There has been a lot of noise circulating in the financial world about the benefits and drawbacks of (restricted) larger financial planning and advice companies and (independent) smaller firms.

Both provide guidance on investments, retirement planning, and other financial matters. But there are several key differences in the services each provides and their distinct approaches to financial planning.

In order to make up your own mind about which approach works better for you, it is important to understand the differences between an independent financial planner and adviser (IFA) and a restricted financial adviser.

Independent financial planners and advisers (IFAs) have access to a large range of products, restricted don’t.

The key difference between independent and restricted financial planners and advisers is the range of products and services that they can recommend. An IFA is not tied to any particular financial institution or product. This means they are free to recommend a wide range of investment options and financial products from across the market.

Whereas restricted advisers are limited in the range of products and services they can offer. They may only advise on products offered by a particular company or group of companies, which could include pensions, investments, savings accounts or insurance policies.

Due to the wide range of products and services that IFAs have access to provide, they are better equipped to offer solutions that are tailored to the specific needs of each individual client. They can also offer more comprehensive long-term advice, taking into account every aspect of a client’s financial situation, including assets, liabilities, income, and expenses.

Restricted advisers can specialise in certain areas, such as retirement planning or wealth management. This can make them a good choice for clients who have specific needs that fall within their area of expertise. For example, if a client has a straightforward financial situation and only needs advice on a specific product, such as a personal pension, a restricted adviser may be able to provide sound, valuable recommendations.

Independent planners and advisers have much more transparent and easy-to-understand fee structures.

Another benefit of IFAs is that they are typically more transparent about their fees. They usually charge fees based on the products they recommend rather than receiving commissions, which means their clients can trust that their advice is not influenced by the prospect of earning a commission.

Restricted advisers’ ties with particular companies mean they may receive commissions from product providers, which can affect their advice. They may recommend a product merely because it offers them a higher commission, even if it is not the best option for their client. This creates a potential conflict of interest, which means investors may end up with an unsuitable product.

IFAs on the other hand have what the Americans call a ‘fiduciary relationship’ with their clients. This is a long-term relationship in which the independent planner and adviser is bound to act on their clients’ behalf as 100% of their pay comes from client fees. A high level of trust is built within this relationship as IFAs’ recommendations are based purely on their clients’ needs.

A potential conflict of interest for restricted advisers also arises as many large firms have expensive actively managed portfolios that they recommend for clients. As the fund management function is part of the same company, this raises a further potential conflict around pricing. Whereas small independent IFAs can recommend very low-cost solutions for clients that have a huge impact in the long term due to compounding.

IFAs are more personal because it’s normally their business.

IFAs are almost always part of smaller firms, which means the service you receive is a personal one. A client will almost always have the same adviser throughout their time with the firm and be able to directly contact them on a regular basis. By dealing with a small independent firm, clients also do not have to fund lavish organisational overheads with the fees that they pay advisers.

Large restricted adviser firms are prone to staff turnover and moving people around, so where clients are seeking a long-term relationship with a trusted adviser who grows to understand you and has your interests at heart, you may be better served by a smaller independent business with professionals aligned to your business or profession.

Ultimately, it is important for you to choose a planner and adviser who is qualified, experienced, and trustworthy, regardless of whether they are independent or restricted.

If you have any questions about which type of advice is right for you, or just want to have a chat about the work we do with our clients at Permanent Wealth Partners, please book a no obligation 15-minute call free of charge with one of our professional independent financial planners and advisers.

Adam Walkom