Financial advisors promise to grow your wealth through smart money management. But some can drain your accounts instead.<\/p>\n
The problem isn’t always obvious. While a good financial advisor guides you toward smart decisions that grow your wealth through market ups and downs, the wrong one hides behind complex fee structures, pushes products that benefit them more than you or simply disappears when markets turn volatile. These red flags often only reveal themselves when it’s already too late.<\/p>\n
Let’s explore the biggest warning signals you should watch for when trusting someone with your financial future in today’s unpredictable market environment.<\/p>\n
Red flag #1: Doesn’t act as a fiduciary<\/p>\n
A fiduciary is a person who is legally or ethically required to always put your best interests first. They follow a high standard of trust that requires them to put your interests first, and to disclose and manage conflicts of interest rather than letting those conflicts drive recommendations.<\/p>\n
Ben Loughery, lead certified financial planner (CFP) at Lock Wealth Management in Atlanta, Georgia, emphasizes that \u201cthe biggest red flag is lack of fiduciary duty. If an advisor is not a fiduciary, they may not legally be required to act in the client’s best interest.” This creates a fundamental conflict at the heart of your financial relationship as they may recommend products that benefit them more than you.<\/p>\n
\u26a0\ufe0f There are several warning signs that may indicate that a financial advisor isn’t acting as a fiduciary:<\/p>\n
They avoid directly answering whether they’re a fiduciary 100% of the time<\/p>\n
They use vague terms like \u201csuitable investments\u201d rather than \u201cbest interests\u201d<\/p>\n
They focus conversations on product features rather than how investments align with your goals<\/p>\n
They refuse to put their fiduciary obligation in writing<\/p>\n
\ud83d\ude4b\u200d\u2642\ufe0f We asked an expert: How can we find fiduciary financial advisors?<\/p>\n
It can be confusing that while some financial advisors can be fiduciaries, not all financial professionals are held to this stringent standard. Honestly, this is confusing to those of us in the profession so I can only imagine how confusing this is to consumers. <\/p>\n
The CFP Board’s Code of Ethics states that “at all times when providing financial advice to a client, a CFP professional must act as a fiduciary, and therefore, act in the best interests of the client”.<\/p>\n
My suggestion to consumers is to begin by verifying credentials: If someone claims to be a fiduciary, check their CFP designation using the CFP Find an Advisor tool<\/a>. Ask if the advisor sells products or earns a commission for sales \u2014 even if they are a CFP professional. Earning a commission could create a conflict of interest if their compensation depends on the products they sell rather than a flat fee for the advice or services provided.<\/p>\n \u2013 Michelle Petrowski, CFP Another valuable resource is the National Association of Personal Financial Advisors<\/a> (NAPFA), which dedicates itself to upholding high ethical and professional standards by requiring its financial advisors to operate on a fee-only basis to avoid potential conflict of interest.<\/p>\n Learn more: How to find a trusted financial advisor<\/a><\/p>\n Red flag #2: Hides costs or charges high fees<\/p>\n Financial advisors charge for their services in various ways, but some deliberately obscure their fee structure or charge rates well above industry standards. These costs may seem like a small fraction, like a 1.50% annual fee to manage your assets, but they significantly reduce your investment returns over time.<\/p>\n Ryan P. McGonigal, Founder of RPM Financial Group in Rockville, Maryland, advises that “when assessing a financial advisor, start by reviewing their website. If their fee structure isn’t clearly outlined, that’s a significant red flag. A trustworthy advisor should be upfront about how they charge for their services, whether it’s an assets-under-management (AUM) fee, a flat or hourly fee or a subscription-based model.”