An independent financial adviser (IFAs) can offer guidance on investments, taxes and retirement planning and help you navigate major life transitions, like the birth of a child or marriage. Some people think that independent financial advisers are better than those that work for a big firm, as they aren’t obligated to promote a major corporation’s products. However, that’s not always the case. The guide here can help you understand what is independent financial adviser and how to choose a financial professional that can best meet your financial needs.
How Does Independent Financial Advising Work?
If you’re looking for an independent financial adviser, many will offer a free trial or initial consultation. Here are the steps you can expect.
1. Initial Consultation
The process usually begins with an initial meeting between the client and the IFA. During this consultation, the IFA aims to understand the client's financial goals, current situation, risk tolerance, family situation and specific requirements. This is the time when they’ll ask you about investment goals, retirement savings and other savings goals.
2. Financial Assessment
The IFA gathers relevant financial information from the client, such as income, expenses, assets, liabilities and investment portfolio details. This assessment helps the IFA comprehensively understand your current financial position and future goals. This step is essential for a financial adviser to select opportunities to save or invest in growing wealth more quickly.
3. Analysis and Recommendation
The financial adviser conducts a thorough analysis based on your financial information and goals. They evaluate various financial products, investment options, insurance policies and other opportunities. They provide tailored recommendations, which may include investment strategies, retirement planning, tax optimization, estate planning and insurance coverage.
4. Implementation
If you agree with the recommendations, the IFA will assist you with the implementation of all financial steps. This process may involve opening investment accounts, selecting suitable financial products and executing necessary paperwork.
5. Ongoing Monitoring and Reviews
Independent financial advisers typically provide ongoing support and regular reviews to ensure clients' financial plans align with their goals. They monitor market conditions, track investment performance and adjust as needed while regularly communicating changes with you. Additionally, IFAs may provide guidance on tax changes, estate planning updates and other relevant financial developments. You can also request a meeting with your IFA at any time to ask questions or understand your portfolio positions.
6. Fee Structure
Independent financial advisers are compensated for their services through various fee structures. They may charge an hourly rate, a flat fee, a percentage of assets under management (AUM) or a combination of these methods. Discussing the fee structure and potential conflicts of interest is important before engaging an IFA.
Things to Consider When Choosing an Independent Financial Adviser
If you are ready to choose an independent financial adviser, look first for qualifications, fiduciary duty and reputation. Then, check this list to ensure you’re getting a professional supporting your financial growth.
1. Qualifications and Credentials
Look for an IFA who holds relevant qualifications and certifications in financial planning or related fields. Common certifications include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) and Personal Financial Specialist (PFS). These designations indicate that the adviser has met specific educational and professional standards. Find some of the top financial certifications here.
2. Experience and Expertise
Consider the adviser's experience in the financial industry and their specialization areas. Some IFAs may have expertise in retirement planning, investment management, tax planning or estate planning. Assess whether their experience aligns with your specific financial needs and goals.
3. Fiduciary Duty
Ensure that the IFA operates as a fiduciary, which means they are legally obligated to act in your best interest. This ensures that the advice you receive is objective and unbiased. Request a written statement or agreement that confirms their fiduciary duty before working with any IFA.
4. Reputation and References
Research the adviser's reputation in the industry. Look for online reviews, testimonials and recommendations from clients. Look at their track record and services offered to other clients to understand what you can reasonably expect.
5. Fee Structure
Understand how the IFA charges for their services and how fees are calculated. Some IFAs charge a percentage of AUM, while others may charge hourly rates or flat fees. An independent financial adviser salary should not be tied to the products you buy.
Ensure that you have a clear understanding of the fee structure and potential additional costs. Weigh these costs against your financial goals to ensure that the fees aren’t outpacing portfolio growth.
6. Services Offered
Assess the range of services provided by the IFA. Do they cover areas like investment management, retirement planning, tax planning, estate planning and risk management? Consider whether the services align with your specific financial needs.
7. Communication and Accessibility
Good communication is crucial for a strong adviser-client relationship. Determine how often you can expect to meet or communicate with them and how they handle client inquiries. Evaluate the adviser's communication style and availability. Do they communicate via chat or text? If you have questions or concerns, how soon can they schedule a call to answer your questions?
8. Clientele and Target Market
Consider the adviser's typical clientele and target market. Some advisers may specialize in serving specific demographics or industries. Assess whether their target market aligns with your needs and if they have experience working with clients in similar situations or similar goals.
