product providers — and typically does not execute the transactions advised.
- Wraps and platformsTechnology platforms offering standardised model portfolios that investors or their advisers can execute directly, sharing a fee between the platform and the adviser who uses it.
- Non-discretionary serviceA portfolio management service in which the client decides every buy and sell and the portfolio manager only executes — the manager must consult the client for every transaction.
- Client level segregationThe SEBI rule that no single client may receive both advisory and distribution services from the same investment adviser group — each client is one or the other, never both.