Have you ever noticed that some Financial Advisers describe themselves as exactly that?
Meanwhile, some others will add ‘Independent’ to the title.
This is a subtle difference in wording, and you may not believe it means very much at first glance. However, the differences between a Financial Adviser and an Independent Financial Adviser have the potential to influence the advice you receive.
Well, there are two methods of operation for Financial Advisers: restricted, or independent. If an Adviser is restricted, this could mean the scope of their advice is limited to a certain panel of products, such as those offered by their company.
An Independent Adviser will have no such limitations. Instead, they are able to advise on the whole of market as an unbiased consultant.
To compare both methods of advice in a simpler context, let’s consider a car insurance query. If you were to call the insurance company Elephant (for example), the adviser will be able to discuss the range of options Elephant offer, but they will not be under obligation to review the marketplace on your behalf.
But if you went to Compare the Market instead, you would be able to review the whole marketplace, then select the most appropriate choice from there.
Why is independence such an important difference?
The first reason is cost. Because an Independent Financial Adviser will have a range of options to advise on, they are well-placed to take account of specific client priorities, such as prioritising costs.
By contrast, a restricted Adviser may not have access to the lowest-cost options available. They may have no choice but to advise on one particular solution, regardless of its price.
The second reason is flexibility. The financial world changes constantly, and as such, an Independent Adviser is free to adapt their advice as needed.
For example, an Independent Adviser who is concerned about a specific investment can quickly inform their clients, advising them to switch the investment accordingly.
A restricted Adviser, however, may need to act in accordance with decisions that have been made on behalf of the company they work for. Their instructions may have to filter down from senior management, meaning they have little ability to control the decisions. This process may not simply be time-consuming, it can also make the Adviser less agile, and slower to respond to change.
The third reason is the way Advisers charge for their services. People often suggest to me that an Independent Financial Adviser could charge more for their advice. This seems logical, since whole of market access can require a higher level of research and be more time consuming.
While charges will of course vary amongst different Advisers, it is often the case that a restricted Adviser will charge the same, if not more, than an independent Adviser.
In summary, not all financial advice is created equal, which is an important fact to be aware of when you decide to engage an Adviser. Before you speak with them, take some time to find out whether they are a restricted or an Independent Adviser, and ensure that you understand the nature of any restrictions in place.