Independent Vs. Restricted Advisers: A Commonsense Comparison

office-620822_640You know you need financial advice, but you’re not sure whom you can trust. It’s typical. While some people tout the benefits of an independent advisor, others say you should stick to restricted ones. Here’s what you need to know about both so you can make the right decision.

Independent Financial Advisor

An independent financial advisor is probably the most common of the two, especially since 2013. Independent financial advisors don’t work directly for a firm that requires exclusivity or a non-compete agreement.

Because of this, the advisor is free to establish himself as a private business offering financial products and services.

Some advisors operate as a broker, while others operate as fee-for-services advisors.

A broker sells financial products, usually on a commissioned basis. Today, the law restricts this activity, so you normally only see commissioned advisors with some type of insurance product.

Most independent financial advisors in the UK charge an hourly fee, a percentage of the money you’ll be saving, a flat fee, or some other fee-based structure which is apparent before you sign a contract to do business with him.

A few advisors charge a fee based on the amount of money that you have them manage for you, called “assets under management.” This fee is typically between 1 and 2 percent of those assets.

Unlike other types of advisors, independent advisors try to position themselves as “comprehensive” in nature. This means that they attempt to deal with every aspect of financial planning, and do not specialize in any one area.

They can, for example, recommend Jayne and Moss if you’re looking to buy a home, help you plan the mortgage payments and loan process, and even help connect you to a real estate broker. They can then turn around and provide advisement on investments and insurance. Or, they can help you with your budget and savings plan, advise you about your pension, and help you figure out whether an annuity makes sense when you retire.

These types of professionals typically work with you on a “client engagement” basis. This means you sign an agreement with them to do business for a set number of months, up to a year. At the end of the planning engagement, you can either resign for another year or switch advisors.

Independent financial advisors are not tied to any one financial firm, so many feel that their advice is unbiased.

On the other hand, because they are not experts in any one area of financial planning, and they do not have close-knit relationships that come with being a restricted advisor, they may not have the same kind of specialized knowledge that a restricted advisor has, and thus may not fully understand the financial products or services they’re recommending.

Restricted Financial Advisor

A restricted financial advisor is one who works exclusively with one financial services firm. He or she only recommends products and services offered by that firm, and rarely, if ever, sells outside of that firm.

Because of this, the restricted advisor has intimate knowledge of financial products and services that that firm sells. The advisor may also have relationships with key contacts within the company that can help the advisor better understand the products and services.
For example, a restricted advisor working for a life insurance company might have relationships with internal wholesalers, external wholesalers, actuaries who design products, and management that understands how the insurer manages the money in the general investment account.

The advisor’s team of professionals can provide absolute clarity and financial education where the independent cannot, since he is an independent advisor who doesn’t work for the firm.

Which Should You Choose?

Both types of advisors have their strengths and weaknesses, but you can generally count on an independent advisor if you need someone who will “shop the market” for you for inexpensive products and services. Independent advisors are also good if you just want financial advice and don’t want to buy products.

Independent advisors may also be able to show you products and services that you wouldn’t ever think to buy or invest in, can educate you on a wide range of options, and can provide you with more non-investment advice that is independent of product offerings.

On the other hand, if you already know you want a particular product or service, go to a financial advisor working for that company and buy direct. You’ll find you get more personalized service, and often better advice about that product and service line than an independent advisor can offer.

Benjamin Butler is a finance major who plans to enter the world of finance as an accountant. Numbers have always come easily to Ben, but he also has an interest in words, and enjoys writing articles for both business and personal finance blogs.

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