How to choose a financial advisor (tips + questions to ask)

How to choose a financial advisor (tips + questions to ask)

As a financial planning professional myself, there is nothing I love more than getting to work with folks to solve financial puzzles they’re unable to solve themselves — either due to lack of time, resources, or know-how. 

Yes, there’s the intellectual challenge of solving financial puzzles that I love, which has fueled my passion for this work. Most of all, however, getting to help other people achieve their goals and work toward true financial freedom is what makes what we do here so immensely rewarding.

🔑 Free resource: Financial planning template for individuals and families

That’s why I’m so excited to talk to you today. Whether you choose to have a conversation with us at Sound Financial or you opt to work with someone else — that’s a personal call, but more on that later — there’s a good chance you fall into one of three categories:

• You have a specific question about your financial situation you do not know how to answer. For example, is investing still an option for retirement if you’re 40 years old? Also, you may be unclear where to turn or who to talk to, to solve your particular problem. The one thing you do know is you need the help of a financial advisor.
  
  
• You may have unexpectedly been put in a position to work with a financial advisor, due to circumstances outside of your control. For instance, a relative may have passed away and left you an inheritance. Now, you are left to either work with their existing financial advisor, or you can consider working with one given that your circumstances have changed.
  
  
• You’ve been the captain of your own financial planning ship for some time, but you’re ready for a change. Although your spirit is more than willing to continue on as the sole owner of your financial vision, you’ve (maybe reluctantly) started to consider if an outside financial advisor is right for you.

Whatever your circumstances, I’m glad you’re here. You’re about to embark on an exciting journey toward what’s possible in your financial future, regardless of whether you’re solving a short-term problem or reimagining your long-term vision.

🔎 Related: What are the 5 pillars of financial planning at Sound Financial?

Your critical first step in this journey is choosing the right financial advisor or financial advisory firm who can best meet your needs. 

Choose a financial advisor with intention and purpose

Theoretically speaking, you could fire up Google and pick a (seemingly) credentialed, local financial advisor in your area and immediately “get to work” with achieving your financial dreams. Oh, the wonders of the internet! 

I wouldn’t recommend it, though. When you gamble like that with your choice of financial advisor, you’re seriously gambling with your ability to attain the financial outcomes you’re looking for. 

For instance, a few years ago, I went to a doctor with a shoulder problem. Look, I wasn’t trying to elevate myself to the peak performance of an athlete; I simply wanted my shoulder to stop hurting. 

🔎 Related: Tax savings strategies for high income earners (+ examples)

I went to a local doctor’s office. They examined me, ran an MRI, and so on. As it turned out, there was a good chance something was torn … and here’s what the doctor said to me:

“Do you want to have surgery or not? It’s your call.”

Truthfully, I was a bit taken aback. I wanted to see a doctor so they could tell me what their expert opinion was about what I should do. Yes, I set the overarching goal of wanting to live a life free from shoulder pain. But I wanted my doctor to use their expertise to direct my care to achieve that goal, not the other way around! 

Your financial advisor should actively participate in the process

For many of you out there, this is also what you’re looking for from a financial advisor. Yes, you should be the one to set your overarching financial goals — even if they’re only a vague notion right now, don’t stress about that! However, you want your financial advisor to leverage the expertise to help you develop the financial plan that will help you achieve them. 

That means you need to do your due diligence by taking the time to evaluate potential financial advisors:

• How does a particular financial advisor like to communicate?
• What is the methodology they use to make decisions and recommendations?

At a high level, these are the two major questions you need to answer about a potential financial advisor — aside from their credentials and other key areas we’ll go into here shortly. 

🔎 Related: Why the U.S. stock market must crack (our commentary)

You won’t make the financial moves you need to make, in accordance with whatever strategy a financial advisor recommends, if you don’t understand the “why” behind their recommendations. Moreover, if they can’t communicate how what you’re doing today will impact tomorrow’s outcomes, you’re not likely to budge either.

Sometimes your ability to trust a financial advisor in this way will come down to intangible gut feelings and instincts you won’t be able to pinpoint, but you can feel it. That’s why you need to do the work. Have the conversations, take the evaluation of potential advisors seriously, and the sky’s the limit.

But first … 

Financial advisor, consultant, planner … 

OK, if you’re on the hunt for financial advisory support, there’s a good chance you’ve seen a ton of different related job titles printed on business cards handed to you:

Financial advisor.

Financial planner. 

Financial consultant. 

Truth be told, there are tons of different labels folks in our industry throw around and, which can make finding the support you need somewhat challenging. 

🔎 Related: How much does investment management cost?

I would encourage you not to get too hung up on titles. Instead, when you are speaking with someone who is clearly putting themselves forward as someone who can help you in a financial advisory capacity, ask them:

• What their job title really means
  
  
• What they actually will do for you (and ask for specifics)

This is where your goals come in. For example, if you only care about investments, you’re likely not looking for a financial advisor, so pursuing a professional by job title alone could be problematic. You need to dig more deeply into their background, their areas of expertise, and so on. 

Of course, in answering these questions, you may suddenly find yourself trying to decipher an endless waterfall of credentials, acronyms, and other official sounding designations.

What credentials should your financial advisor have?

I’ll be honest with you, this is a valid question to ask, but it’s also a loaded one to answer. The “industry standard” credential, so to speak, that you should be looking for is Certified Financial Planner (CFP)®. From there, however, this conversation gets complicated, and that’s for a few reasons. 

First, there are incredible financial advisors out there who may not be (CFP)® certified, but they possess decades of experience, as well as deep academic and practical expertise across a number of critical financial disciplines. Our very own Chris McAlpin is a perfect example.

🔎 Related: How Does the U.S. Economy Work? (An Accessible Overview)

Second, the list of designations, certifications, and credentials you may see put in front of you by a financial planning professional is virtually endless. So, whenever you see someone’s name with a list of acronyms behind it, you need to ask exactly what those designations are and what they mean. 

A financial advisor may have tons of certifications or credentials, but if none of them are relevant to you and your specific needs, they won’t matter much. 

Third, some of the credentials and designations you may see are somewhat misleading. For example, you may assume a particular credential requires a certain amount of study or merit to achieve, but that isn’t always the case. Many do have course or merit requirements, but there are those where one can achieve them by paying a membership fee. 

Again, this is where your due diligence is essential. Ask what each credential means, as well as what it took that financial professional to achieve it. 

Aligning with your values, ethics, and goals

A wildly experienced, credentialed financial advisor may seem like the perfect fit on paper. But your values and ethics may differ in ways that simply won’t work for you and your goals. 

Chris spoke to this very well in our article discussing asset management vs. wealth management. Assessing the credentials and experience of a financial advisor is only one part of the equation. You also need to align with them from a place of your values, ethics, and goals:

“No license or professional designation can tell you definitively whether or not you can trust someone with your money or to operate in a way that stays true to your values. That is a very human decision you need to make on your own.”

For example, are there certain causes or values you believe in or adhere to when it comes to how you manage, invest, or allocate your money? Before you sit down to have a conversation with a potential financial advisor, this is something you need to think about and define for you. 

🔎 Related: Asset management vs. wealth management (What’s the difference?)

Ultimately, this is why the choice you’ll make for a financial advisor is such a personal one. Yes, processes and experience matter; evaluate both with great scrutiny. However, there is an intangible, very human element to this decision that shouldn’t be underestimated … and only you can measure it.