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If you’re searching for a financial advisor, you may have come across independent financial advisors. Some people might think these independent advisors are better than working with those from large firms, who usually have to answer to the wants and needs of a bigger business. However, not all independent financial advisors will necessarily be suited to your goals.

Before hiring an independent financial advisor, there are things you need to consider first, like whether or not they’re biased and if they’re qualified. This guide will help you determine if an independent advisor is suitable for your financial needs.

What Is an Independent Financial Advisor?

Many financial advisors work for larger firms. An independent financial advisor, however, is someone who works on their own to provide financial advice to clients.

Independent financial advisors aren’t any less qualified than those employed by big firms. Certified financial planners, or CFPs, are professionals that go through lengthy certification and licensing requirements. They can work on their own and still provide high-quality services to clients.

By working for themselves, an independent financial advisor does not need to meet the production requirements of a firm. This might imply that they’re less likely to push a firm’s preferred products on you and could bring a clearer perspective to your financial journey. But even when someone works on their own, these situations can still happen.

Some financial advisors are biased toward certain financial products and decisions because they can benefit them.

For example, if an advisor suggests you put more money toward an account to pay off your mortgage each month, that means they’ll have more money to manage and potentially profit off of. By suggesting a higher deposit amount each month, the advisor stands to benefit. But that higher monthly deposit could end up straining your finances. An unbiased advisor wouldn’t suggest such a financially straining strategy.

It’s also important to note that a downside of working with an independent financial advisor is they may have less knowledge of available financial products or may not have access to the low-cost options that big firms do. For instance, financial advisors at large firms may have access to mutual funds that are cheaper since those products are offered through the firm at economic scale.

How Can You Tell If an Independent Financial Advisor Is Unbiased?

You might find it difficult to determine if an independent financial advisor is unbiased. But it comes down to paying close attention to what they recommend, as well as asking questions about why they recommend certain products.

For example, if you find a financial advisor is consistently offering you products tied to a specific company, you can ask why. Or you can inquire about what type of commission they may make from any product they offer you. Though you may trust your financial advisor, it’s good to always ask these questions so you’re both on the same page—and so you’re informed about where their advice may stem from.

Questions to Ask an Independent Financial Advisor Before Working With One

There are many questions you can ask an independent financial advisor before working with them to ensure they’re a good fit for you and your financial goals. Those questions include:

  • What are your credentials?
  • Are you a fiduciary?
  • Are there any conflicts of interest I should know about?
  • Are you fee-based?
  • How do you make money from the financial products you offer?
  • What do you specialize in?
  • What services do you offer aside from portfolio management?
  • How do you measure progress toward financial goals?
  • What is your investing philosophy?

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Working with an independent financial advisor can be beneficial since you can get intimate, tailored advice that might not come from working with advisors at large firms. If you’re considering working with an independent financial advisor, remember that it doesn’t necessarily mean they’ll be unbiased. Be careful to ask specific questions beforehand to ensure you’re making the right move.

Frequently Asked Questions

What are the disadvantages of an independent financial advisor?

There are always disadvantages to working with different kinds of professionals. For example, an independent financial advisor may not have the access to low-cost investment funds that advisors do. They may also be biased toward pushing products that will allow them to gain greater financial benefits, just like other financial advisors might do.

How much does it cost to talk to a financial advisor?

There are a variety of financial advisors out there that charge different prices. There are fee-only advisors, meaning you pay them a flat fee for a project, or an hourly, quarterly or yearly rate. Fee-only advisors typically do not receive commissions from the products they sell or recommend.

Conversely, there are also financial advisors who earn money based on commissions from financial products they sell you. This can sometimes mean that the financial advisor may not be acting in your best interest. If you opt for a financial advisor that works on commission, be sure to keep an open dialogue about the products they may recommend to you and why.

You don’t need to be rich to work with a financial advisor. There are professionals out there that can help consumers at various income levels. By shopping around, you can find a financial advisor suited to both your budget and your financial goals.

Are independent financial advisors worth it?

If you’re someone who has financial goals, working with an independent financial advisor may be worth it. Be sure to do your due diligence as a consumer to understand how the independent advisor gets paid, what their credentials are and what their expertise may be.

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Last Update: June 17, 2024