Independent Financial Advisor

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on February 15, 2024

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What Is an Independent Financial Advisor?

An independent financial advisor is an individual or a firm that provides customized advice on personal finance and investment opportunities.

They are not employed by any bank, insurance company, brokerage, or other financial institution. As such, they have no allegiance to any other entity — meaning they are free to offer unbiased advice that puts their client’s interests first.

They are not limited by external guidelines or special interests, allowing them to provide tailored services to their client’s specific needs.

Whether independent or not, financial advisors must comply with the laws, regulations, and ethical standards of the state or jurisdiction in which they operate. They are typically registered with their state securities agency as Registered Investment Advisors (RIAs).

How to Know if Your Financial Advisor Is Independent

The most effective way to know whether your financial advisor is independent is to ask them directly. Ask if any company employs them or if outside interests influence their advice.

Additionally, you can verify their credentials with the Securities and Exchange Commission (SEC) through the Investment Adviser Public Disclosure (IAPD) website and search for any regulatory action taken against them.

You may also look at the products they are offering. A non-independent financial advisor usually has limited investment options and will likely encourage you to buy specific products, presumably from their employer or partner.

Independent financial advisors have more flexibility regarding investment choices and are less likely to pressure you into making a particular decision.

Pros of an Independent Financial Advisor

Working with an independent financial advisor is advantageous in many ways including, but not limited to the following:

Owned by On-Staff Advisors

An independent financial advisor is typically owned and operated by advisors who are actually on-staff. This allows for better and more reliable advice, as the people giving it are vested in seeing your investments succeed.

This means that their advice can be more objective and will not pressure you into buying certain products just to get a commission. They do not push particular products or services but offer what is best for you, given your specific financial situation.

Independent financial advisors also often provide a wider range of products and services. And because there is typically no minimum portfolio size required to work with them, they are accessible to people at all stages in life who need help managing their money.

Tailored Advice

An independent financial advisor is also able to provide tailored advice. They can look at the big picture of your finances and are not constrained by a single product or ready-made option.

They also offer a more personal approach — they typically develop a closer relationship with their clients, giving a better understanding of individual financial and investment needs.

This can help ensure that their recommendations are customized specifically to your financial situation, investment goals, and risk profile.

Use Third-Party Custodians

Third-party custodians, such as TD Ameritrade, Fidelity, and Schwab, are registered with the SEC or the Financial Industry Regulatory Authority (FINRA).

Their use by independent financial advisors ensures protection from fraud due to the extra regulatory oversight and requirements.

This setup also alleviates conflicts of interest since your assets are not mixed up with that of the independent financial advisors'. In this way, the advisor's fiduciary responsibilities are assured.

Third-party custodians also provide investors with more transparency on their investments, allowing easy access to account statements, trade confirmations, and other vital documents. This level of protection offers additional peace of mind.

Cons of an Independent Financial Advisor

Independent financial advisors bring several advantages to the table. Still, they also have some potential drawbacks, like limited options for specialized advisors and a lack of legal backing from larger firms.

Limited Options for Specialized Advisors

Since independent financial advisors or firms operate on their own, some clients may feel they need more access to resources or expertise. This is especially noticeable regarding complex investments and risk management strategies.

Different from larger firms, an independent financial advisor may not have a full range of investment options or other tools available due to limited resources or relationships with particular institutions.

Since they have different resources, they may not be able to provide the same level of advice and support, especially in specialized or complex investments and strategies.

No Legal Backing From Larger Firms

Independent financial advisors do not necessarily have the same safety nets as those working for banks or large investment companies. This means that clients do not have as much protection if something goes wrong with their investments.

Suppose a client experiences any losses due to the advice of their independent financial advisor.

In that case, they may have difficulty claiming compensation as most independent advisors will not be covered by the same legal protection as those working within larger firms.

In case of fraud, it is much more difficult to seek legal action against an independent financial advisor who works alone.

While all investments come with risk, working with an independent financial advisor may be riskier compared to their brand-name counterparts.

How to Choose Your Independent Financial Advisor

It is important to do your due diligence to make the best decision for your personal finances. Here are some tips for choosing an independent financial advisor:

Research the Financial Advisor’s Background

Make sure that the financial advisor holds necessary professional credentials such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or other relevant titles. Also, verify their education and experience.

Search online databases like the National Association of Personal Financial Advisors (NAPFA) to ensure your financial advisor is credible and competent.

Find out if they have had any disciplinary actions against them or if regulatory agencies like SEC or FINRA have ever suspended or revoked their licenses. You may use the SEC Action Lookup - Individuals(SALI) or FINRA’s BrokerCheck tool for this.

Ask Questions

A good advisor should be able to answer your questions clearly and accurately while providing specific examples of how they can help you reach your financial goals. Consider these questions:

  • What are your credentials?
  • Are you registered?
  • Are you a fiduciary?
  • How do you make your money?
  • What is your fee structure?
  • Are there any conflicts of interest I should know about?
  • What do you specialize in?
  • What other services do you offer?
  • When and how often will we meet?
  • Aside from money, how do you measure investment success?

Be sure you are confident with their answers before choosing an independent financial advisor.

Consider Your Budget

It is essential to consider how much you can afford to invest in the services they offer. Independent advisors tend to charge a fee-based or commission-based structure for their services.

This cost can vary depending on geographic location and what type of advice and services they offer.

On average, independent financial advisors earn anywhere from $60,000 to $160,000 per year according to the latest data from the U.S. Bureau of Labor Statistics.

Generally speaking, an adviser who works on a fee-only basis may be more expensive than one who charges commissions since the former does not earn any money from product sales.

Seek Out References

Ask friends, family, or colleagues who have used a particular advisor in the past for their thoughts on the experience they had.

Make sure to ask questions that are pertinent to your specific situation, such as: Does this advisor specialize in what I need? Are they knowledgeable about my industry and area of investment? How did communication between you and the advisor work?

Go online and read reviews from other customers who have worked with various advisors as well. This will add another layer to your selection process.

Independent vs Non-Independent Financial Advisor


The Bottom Line

An independent financial advisor is a financial expert who provides advice and guidance to clients without any ties or commitments to particular financial products or services.

They are not associated with banks, brokerages, mutual fund companies, insurance companies, or other firms that offer certain financial products.

This makes them unbiased in their recommendations and free from any conflicts of interest when advising their clients.

They provide tailored advice and use third-party custodians, ensuring personalized service, objectivity, and asset security. Some disadvantages include limited options for specialized advisors and a lack of legal backing.

When choosing an independent financial advisor, you should do your due diligence, research, check their background, ask questions, consider your budget, and ask for references from friends, family, and other previous clients.

Independent Financial Advisor FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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