Independent Financial Advisors: What Are They And How To Become One

Financial advisors have become increasingly important in today’s complex financial landscape.

Clients rely on them for expert advice and guidance on various financial topics. From the fundamentals — such as savings and budgeting — to the likes of retirement planning, wealth management, or estate planning.

Many financial advisors work for large firms. However, you can also operate your own business as an independent financial advisor.

Since they are not bound to companies except their own, they have the freedom to offer unbiased financial advice and recommendations to their clients. This makes them a trusted and valuable resource for clients seeking personalized financial guidance.

If you're interested in starting your own practice, there are several steps you need to go through. From obtaining the necessary licenses and certifications to developing your expertise, this article will provide you with the information you need to succeed in this rewarding field.

What is an independent financial advisor?

Independent financial advisors are self-employed financial professionals who provide impartial advice and personalized financial planning services to their clients.

Unlike advisors working for large financial firms, independent advisors aren’t influenced by the company they work with, and thus less likely to have conflicts of interest between their company and their client.

Additionally, as an independent financial advisor, you’ll have the freedom to choose your clients and create your own business models to cater to your client's specific needs. Since there are no ties to a larger financial institution, your clients will also have access to a wider range of financial products and services and can pick the best options from different providers.

That said, choosing to become an independent financial advisor doesn’t mean you can just open a practice without complying with the regulations and ethical standards imposed on the industry. You still need to obtain the necessary licenses and certifications as well as maintain a high standard of professionalism and integrity.

Why become an independent financial advisor?

For those who are just starting out, working for a large financial firm can provide a more stable career than going independent. But there are some considerable benefits if you’re willing to go independent.

Be your own boss

Being your own boss means being in control of your own business.

Not being tied to any financial firm means you’ll have higher autonomy over your decisions — you can choose your own working hours, the kind of clients you want to serve, which services you want to offer, to the kind of business model that you think aligns better with your personal and professional goals. It might also come with a higher income as you build your client base and establish your reputation as a trusted advisor.

However, this freedom comes at a price.

Being responsible for your own business means that you’ll need a lot of motivation, discipline, organization, and hard work to succeed. There will be a lot of challenges in the early stages of your career. It might feel like it took a while to take off, but with dedication, you can build a successful business tailored to your own unique strengths and preferences, as well as the ability to provide the kind of personalized service that your clients will appreciate.

Flexibility in your offerings

If you work for a company, especially for wirehouse brokerage firms, the products you can offer to your clients are quite limited. However, if you’re an independent financial advisor, you have the flexibility to choose from a wider range of products and solutions.

This allows you to administer more effective solutions that can better address your client's unique needs. This approach can also help you build stronger client relationships, which can differentiate yourself from other advisors and help you appeal to a broader range of potential clients.

Whether you’re a corporate or personal financial advisor, having some control over what kind of offer and business model would suit your clients best helps you provide the best experience for clients on your roster.

Potential for higher income

Being an independent financial advisor means you can set your own rates. We’re not saying that you should jack up your prices. Rather you can choose to charge based on the complexity of your service or even take on more clients.

Since you’re not constrained by the usual fees and commission structures imposed by larger financial firms, you can set competitive rates that are appropriate for your level of expertise. You can also choose to charge more for specialized services or offer discounts for bundled services to appeal to more clients.

However, make sure your workload is still manageable and you’re not biting more than you can chew. Remember, to stay in the industry you need to maintain your reputation, and the easiest way to lose that is by neglecting existing clients still in your retainer and letting the quality of your service drop.

How to become an independent financial advisor

We understand that becoming an independent financial advisor is an attractive career path. However, there are certain steps and requirements that you have to accomplish before you can start.

Get your Bachelor’s degree

While there is no specific major that you need to have, obtaining a degree in finance, economics, business administration, accounting, or adjacent industries can give you a competitive edge in your practice. These majors provide you with foundational knowledge and skills relevant to a financial advisor and help you build credibility as a newer independent advisor.

