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How to Become an Independent Financial Advisor: All You Need to Know

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Managing your finances wisely is an important thing to learn and apply if you want to be successful in life. However, more often than not, people don’t really know where to start or how to go about it. Fortunately, there are financial advisors who can guide and navigate us through our financial journey.

In the simplest sense, financial advisors are professionals who give advice on various financial matters such as investments, insurance, taxes, retirement, or estate planning. Financial advisors typically work at banks, firms, and other financial institutions, however, working as a self-employed, independent financial advisor has also become more prominent these days.

In this article, we’ll dive into how you can become an independent financial advisor. Read on to learn the different requirements, career paths, tips, and all you need to know to start and expand your career as a financial adviser. 

What Is a Financial Advisor?

Financial advisor explaining their responsibilities

Financial advisors help and guide people in making smarter decisions regarding their finances. They provide advice on matters such as financial planning, what insurance policy to buy, where to invest, or how to plan for retirement.

While financial advisors can provide general financial services, there are also others who niche down and specialize in certain areas. These advisors may choose to only serve a specific client type, or limit their service to a particular focus area, like personal finance or insurance.

Responsibilities of a Financial Advisor

The main responsibility of a financial advisor is to assess a client’s financial needs and provide solutions that would set them up for success. To make financial consultations more productive, advisors typically use the 7-Step Financial Planning Process established by the CFP board.

As a short summary, a financial advisor should understand and identify a client’s circumstances and goals, as well as courses of action on how the client can achieve them. After this, the advisor will develop recommendations, which they will present to the client. Once a recommendation is implemented, the advisor should continuously monitor the client’s progress and update the plan, if necessary.

When a client hires a financial advisor, they also entrust them with their most sensitive financial and personal information. A financial advisor should ensure to keep this trust by staying professional, ethical, and honest throughout their relationship.

Skillset of a Financial Advisor

Being a financial advisor is a rewarding yet challenging job. To be a successful financial advisor, here are the important skills that you have to master such as the following:

Sales and Marketing Skills

Being a successful financial advisor is more than just providing financial solutions. You should also use your sales and marketing skills in order to acquire clients, regardless of whether you work for another institution or run your firm independently.

In this business, client acquisition is highly essential since financial products are not something that is bought regularly. Taking advantage of industry-specific marketing agencies, especially if you’re an independent advisor, will greatly help with your business’ success.

Analytical Skills

Each of your clients has a unique goal, problem, and circumstance. To satisfy their needs, you have to use your analytical skills when evaluating the client’s background and relevant financial data. This will help you make sound assessments and create tailored solutions for your clients during the financial planning process or when offering financial advice.

Communication Skills

As a financial advisor, you must know how to ask the right questions in order to understand the client’s circumstances. You must also be able to properly communicate your recommendations to them, and effectively break down concepts that may be too complex for them to grasp.

Why Become an Independent Financial Advisor?

independent financial advisor

Working for a large firm can bring you more stability, especially if you are only starting out with your career. However, becoming an independent financial advisor also has a lot of benefits that can make any advisor consider going down that route. Here are some of those benefits:

Being Your Own Boss

Choosing to become an independent financial advisor means that you are in control of your own business. As a business owner building an independent firm, you become your own boss and gain the freedom of taking your business in the directions you want.

>> Related Read: Guide for Financial Advisors: How to Write a Business Plan

Flexibility in Product Offerings

Being an independent financial advisor allows you to have more flexibility in the products you offer. With this, you can create more personalized solutions to address your client’s unique needs and improve client relationships. 

Having the flexibility to customize your offerings also makes you stand out from your competition. This can help you achieve your business goals faster while also serving your clients.

Higher Potential for Income

There will always be a limit to how much money you can earn when you work as an employee. If you are paid an hourly rate, then your income only reflects the number of hours you work. Other times, your pay is only a cut or a fixed percentage from a broker-dealer.

When you become an independent advisor, you can set the rates you want depending on the complexity of the service. You can also take in as many clients as you can, which increases your income more.

How to Become an Independent Financial Advisor?

how to become an independent financial advisor

After learning what a financial advisor is and the benefits of going down the independent route, the next question is how does one become an independent financial advisor? To become one, there are certain steps and requirements that you have to accomplish such as the following:

Earn a Bachelor’s Degree

A bachelor’s degree is needed to become a financial advisor. Although there is no specific major required, earning a degree in finance, economics, business, or accounting can help you fare better in this career. You may also take additional courses on investment planning, retirement planning, and other specialized areas.

