What Does It Mean To Be An Independent Financial Advisor?

What Does It Mean To Be An Independent Financial Advisor?

When it comes to managing your wealth, you want to work with someone as objective as possible, which is where independent financial advisors come into the picture.

How do you know if you are working with an independent advisor?

In this article, we will answer these critical questions:

  • What an independent financial advisor is
  • The benefits of working with someone independent
  • Why you should start financial planning
  • Where to find an advisor that’s best for you
  • Are there any downsides to working with an independent advisor

What is an Independent Financial Advisor?

Independent financial advisors are financial service providers that offer independent advice that’s specific to the needs of their clients. Ultimately they offer suitable financial products from the entire market and are not limited to a specific firm.

They can be an independent RIA firm or an individual providing investment management services. They work with various products and providers while maintaining a high level of freedom regarding how they run their business and provide their services.

Potentially, you’ve heard of a “registered advisor,” before, this means you are talking to a fiduciary advisor who has high-net-worth clients and manages their assets usually for a fee. RIA’s (Registered Investment Advisors) must register with the Securities and Exchange Commision (SEC) for every state they work in.

The Corporate Umbrella

You may have heard of being “under a corporate umbrella.” This is often used to refer to the subsidiaries that utilize the brand and support of the corporate parent.

Surprisingly, many independent RIAs utilize the service of a broker dealer, or sometimes are referred to as “custodians”. However, these firms only provide office support, such as compliance monitoring and clearing services.

Fee-Only vs. Commission-Based

Registered Investment Advisors are fee-only advisors.

Typically, there are three ways you’ll see a fee-only charge:

  • A flat rate per session or “subscription”
  • an hourly rate
  • an advisory fee which is usually a percentage of all assets managed.

Keep in mind that an advisor does more than investment management. Advisors can contribute to your financial well being by offering services like comprehensive planning, tax planning, retirement planning, and more. Therefore, look at the advisory fee as your investment in your and your family’s financial independence. This will help you evaluate if your advisor is worth the charge.

Take a look at our article How Financial Advisors Are Paid and Why You Should Know to learn more about the different fee structures.

Working With An RIA

Upfront Charges

As we mentioned earlier, independent advisors use a fee-based or fee-only compensation structure. Since transparency is required in order for them to uphold the fiduciary standard, any hidden fees that could be lurking can be revealed through questions and vetting.

Independent financial advisors also provide full disclosure on your statements to see what charges are transaction fees and what is paid to your advisor.

When it comes to investment management, clarity is necessary because it can help take uncertainty and skepticism away from you and your advisor.

Independent Custodian

Independent advisors use a separate custodian system to custody client assets. These custodians aren’t tied to a specific advisory firm. Instead, they’re broker dealers who custody the clients assets. Essentially, they will hold your assets, but the advisor strategizes and manages the decision making.

The custodian issues your monthly statements, and you’ll always have direct access to your account via this platform.

Direct, Personal Relationship

Your independent advisor works directly with you. The advisor-client relationship is critical to how successful your investment becomes. The more they know about you and your life, the better equipped they are to make decisions with your end goals in mind.

The Benefits of Financial Planning

So, why should you work with a financial advisor? In general, there are a few key advantages.

Prepare for the Unexpected

The most fundamental goal of financial planning is so you can prepare for the unexpected. By setting emergency funds aside, you are more prepared if family or personal emergencies happen.

Invest in Your Future

Is now the right time to pay off your mortgage? Or maybe save for that anniversary trip to Bali you’ve been talking about? What if you want to start a new business? How about early retirement?

Financial planning is about investing in your future and instilling financial confidence.

Build a Legacy

Financial planning should help you to take care of your loved ones even after you’re gone. Life is challenging. Why not build a legacy so you can make your loved one’s lives a bit easier?

Working with an Independent RIA

Begin with an assessment where you provide full disclosure of your financial status, your goals, and your anticipated timeframe for each goal. Ask the advisor to articulate the value they bring, such as investment management and estate planning, and make sure you understand their compensation structure.

When working with a financial advisor, mutual trust should be one of the basics of your relationship.

The Advantage of Humanity Wealth Advisors

Humanity Wealth Advisors was founded by a single governing principle: That the everyday individual is our greatest bottom line. That’s why our team is committed to your success.

Our fee-based services include advice and support tailored to your needs, and we provide guidance in plain, ordinary terms (without all the industry jargon).

With over 20 years of financial experience, we help our clients develop a clear, holistic plan to build their financial futures. When you’re ready to pursue financial planning, contact our team of friendly, reliable professionals.

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More about the author: Harry Sherdil

As a fiduciary financial advisor at an independent firm, Harry strives to offer the same resources, tools, and research as bigger firms while serving new and existing clients' best interests.