When you have your bachelor’s degree, continuing education and getting a master’s degree is a viable option as well. Depending on your circumstances, however, it might be better to pursue certain designations, certifications, and licenses, or get some work experience instead.

That said, you can still break into the industry even if you don’t have a Bachelor’s degree or a degree in relevant fields. There are no education requirements to most entry-level positions, so you can always start there and build your reputation. Additionally, there are still online courses so you can familiarize yourself with the industry and make sure you’re qualified to give advice by validating your knowledge using the coursework.

Find an internship opportunity

Now that you’ve got your bachelor’s degree, we recommend finding internship opportunities relevant to the financial advisory industry.

Internships help you accumulate practical experience in the field and gain valuable insights into the workings of the industry. It’s also a great way to help you make up your mind about whether this career is the right fit for you before committing to building your own independent financial advisory firm.

Obtain necessary certifications and licenses

Depending on the specific financial services that you plan to offer, it may be necessary to obtain certain certifications and licenses to practice legally.

For example, if you want to step into the role of an investment adviser, the most common licenses you’ll need to obtain is the Series 7 and Series 63 licenses. You can do this by passing the respective exams administered by the Financial Industry Regulatory Authority (FINRA) and  North American Securities Administrators Association (NASAA).

To be a Registered Investment Advisor (RIA), you should start by passing the Series 65 exam, also administered by the NASAA. And then you might need to register with the Securities and Exchange Commission (SEC) to legally operate in your state.

You might notice at this point, FINRA and NASAA administer all the exams that are related to investment. Depending on what type of investment you want to handle and where you’re located, the requirement to become a registered agent or an investment advisor might be different.

Aside from the licenses that are required so you can legally advise your clients, there are also designations that are used as trust signals, such as Certified Financial Planner (CFP) certification enforced by the CFP board. While they’re not a requirement in most functions, these designations boost your credibility in your client’s eyes, even if you’re a new business.

But here’s the twist: many states waive some of the licensing requirements if you hold a specialized designation, including:

• Certified Financial Planner (CFP)

• Chartered Financial Analyst (CFA)

• Chartered Financial Consultant (ChFC)

• Chartered Investment Counselor (CIC)

• Personal Financial Specialist (PFS)

It sounds complicated, and it is if you look at it from such a high level. But at the end of the day, it depends on what kind of product, service, and business model you’d like to offer.

To start with, do you want to offer investment advice? Be a broker-dealer and sell investment products? Which types? What state do you want to operate from? Having the basic information on what kind of business you’d like to build will help you figure out which designations, certifications, and licenses you need to obtain.

Purchase E&O insurance

Errors and Omissions insurance, also known as E&O insurance, provides protection against claims of negligence and inadequate work.

Let’s face it: accidents happen. No matter how meticulous you are with your work, the potential for mistakes and misunderstandings will always be present.

Since clients entrust their money and assets to you, even small mistakes can lead to damage sustained by the client. If they were to take legal action for perceived errors in your advice or service, E&O insurance can provide you with financial protection.

As an independent financial adviser, having E&O insurance means you can operate with greater confidence and security, knowing that you’re protected against potential legal and financial risks.

Start your independent advisor journey with Asset-Map

Becoming an independent financial advisor is an attractive career option. You get to set your own rules, you can create customized offers to better serve your clients, and you can earn more than working in firms.

However, there are a lot of hidden rules to becoming a business owner.

For one, you can choose your own clients, but you’re also the one who has to convince them to pick your service over all the other big firms.

When you’re in a crowded market like financial advisory, you need to set yourself apart.

Asset-Map’s interactive maps can help you promote your business and build your reputation as the only financial advisor clients are excited to meet with. Create a distinct brand identity and give prospects a taste of your five-star client experience with Asset-Map.

Schedule a demo now and see more ways to use Asset-Map to give your new business a leg-up.