Other financial advisors also pursue graduate studies, such as an MBA, to expand their knowledge and stand out from the competition. Taking minor subjects in communications and marketing can also go a long way in helping you market and sell your services.

Get an Internship Opportunity

Acquiring your own clients or getting a job in financial firms can be difficult without relevant experience. With that said, getting an internship can help you gain real-world experience and build your credentials.

Internships are also a great way to test the waters and see if this career is right for you before you build your independent financial advisory firm. It will also give you an opportunity to network with established financial advisors and possibly find a mentor.

Obtain Relevant Certifications and Licenses

Depending on the financial services you offer, there may be required certifications and licenses that you have to obtain. These will also be helpful when you decide to specialize in a certain financial advisory service.

Before providing financial advice, the National Association of Personal Financial Advisors (NAPFA) suggests acquiring at least one of these certifications:

  • Certified Financial Planner (CFP)
  • Personal Financial Specialist (PFS)
  • Chartered Financial Consultant (ChFC)
  • Chartered Financial Analyst (CFA)

Specialty areas such as selling insurance-related products require you to get a license from your state to be an accredited advisor. 

Likewise, selling investment products and giving investment advice requires you to be registered with your state or the Securities and Exchange Commission (SEC). You also need to pass certain examinations organized by the Financial Industry Regulatory Authority (FINRA) to become a registered investment advisor.

Buy an E&O Insurance

E&O insurance, or Errors and Omissions insurance protects professionals such as financial advisors against claims of negligibility and inadequate work. Also called professional liability insurance, this helps you cover legal costs that may be incurred when addressing these claims.

If you are planning to work as an independent financial advisor, you will have to obtain this insurance yourself. However, if you work for a large firm, it is more likely that your employer already has E&O insurance that also covers their employees.

What Specializations Are Available as a Financial Advisor?

independent financial advisor career paths

Independent advisors may choose to become a generalist or specialize in certain areas or career paths. Here are the common specializations available to independent advisors as well as educational requirements, relevant certifications, and potential income:

Registered Investment Advisor (RIA)

Registered investment advisors (RIA) provide investment advice or manage investment portfolios. 

To specialize in this, you must register your business as an RIA with the state or the SEC, and yourself as an investment advisor representative (IAR). Investment advisors are also required to pass the Series 65 or Series 66 exam administered by the FINRA.

Typically, investment advisors in an RIA firm can earn as much as $65,000 per year while senior advisors can earn up to $165,000 annually.

Chartered Financial Analyst (CFA)

Chartered financial analysts (CFAs) are globally-recognized as certified financial and investment analysts. A CFA takes being an RIA another step further, and lets you provide high-level advice on areas like investment management, asset valuation, and asset analysis.

To become a CFA, you need to pass a three-level exam and render 4,000 hours of relevant work experience for at least three years. 

CFAs typically earn higher compared to other professionals in the financial services industry, which can reach up to $300,000 annually including base salary and bonuses.

Certified Financial Planner (CFP)

A certified financial planner (CFP) is a type of financial advisor that specializes in financial planning services, which include the creation and management of financial plans. They also advise in areas such as estate planning, retirement planning, taxes, and insurance.

Choosing CFP as a career path requires you to complete a financial planning coursework administered by the CFP board, in addition to a bachelor’s degree. You are also required to pass the CFP exam and complete 6,000 hours of financial planning experience, or 4,000 hours of experience as an apprentice.

The last step to becoming a CFP is signing the Ethics Declaration, after which a background check will be conducted.

On average, a CFP can earn around $89,000 per year, with the top CFPs earning around $157,000 annually.

Independent Broker-Dealer

An independent broker-dealer is someone who is authorized by the law to buy and sell securities and investment products without representing any organization. 

To become an independent broker-dealer, you need to pass examinations or obtain licenses depending on the products you plan to sell. For example, you have to pass the Series 7 exam if you sell securities, and the Series 6 exam if you sell mutual funds. 

Next, you have to become a member of FINRA and the Securities Investor Protection Corporation (SIPC). You also need to submit Form BD to the SEC for every state you will operate in. Each state may also impose varying regulations for independent broker-dealers, so make sure to check with them to stay compliant. 

