Choosing Independence

Providing financial advice to families is rewarding.

Increasingly, Main Street Americans turn to financial advisors to help them achieve their goals and navigate life transitions—whether it’s welcoming a new family member, a job change, the loss of a loved one or countless other significant life events. One of their first choices is whether to work with an advisor associated with a large firm or one who is independent.

Frequently they choose independent financial advisors, because they can offer more tailored advice and don’t have to answer to the needs of a bigger company.

Read on to understand some of the key reasons why—and how those reasons can benefit you and your career.

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Compensation

Independent

This is an entrepreneurial path, where the goal is building a business of your own over time. The firm does not employ advisors; instead advisors “affiliate” with the firm, relying on it as a partner in building their business. The firm provides services like compliance, marketing and technology, and often a “shelf” of products as well. In exchange, the firm receives a portion of the revenue generated.

Typically, independent advisors realize a higher payout from their work and have equity in the businesses they create.

W-2

In this business model, the advisor is a W-2 employee of the firm, receiving compensation and benefits from the employer in most (not all) cases. While they usually don’t have ownership or equity in the business, they also don’t have the expenses an independent advisor would have.

The W-2 path isn’t “lesser,” just different. It’s a good option for those interested in financial services who aren’t suited for entrepreneurship.

Products & Portfolios

Independent

This path, best suited to entrepreneurial individuals, allows the advisor to offer diverse products.

Sometimes referred to as “non-captive” or “non-proprietary,” in this model the firm creates selling agreements with external product providers. Advisors affiliated with the firm select from those products.

This can provide greater flexibility, higher earning potential and more control over client relationships.


“Proprietary” or “Captive”

The advisor works exclusively for one firm, offering primarily its products and services. Benefits include brand recognition, company support and client referrals, but with limited product flexibility. Ideal for those who prefer structure and stability.

The firm creates financial products, such as insurance or annuities. The advisors affiliated with the firm serve as the distribution network for those products, selling them to their clients.

Specializations

Independent financial advisors can specialize in almost anything. Here are some common examples:

  • Retirement plan focus (401k, 403b, 457, etc.)
  • Public education (typically K-12 or higher education)
  • Tax planning
  • Estate planning
  • Social security planning
  • Property and casualty
  • Medicare planning
  • High Net Worth (HNW)
  • Financial planning

Compensation

Typically, independent advisors receive a sizeable percentage of the revenue they generate (called a “payout rate”).

Generally, every product an advisor sells generates revenue for the firm they are affiliated with (Gross Dealer Concession or GDC). The payout is usually between 60% and 95%, depending on how much revenue the advisor generates annually.

This career offers the opportunity to build an income based on fees for managing client assets that recur every year. Independent advisors also build equity that they can sell one day.

In total, between payout, recurring revenue and equity value, a career as an independent financial advisor can be tremendously rewarding.

Entrepreneurship

Entrepreneurial aspects to being an independent financial advisor include:

  • Business ownership: Advisors essentially own and run their own businesses. They are responsible for their own growth strategies and must build personal and professional brands that establish credibility and attract the right clients.
  • Innovation and differentiation: They must create unique value propositions to stand out in a competitive marketplace.
  • Flexibility and autonomy: They have the freedom to choose their business models, clients, technology stacks and service offerings.
  • Financial investment: Going independent often requires upfront capital for office space, technology, staffing and marketing—similar to investing in a startup.
  • Long-term vision and decision making: Success requires a clear vision for the future, from scaling operations to succession planning.