How to Choose a Financial Advisor: 7 Questions to Ask
Choosing a financial advisor is an important decision, particularly as you approach retirement. Look for someone who is transparent about fees, has experience with your financial circumstances, provides the services you need, and takes time to understand what you want your money to accomplish.
A good place to start is by asking seven questions that reveal how an advisor works and whether the relationship is right for you.
1. Are You a Fiduciary?
The term fiduciary is frequently used in financial services, but it has a specific legal meaning.
Under the Investment Advisers Act of 1940, investment advisers owe fiduciary duties to their clients. As explained in the Securities and Exchange Commission's interpretation of the fiduciary standard, those responsibilities include two fundamental obligations:
Duty of care: Providing investment advice in the client's best interest, based on an understanding of the client's objectives and circumstances.
Duty of loyalty: Not placing the advisor's interests ahead of the client's interests, including appropriately addressing conflicts of interest.
Being a fiduciary does not mean an advisor has no conflicts of interest. It means the advisor has legal obligations concerning how those conflicts are handled.
Ask whether the advisor acts as a fiduciary throughout the advisory relationship and whether they also provide brokerage services under a different standard of conduct.
You should understand which responsibilities apply to the services you are receiving.
2. How Are You Paid, and What Will I Actually Pay?
Financial advisors can be compensated in several ways, including fees based on assets managed, flat financial planning fees, hourly charges, and commissions.
A fee-only advisor is compensated by clients rather than receiving commissions for selling financial products. A fee-based advisor may receive both fees and commissions.
The distinction matters because compensation arrangements can create different financial incentives.
However, compensation structure alone does not determine whether an advisor is a good fit.
Ask for a clear explanation of the total cost of working together, including advisory fees, investment expenses, and any other charges.
You should know what you are paying, how those fees are calculated, and what services you receive in return.
3. Do You Provide Comprehensive Financial Planning?
Managing investments is only one part of a financial plan.
As retirement approaches, decisions involving taxes, Social Security, Medicare, insurance, estate planning, and retirement income become increasingly connected.
For example, deciding when to retire may involve determining how much income your portfolio can support, when to claim Social Security, and which accounts to draw from first.
An advisor who looks at these decisions together can help you understand how one choice may affect another.
Ask whether financial planning is included in the ongoing relationship or offered as a separate service. Also ask how the advisor coordinates with your CPA, estate planning attorney, and other professionals.
The SEC's guide to working with investment advisers recommends understanding the services an advisor provides and reviewing the advisory agreement before becoming a client.
For those approaching retirement, comprehensive planning should address more than investment performance. It should help connect financial resources with future spending needs and personal goals.
4. Do You Have Experience Working With People Like Me?
Financial planning needs change throughout life.
Someone building a career may focus primarily on saving and investing. Someone preparing for retirement may be evaluating pensions, employer retirement benefits, Social Security, taxes, and how to replace a regular paycheck.
These decisions can involve complexities that are not always apparent until you begin working through them.
Ask prospective advisors about the clients they typically serve and the planning issues they regularly address.
The SEC includes experience with people in circumstances similar to yours among its recommended questions when hiring an investment professional.
An advisor does not need to have encountered your exact situation before, but relevant experience can help them recognize important considerations and explain the tradeoffs involved.
5. What Are Your Qualifications, and Can I Verify Your Background?
Financial advisors have different educational backgrounds, credentials, and levels of experience.
One credential worth understanding is the CERTIFIED FINANCIAL PLANNER® certification.
To earn CFP® certification, financial professionals must meet four requirements involving education, examination, experience, and ethics. These include completing financial planning coursework, passing a comprehensive examination, gaining qualifying professional experience, and agreeing to uphold CFP Board's ethical standards.
The requirements are explained in CFP Board's guide to the four steps of CFP® certification.
While credentials do not guarantee the quality of financial advice, they can help you evaluate an advisor's training, professional experience, and commitment to established standards.