The average salary of an independent broker-dealer is around $87,000 annually, while top earners can get as much as $155,000 every year. 

Aside from the mentioned specializations, there are still other common types of financial advisors such as being a certified public accountant, estate planning attorney, or a wealth manager. 

How Long Does It Take To Become a Financial Advisor?

Becoming a financial advisor can take around four years to seven years or more, depending on the specialization or focus area you will choose. This already includes obtaining your bachelor’s degree, which typically takes four years.

Pursuing further education by getting an MBA or a JD will also add more years to your timeline.

For specializations that do not require any certification, you might be able to start working right away after graduating. FINRA licenses can also be studied and taken without any prior job experience.

However, specializations like CFP require you to gain at least three years of work experience first before you can obtain a certification.

Tips to Becoming an Independent Financial Advisor

tips to becoming an independent financial advisor

Are you now ready to start your journey as an independent financial advisor? Here are some tips that can help set you and your business up for success:

Create a Business Plan 

Just like in any business, creating a solid business plan can jumpstart your career as an independent financial advisor. This will serve as your guide and map as you continuously establish and expand your independent firm. 

When writing the business plan, think carefully about what services you want to offer and consider any plans you have for the long term. Doing so will be helpful when deciding on certain aspects of your business, such as the legal structure you will use. 

Here are some elements of a solid business plan:

  • Business legal structure
  • Brand and business name
  • Assessment of assets and liabilities
  • Financing plan
  • Operations plan
  • Sales and marketing plan
  • Staff management plan

Be Financially Ready

Shifting to become an independent financial advisor is not cheap. You need to cover the start-up costs of your business. This is why it is important that you are ready to finance that transition.

Additionally, it may take some months or even years after starting out before you can see any profits from your start-up. Just remember that this is a typical challenge for any new business and to not lose focus on building your client base.

If you do not have a large capital, you may resort to financing options such as bank loans or a line of credit. It is also essential that you cut costs and minimize your overheads wherever you can.

It is also recommended that you have an emergency fund, which is usually six to twelve months’ worth of expenses, before fully transitioning to a new business. This will give you an allowance and financial safety net during the time you are still building up a stable income from your business.

Start Sourcing Clients

Having a stable stream of clients when launching your business can make transitioning a lot easier. One way to do this is to tap into your existing clients and encourage them to transition with you. Just make sure that this is not prohibited in your existing contracts, or that your contracts do not have any non-compete clause.

At the very least, talking to your existing clients can still be helpful even if you cannot poach them. By explaining to them the value you’ll bring as an independent advisor, they might be able to provide referrals for your business. With that said, you should also learn how to enrich existing client relationships before starting your independent advisory firm.

Also, don’t overlook your immediate network of relatives and friends. They might not immediately realize that they need your services, but educating them about the importance of being financially literate can get the ball rolling. They may also become your first clients or introduce people who can be.

Related Read: Prospecting Ideas for Financial Advisors

Employ Marketing Strategies

Knowing how to market and promote your business also plays a great role in your client acquisition efforts. Without a sound and feasible marketing plan, it will be impossible to keep your business afloat. 

Nowadays, an online presence is a must for a financial advisory business. With a well-designed website, you will be able to showcase your services and the unique value you bring to your target market. An optimized website also lets potential clients easily find your website.

Developing your branding and design early in the business can also help you create a memorable impression on your clients. For this, you should identify what kind of voice you want to establish as well as use visual assets that are consistent with your brand.

Using social media channels such as Facebook, LinkedIn, and Instagram is helpful in widening your reach. Additionally, you should prioritize automating your marketing efforts as much as you can so you can allot more time to serve your clients.

This may seem like a lot of work but it is necessary to grow your business. Fortunately, you do not have to do all this alone – hiring a marketing agency that specializes in helping financial advisors can ensure that you have a solid marketing plan that leads you to more clients and more revenue.

Related Read: Financial Advisor Coaching Programs: How to Pick the Best

Get Started

independent financial advisors prospecting clients

Becoming an independent financial advisor allows you to change other people’s lives while also building your own business. Pursuing this career path is not a walk in the park but no worries – we are here to help!

Here at Peregrine Consulting Group, we provide financial advisors with marketing strategies and technological solutions that are tailored to set your financial advisory business up for success.

With our team of experts, we will empower you to scale your business through development coaching and exceptional marketing. Contact us today to get started!

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