August 19, 2022
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An independent advisor is not tied to any specific family of funds or investment products. Many independent financial advisory firms are owned by the people who sit at the desks inside.
What's Discussed
What makes a financial advisor “independent?”
How are independent financial advisors different?
Are independent financial advisors unbiased?
Does it matter if your advisor is independent?
What are the benefits to working with an independent financial advisor?
What is the fiduciary standard?
How to tell if a financial advisor is independent?
What are questions you should ask a financial advisor?
Many independent advisory firms are owned by the advisors who run the firm, so they forge deep, personal relationships and have a strong sense of accountability to their clients.
Investors with complex needs are increasingly on the hunt for personalized advice– one way to ensure you’re getting that is to work with an advisor who is independent. These financial experts have a strong sense of accountability to their clients.
An advisor who is independent typically registers with the Securities and Exchange Commission or a state securities regulator rather than a particular broker-dealer. Their recommendations have no proprietary interests, personal gain, or vested financial interest.
This takes the pressure off advisors to sell specific products or promote an individual carrier and focus on the client's financial needs.
Meanwhile, advisors who work for a large financial institution may only be allowed to offer their firm's products and may have restrictions on how they can conduct their business.
What Makes a Financial Advisor “Independent”
An advisor works with clients to help them with various personal financial planning and investment managment needs. In many cases, they work with clients to develop investment policy statements that detail a client’s risk tolerance, financial situation, and time horizon. These services are generally seen as the standard for all financial advisors, regardless of whether they’re independent.
To differentiate an independent advisor from a non-independent one, you need to look at who owns the firm, and if they’re directly affiliated with other (typically larger) firms, like Merrill Lynch or Edward Jones.
A firm's independence directly ties into these characteristics, as an affiliation with another firm can alter how an advisor works with a client.
How Are Independent Financial Advisors Different
Many financial professionals call themselves “advisors,” but there are a few very important differences to consider. Some advisors are paid for each transaction they complete, which incentivizes a high volume of activity regardless of the client’s needs. Others work for a parent company, & as a result, they are compensated for, or limited to selling only that company's products or services.
An independent financial advisor is an advisor that can work with a large variety of investment management and/or insurance companies.
Are Independent Financial Advisors Unbiased
It may seem that an independent advisor should be more unbiased than an advisor working for a large financial firm. If you are not tied to another's opinions or desires, you should be able to provide more impartial advice. But this is not necessarily the case.
Being independent does not guarantee an advisor is any more or less unbiased than someone working for a major firm. Independent advisors don't have a big-brother firm breathing down their backs, but this doesn't mean they're better than advisors working at larger firms.
In all financial planning relationships you want to have an advisor that you know has your best interest at heart and is as focused on reaching your goals as you are. You also want someone who is able to clearly explain how the strategy helps you meet your goals, and is available for you and will hear you when you are feeling uneasy with whatever life brings your way.
Why does it matter if your advisor is independent
Generally, these advisors can offer a broader range of investment products and are better suited to meet their clients’ needs and desires. This same benefit also applies to insurance products. There are no sales quotas for specific products or product lines.
An independent financial advisor relies on their reputation to conduct business. A parent company does not back them, nor are they linked to a specific product to verify their credibility. Their success is based solely on customer satisfaction. Everything done on the client’s behalf reflects the advisor’s reputation within their community and industry.
Benefits to Working with an Independent Financial Advisor
Independent
Not being limited to one single company's product line or by sales goals allows for operating in the client's best interests.
Customized Guidance
Strategies that are custom-tailored to your specific needs & goals using a wide variety of investment options.
Relationships
Built on accountability, client-advisor relationships should be open & honest leading to more desired long-term outcomes.
Experienced
Years of experience in financial services helping hundreds of families gives clients confidence in their investment plans & guidance.
Transparent Fees
Independent investors should provide a simple & transparent fee structure that clients understand.
3rd Party Custodian
Having client funds held by a separate custodian that provides recordkeeping & reporting services gives clients a reassuring system of checks & balances.
The Fiduciary Standard
Independent Registered Investment Advisors are held to the fiduciary standard. Put on the books by the Investment Advisors Act of 1940, the fiduciary standard requires independent advisors to keep the best interests of their clients in mind at all times. In fact, they are legally required to put their client’s interest first—and always act accordingly.
How to Tell If a Financial Advisor Is Independent
The best way to determine if your advisor or firm is independent—is to ask.
However, it’s not too difficult to discern either. Independent firms and advisors aren’t affiliated with larger institutions, so big, brand-name advisors won’t usually be independent. Even financial professionals who are registered representatives of larger firms aren’t independent.
When searching for a financial advisor to work with, be alert of those who have a limited number of investment or insurance products they can offer to you. If you notice there is little selection, that’s a telltale sign that an advisor is not independent.
Non-independent advisors often provide options affiliated with their parent company, such as investment funds and insurance policies. While this isn’t necessarily bad, an independent advisor will have a more robust set of offerings.
Finding Your Financial Advisor
Starting with an advisor that practices as a registered investment advisor (RIA) can help protect against potential conflicts of interest, but not all of them. The real focus should be on finding a competent, experienced, knowledgeable advisor who cares about you and will not expose you to unnecessary risks.
Questions to Ask a Financial Advisor
What is your approach to financial planning?
Do you have a thoughtful approach to investing, or are your clients dropped into template set up by their firm?
What financial planning services do you offer?
Do you know how to invest in the retirement phase of one's life in a distinct manner from how the earnings are invested?
What kind of clients do you normally work with?
Do you have any account minimums?
Do you have any conflicts of interest in managing my money?
What information do I need to bring for you to look at when developing my financial plan?
How many times and how often will we meet?
Will you collaborate with my other advisors, like CPAs or attorneys?
Are you a fiduciary?
Are you always acting as a fiduciary? (Some fee-based advisors may not always act as fiduciaries when selling commission-based products.)
How do you make your money?
Bottom Line
With no outside sources pressuring an independent advisor to sell certain products or act a certain way, you can be sure that any RIA is there to act with your best interests in mind.
A good independent financial advisor will give you honest advice and options to meet your goals. To be a good consumer, you need to be aware of how they are paid and how that model may affect their advice. You also need to ask tough questions and look for honest answers. If they reveal a potential conflict of interest upfront, that is a good sign.
Looking to Maximize Returns?
Texas is proudly nicknamed "The Lone Star State," as a tribute to our time as an independent nation. Because of this storied history, many Texans share an indomitable sense of demographic pride & individualism.
Similarly, Family Dynasty Advisors is proud of our independence, & we're proud to be able to offer our clients a wide range of services, strategies, products, & plans.
We are a RIA firm, implementing hedge fund strategies.
You work hard to earn money. You ought to utilize it in the best possible manner. Mike Caffey, Certified Private Wealth Advisor, can make this task easier for you with his fiduciary-minded credentials, skills, and decades of exposure to the market.
Want to ensure a peaceful financial life while maximizing returns? Talk to Mike today!