These requirements cover a broad range of financial planning disciplines, including retirement, investments, taxes, insurance, and estate planning.
Credentials can be useful indicators of professional preparation, but they should not replace your own evaluation of an advisor's experience and services.
You should also independently verify an advisor's registration and disciplinary history.
The SEC provides a free Investment Adviser Public Disclosure database where you can research investment advisory firms and individual representatives, review registration information, and access available disclosures.
An advisor's Form ADV brochure is particularly useful because it describes services, fees, business practices, conflicts of interest, and disciplinary information.
Taking a few minutes to review these documents can help you make a more informed decision.
6. What Will Our Ongoing Relationship Look Like?
Financial planning should evolve as your circumstances change.
Ask how often you will meet, what those meetings typically cover, and who will be responsible for your relationship.
You should also understand what happens when an important financial decision arises between scheduled reviews.
For example, will your advisor help evaluate an early retirement opportunity, a pension election, a large purchase, or an unexpected inheritance?
Will your financial plan be updated as your goals and circumstances change?
The answers should give you a clear picture of what you can expect after becoming a client, not just during the initial planning process.
7. Does the Advisor Understand What Matters Most to You?
This question is less about credentials and more about the relationship.
Your financial plan should reflect more than your investment accounts and retirement date.
Perhaps you want to spend more time with family, travel, pursue meaningful work, support causes you care about, or simply have more control over how you spend your days.
These goals should influence how your financial plan is developed.
At Stordahl Capital Management, we call our approach Life-Centered Financial Planning. We believe the purpose of financial planning is to help people use their financial resources to live the lives they want.
For many people approaching retirement, that means working toward their point of choice, when financial independence provides greater flexibility to decide whether to continue working, retire, or pursue something entirely different.
An advisor should be interested in understanding those priorities before recommending a financial strategy.
Making Your Decision
Choosing a financial advisor requires looking at both the technical and personal sides of the relationship.
Fiduciary responsibilities, compensation, credentials, experience, and services all deserve careful consideration. So does whether the advisor listens, communicates clearly, and understands the decisions you are facing.
You do not need to make a decision after one conversation. Take time to meet with prospective advisors, compare their approaches, and review their disclosures.
At SCM, we believe the right financial advisor should do more than help you make smart decisions about your money. They should help you build the confidence and financial freedom to spend more time with the people you love, pursue what matters most, and live life on your own terms.
If you would like to learn more about our approach and see whether we might be a good fit, we invite you to schedule a complimentary 15-minute call.
Frequently Asked Questions
What is the difference between a fiduciary and a financial advisor?
Financial advisor is a broad professional description, while fiduciary refers to a legal duty. Investment advisers owe fiduciary duties when providing investment advice. Other financial professionals may operate under different regulatory standards depending on their services and capacity.
Is a fee-only financial advisor better?
A fee-only compensation structure eliminates commissions from selling financial products, which can reduce certain conflicts of interest. However, it does not eliminate all conflicts or guarantee better advice. Consider compensation alongside fiduciary obligations, experience, services, and overall fit.
How do I check a financial advisor's background?
Use the SEC's Investment Adviser Public Disclosure database to review investment adviser registration and disclosures. You can also use FINRA BrokerCheck to research brokerage-related registrations and professional history.
When should I start working with a financial advisor before retirement?
There is no universal timeline. Starting several years before your intended retirement date can provide time to evaluate income needs, investment risk, taxes, Social Security, and employer retirement benefits before making important decisions.
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This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
Stordahl Capital Management, Inc is a Registered Investment Adviser. This commentary is solely for informational purposes and reflects the personal opinions, viewpoints, and analyses of Stordahl Capital Management, Inc. and should not be regarded as a description of advisory services or performance returns of any SCM Clients. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Advisory services are only offered to clients or prospective clients where Stordahl Capital Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Stordahl Capital Management unless a client service agreement is in place. Stordahl Capital Management, Inc provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax, or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.