9. Regulatory Compliance
Ensure that the IFA is properly licensed and registered with the appropriate regulatory bodies. In the United States, for example, check if they are registered with the U.S. Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).
10. Personal Rapport
Trust your instincts and consider your comfort level with the adviser. Building a strong working relationship is important, as you will be sharing personal and sensitive financial information. Choose an adviser with whom you feel comfortable discussing your goals, concerns and financial matters.
Advantages of Having an Independent Financial Adviser
An independent financial adviser offers several advantages. Their independent functioning allows them to build customized financial strategies. Here are some of the reasons an IFA can make sense for you.
1. Objective Advice
Independent financial advisers are not tied to a specific financial institution or product. They are committed to providing objective advice and recommendations that are solely based on your best interests. Their unbiased approach allows them to assess a wide range of options and tailor their advice to your specific financial goals and needs.
2. Customized Financial Strategies
IFAs take the time to understand your financial situation, goals, risk tolerance and other relevant factors. With this information, they can develop personalized financial strategies that align with your objectives. They consider your unique circumstances and offer tailored solutions to help you achieve your financial aspirations.
3. Comprehensive Financial Planning
Independent financial advisers typically offer comprehensive financial planning services. They can assist you with various aspects of your financial life, including retirement, investment, tax optimization, estate planning, risk management and more. This holistic approach ensures that all areas of your financial well-being are addressed and coordinated.
4. Ongoing Support and Monitoring
IFAs provide ongoing support and monitoring of your financial plan. They stay up-to-date with market conditions, investment performance and regulatory changes that may impact your financial situation. They can help you make informed decisions, adjust your strategies when needed, and guide you through during significant life events or economic shifts.
5. Access to a Network of Professionals
Independent financial advisers often have established relationships with other professionals, such as tax advisers, attorneys and insurance specialists. If necessary, they can coordinate with these professionals to ensure that all aspects of your financial plan work together seamlessly. This collaborative approach can help address complex financial situations more effectively.
6. Education and Empowerment
IFAs strive to educate their clients about financial matters, investment options and strategies. They take the time to explain concepts and help you understand the rationale behind their recommendations. This knowledge empowers you to make informed decisions, feel more confident about your financial choices and better understand your financial situation.
7. Fiduciary Duty and Ethical Standards
Independent financial advisers operate under a fiduciary duty, which means they are legally obligated to act in your best interest. This higher standard of care ensures that the advice and recommendations they provide are in line with your specific needs and goals. Their commitment to ethical standards and transparency builds trust and fosters a long-term client-adviser relationship.
Independent Financial Adviser vs. Financial Planner
Independent financial advisers and financial advisers have similar pros and cons, with a few key differences.
Independent Financial Adviser
Pros:
- Comprehensive financial advice
- Unbiased (ideally)
- Differing fees structures
- Often non-commission based, so they won’t pressure you to trade
- Fiduciary responsibility to protect your assets
Cons:
- Fewer resources than larger firms
Financial Planner
Pros:
- Comprehensive financial advice
- More research resources
- Possible lower fees
- Fiduciary responsibility to protect your assets
Cons:
- Often commission-based, incentivizing them to recommend trades
- May have limits on recommendations to company products
Using an Independent Financial Adviser
If you're starting out on your investment journey or want to optimize potential returns, an IFA can help. Remember that an independent financial adviser isn't necessarily unbiased. Ask specific questions and understand their performance, affiliations and goals to ensure you’re making the right move. Remember also that you may consult a independent financial adviser once and implement their advice independently or choose to work with them regularly for years.
Ready for the next steps? Find some of the best financial advisers or learn how to become an independent financial adviser here.
Frequently Asked Questions
How is an independent financial adviser different from other financial professionals?
An independent financial adviser is different from other financial professionals because they don’t work for a large corporation, financial firm or bank. Instead, an IFA works for a small firm or independently to help individuals and organizations create and execute a strategy to meet long-term financial goals.
Is it good to have an independent financial adviser?
Working with a financial adviser can help you get tailored, unbiased financial advice that you might not get from a large firm. However, you can also choose to work with another financial adviser or research and study to make your own financial plan.
Why choose an independent financial adviser?
Many people choose independent adviser firms because they have no vested interest in the products or services they recommend. They’re considered more objective and impartial than other financial advisers while still offering the skills to create a personalized financial plan.
About Alison Plaut
Alison Plaut is a personal finance writer with a sustainable MBA, passionate about helping people learn more about financial basics for wealth building and financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgage, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.