Is an Independent Financial Advisor Right for You?

Is an Independent Financial Advisor Right for You?

financial planning

An investment broker is the same as a  financial advisor, right? Wrong. If you’re new to the search for a qualified financial expert to help you plan for and manage your money (regardless of your stage in life), you may not be privy to the fact that there are differences between types of financial professionals, and that these distinctions can be very important. Take, for example, the decision over whether to choose an investment broker or an independent financial advisor. You probably didn’t even realize these were two separate options.  

There are many factors to consider when you’re looking for just the right partner to guide your financial decisions and help with money management or investing. To help you approach the search with a more informed perspective, here are some key insights regarding the nuances involved, as well as valuable questions for you to use in assessing prospective advisors before making a decision. 

 


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What is an independent financial advisor?

Let’s start with a basic definition. The term “independent financial advisor” was coined to describe a professional who offers “independent advice on financial matters to their clients” and who recommends “suitable financial products from the whole of the market.” An advisory firm falls under this category if it works without bias for clients and is not beholden to any specific companies or funds. 

Since independent financial advisors are not tied to any specific insurance or investment products, they are free to recommend what is only in the best interest of their clients, selecting from an entire gamut of financial options based on the needs of their individual clients.

Registered Investment Advisers (RIAs), are registered with either the Securities and Exchange Commission (SEC) or state securities administrators. This should be a critical consideration for you, the client, as RIAs must “follow certain practices and procedures when furnishing advice to their clients, including “disclosing any risks or possible conflicts of interest of the specific transactions they recommend, and ensuring the client understands those.” These advisors are held to a fiduciary standard that requires them to put the needs of their clients above their own.

Some of the brand-name investment brokerage firms, on the other hand, are simply transactional. They are connected to a suite of company products and therefore incentivized (or registered exclusively) to use only those offerings for their clients. This key distinction in terms of loyalty is also important, in that advisors who are not independent may serve the companies they work for and not necessarily the interests of their clients.

 

When might an independent financial advisor be right for you?

Now that you have more of an understanding of these definitions and distinctions, let’s take a look at some of the scenarios in which opting for an independent financial advisor might be the best decision for you.

 

When you’re looking for a straightforward fee structure… 

Many independent financial advisors work on a compensation structure that is fee-based, often determined by a percentage of the client’s assets under management. This provides a level of simplicity and transparency for you. It also builds in some incentive for the advisor to work hard on growing your assets. 

 

When you want a highly personal relationship with a trusted advisor… 

What makes a financial advisor indispensable is their ability to understand and assess your long-term needs, challenges and goals, and to determine a strategic path to that end. Independent financial advisors develop the type of close relationships with their clients that breeds a strong understanding of needs and goals. 

 

In some of the big-name firms, you may feel like just another number on their bottom line. Independent advisors, however, are in business to serve a bigger purpose, so their client relationships are usually at the heart of their company. This makes them more apt to make time for one-on-one interaction and foster a deeper connection with you. They earn your trust by partnering with you on a personal level to make your financial plans (and, in turn, their own practice) highly successful.

 

When you need a customizable financial plan …  

Because independent financial advisors are not bound to specific products or options, they have the freedom and opportunity to address your unique financial circumstances with whichever avenues best suit your needs. They are not restricted to certain categories or services, which means they can work with you on your entire financial picture, including everything from retirement and estate planning to budgeting, working with those who manage your taxes and estate planning, and in making charitable donations. An independent advisor is equipped to tailor your plans based on individual goals instead of fitting your needs into a “boxed” suite of investment and financial options.

 

What questions should you ask a prospective advisor?

Once you determine whether partnering with an independent advisor is right for you, the next challenge is identifying which one you want to work with. To make the best decision possible, use these questions as a helpful guide in evaluating the prospects on your list. 

 

What are your values and mission?

You need to know that the firm you select aligns with your principles. Because, ultimately, being able to make purposeful, informed choices and take timely, confident action in support of what really matters is one of the biggest drivers of long-term financial success. It’s essential to work with an independent financial advisor who takes the time to understand your entire financial picture, uncover your deepest needs and concerns, and create a wealth strategy that’s perfectly suited for you. Look for one that will serve as your personal team, recommending only what’s in your best interest and staying with you every step of the way to implement, monitor and track your progress.

 

How long have you been practicing, and what are your areas of expertise?

Competent financial advisors have spent their lives learning and working in this field. They’ve developed the knowledge and experience to determine clients’ long-term needs, challenges and goals, as well as create a clear path to achieve those objectives. Be sure to find out if the firm you’re considering has years of experience working with clients like you (who share similar financial needs and goals) as well as the expertise to address your unique situation. 

 

Can you explain a financial concept to me?

Your financial advisor should be able to guide you through a number of complex and/or unique financial scenarios, regardless of your stage in life. You’ll need them to help you make sense of the intricate financial details that might otherwise leave you confused, anxious and frustrated. Ask them to demonstrate their approach in this area by breaking down a specific financial concept. Make sure you’re comfortable with their explanation and the ability to clarify things for you. 

 

How do you expect to be paid?

There should be upfront honesty and transparency with regard to how your financial advisor charges for their services, including compensation percentages for assets under management and any fees inherent in the products they recommend for you. Vague or roundabout answers to this direct question are often a red flag to move on. 

 

Whether you’re just starting to build a family, dealing with a spouse’s passing, in the throes of a divorce, thinking about how you’ll pay for your children’s college education, wondering how to best manage their inheritance or facing any other financial reality in your current phase of life, partnering with the right independent financial advisor is a smart way to take control of your financial future. An experienced, qualified advisor can provide you with the insights, strategies and tools to help you connect your financial and investment choices to what matters most to you.

When you finally schedule an appointment with a financial advisor, be sure to streamline the process of assembling all the information pertaining to your family’s financial picture. Download your free copy of The Family Inventory Workbook for a helpful checklist and guide.

 


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About Greg Hammond, CFP®, CPA

Greg Hammond is the chief executive officer of Hammond Iles Wealth Advisors, and co-founder of Planned Giving Strategies®. Greg leads a team of professional financial advisors providing customized wealth management and investment solutions for high-net-worth individuals, families, companies, and charitable organizations across the U.S.