What Is The Difference Between An Independent Financial Adviser (IFA) And A Financial Adviser (FA)?

Did you know there is a distinction amongst Financial Advisers? Some are designated as Financial Advisers, or FAs, others as Independent Financial Advisers, or IFAs. The difference doesn’t lie in whether they are self-employed or not, or who they are employed by, however. It’s all to do with what products they can recommend and why.

We’ll take a look at what the differences are, and what they might mean for you. Helping clients making informed decisions is at the heart of what all Financial Advisers, independent or not, should be doing. The first informed choice you can make is between an FA and an IFA.

What do financial Advisers (FAs and IFAs) do?

A Financial Adviser, or wealth coach, is a professional who helps you manage your wealth. Everyone needs a wealth coach: you don’t need millions in the bank to benefit from having one. Wealth really just means everything you have that’s ‘extra’ to what you need to live day to day. It’s your savings and any investments, retirement funds and/or other assets you own.

A Financial Adviser helps you understand firstly what you have, and secondly how to manage your money to give you the best chance of achieving your goals. They will advise on the optimum ways to invest to help maximise what you have, both now and in the future. Financial Advisers can recommend products and strategies for investments, tax planning, insurance, retirement – and anything else that impacts your financial wellbeing.

How do IFAs and FAs differ?

The main difference between IFAs and FAs relates to the products they can recommend and work with. The investment market is huge. There are thousands and thousands of investment vehicles, funds, and products available through many different companies. This is collectively known as the ‘whole’ market.

Independent Financial Advisers have access to all these products and can recommend any of them to their clients. Financial Advisers, on the other hand, have access to a ‘restricted’ number of products, that have been approved by the company or range of companies they work with.

IFAs work with the whole market

There are strict guidelines that must be adhered to for an Independent Financial Adviser to be considered independent. They remain impartial when they are recommending products to their clients and have no restrictions on the products they can work with. They can advise on pensions, mortgages, insurance, and so on.

IFAs usually charge on an hourly basis, as a flat fee, or as a percentage of the assets they manage. They may be paid commissions on some protection products.

FAs work with a select suite of products

Financial Advisers work with all the same types of product although some specialists may only work with certain ones, such as insurance or pensions, for example. They work under the umbrella of a large company or partnership with a range of authorised products they can recommend to their clients.

FAs tend to charge in a similar way to IFAs and may also receive commissions from protection product providers.

Commissions must always be disclosed by IFAs and FAs. They can lead to lower costs for their clients.

Why would you choose an FA rather than an IFA?

IFAs and FAs will both help you achieve your goals – it’s just the product that differs. At first glance it’s easy to assume that more impartiality and access to more products means a better outcome for people who want to manage their wealth effectively. This is not necessarily the case.

Many FAs are experts in what they do, rather than generalists with a little knowledge of everything. IFAs must research the whole market themselves whereas FAs are backed by a large organisation with specialists to do this for them. And because FAs have this backing, they also have access to all the support and training a large organisation can provide.

When you are looking for a Financial Adviser, make sure they have the expertise you need to ensure you’ll be getting the right advice for you. Like any other relationship, your relationship with your Financial Adviser should be one based on mutual trust and respect. Find one you know you can work with well, and you can look forward to an enduring, fruitful partnership.

If you would like to know more about what it’s like working with Paula Bicknell Wealth, an FA within a Partner Practice of St. James's Place, please get in touch.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.