Independent Financial Adviser vs. Financial Adviser

If you’re interested in financial planning and advice, it’s a good idea to be aware of the differences in certain roles out there. You will have to decide whether you want to become a financial adviser or and independent financial adviser…

Types of financial adviser…

For starters, ‘financial adviser’ is a bit of an umbrella term. There are actually three types of financial adviser aside from independent financial advisers. So what are they and what do they do?

Some financial advisers hold positions as ‘tied’ advisers. These guys work either directly for a service provider, so they’ll be in-house at a bank or in other institutions like insurance companies, or else they will work for a firm which specifically provides advice on one provider’s products. There are often specialist financial advisers in retail banks too, such as mortgage advisers or as premier relationship advisers within a bank’s wealth management division.

Tied financial advisers will provide advice regarding their employer’s products and services, and will not recommend other alternatives on the market.

For example, you may meet up with a financial adviser at your bank branch when you want to start saving up some cash. The financial adviser will provide you with guidance on the most appropriate product they have available to you to help you put away the pennies.

Tied financial advisers make their money with a base salary, and they often also earn a commission on the products their clients take on following their recommendations.

But it doesn’t stop there! There are also Multi-tied advisers. As you can probably guess, multi-tied advisers are tied to more than one product and service provider… This could be divided between the different industries they may provide advice on for example. So they can be ‘tied’ to a number of different industries for each specific product or service they recommend. Like tied financial advisers, they can earn a decent commission on the products they successfully recommend.

Some financial advisers operate as whole-of-market advisers. This means that they research and gain in-depth knowledge of the entire range of products available on the market for specific purposes. They will then provide their clients with their recommendations for the most suitable product out there for them which will help them best achieve their financial goals. They’ll also get commission from the providers based on their recommendations which result in sales.

Independent financial advisers…

Often referred to in the business as IFAs, theses characters are pretty similar to whole-of-market advisers in that they provide advice on all available products on the market for their clients. They aren’t tied to one or a select few providers (and if they covertly are, it’s certainly not above board!). Some still work on a commission basis, whereas others will provide a flat rate service charge for the time and work they put into providing bespoke advice to their client – similar to how a lawyer will bill for the hours they work.

The independent financial advisers exist to provide a truly independent opinion to clients. They can work for an IFA firm or for themselves with their own company and their own client network. IFA firms may themselves specialise in certain types of products.

Independent financial advisers can be more likely to work with High Net Worth Individuals, if they charge rates, as this type of advice can get pretty expensive for clients!

Honesty is the best policy…

Owing to the fact that a large percentage of financial advisers can significantly boost their salaries through commission, it’s easy to see why there’s a lot of regulation and set standards in the industry. Nobody wants to be sold a service that isn’t the right one for them just so that the financial adviser can make a cut on the sale!

There must be honestly and integrity in the advice all financial advisers provide, no matter who they’re tied to. The Financial Conduct Authority (FCA) regulates the activity of financial advisers to ensure that everyone carries out their role in a professional manner. Tied and multi-tied advisers are encouraged to recommend their clients to an independent financial adviser if none of their listed products truly meet the client’s needs. Financial advisers also have to be listed on the Financial Services Register to prove that they uphold the required standards and are regulated.