<\/p>\n Paying 1.50% a year on a $100,000 portfolio can cost you about $95,200 over 20 years if the portfolio would otherwise earn 7% annually. That’s money that should stay in your pocket.<\/p>\n \ud83d\udeab Here\u2019s how to spot problematic fee structures:<\/p>\n Fee information is missing or buried deep in documents<\/p>\n Hesitance to discuss fees when directly asked<\/p>\n Reluctance to provide fee information in writing<\/p>\n Vague answers about how they earn money<\/p>\n Claiming their services are free for you as they make money from commissions<\/p>\n Once you know the fees you\u2019ll pay, you\u2019ll want to make sure you aren\u2019t paying too much for the services you receive. Many financial advisors make money by charging a percentage of the total assets they will manage for you, an hourly rate or a one-time fee.<\/p>\n Some advisors also make money by receiving commissions on the products they sell to you. These products can be certain investment assets \u2014 such as mutual funds<\/a>, annuities<\/a> or insurance products \u2014 that may incentivize recommendations not entirely aligned with your best interests.<\/p>\n \ud83d\udcb0 Common financial advisor fees<\/p>\n Fee type<\/p>\n Typical range<\/p>\n Red flag level<\/p>\n Annual percentage of assets under management (AUM)<\/p>\n 0.50% to 1.50%<\/p>\n Above 1.50%<\/p>\n Flat annual fee<\/p>\n $2,000 to $7,500<\/p>\n Above $10,000 without additional services<\/p>\n Hourly rate<\/p>\n $150 to $400<\/p>\n Above $500 without additional services<\/p>\n Financial plan fee<\/p>\n $1,000 to $3,000<\/p>\n Above $5,000 without additional services<\/p>\n Commission-based products<\/p>\n 3.00% to 6.00% per transaction (such as mutual fund load fees)<\/p>\n Above 6% can be a red flag, and front-end mutual fund sales charges are capped at 8.5% under FINRA rules<\/p>\n Subscription model<\/p>\n $100 to $300 per month<\/p>\n Above $500 per month without additional services<\/p>\n “Investors often don’t realize how much they’re paying in management fees, commissions or expense ratios, which can significantly reduce returns over time,” explains Jen Swindler, CFP and owner of Money Illustrated, an advisory service in Bluffdale, Utah.<\/p>\n While fixed fees are easier to conceptualize, small differences in percentage-based fees aren\u2019t as obvious. Understanding how compunding works<\/a> helps you see why these seemingly small percentages make such a massive difference over time. Ask for a clear breakdown in dollars, and review the advisor\u2019s Form ADV brochure, which is designed to disclose services, fees and conflicts in a standardized format.<\/p>\n \ud83d\udcc8 Here\u2019s how fees impact a $100,000 portfolio over a period of 20 years assuming a moderate 7.00% average annual return:<\/p>\n Fee rate<\/p>\n Annual return after fees<\/p>\n Portfolio value after 20 years<\/p>\n Missed returns<\/p>\n 0.00% (baseline)<\/p>\n 7.00%<\/p>\n $387,000<\/p>\n $0<\/p>\n 0.25% (average for robo-advisors)<\/p>\n 6.75%<\/p>\n $369,300<\/p>\n $17,700 (4.60%)<\/p>\n 0.50% (average for mutual funds)<\/p>\n 6.50%<\/p>\n $352,400<\/p>\n $34,600 (8.94%)<\/p>\n 1.00% (average for financial advisors)<\/p>\n 6.00%<\/p>\n $320,700<\/p>\n $66,268 (17.10%)<\/p>\n 1.50% (high end for financial advisors)<\/p>\n 5.50%<\/p>\n $291,800<\/p>\n $95,200 (24.60%)<\/p>\n What makes these fees particularly costly? They actually cost you more as your investments perform better. The difference becomes even more dramatic with higher-returning investments like index funds. For instance, the SPDR S&P 500 ETF, which tracks the 500 largest U.S. companies, has averaged over 10% annually since its creation in 1993 \u2014 making fee differences even wider in dollar terms.<\/p>\n Learn more: How investment fees eat away at your returns (and how to avoid them)<\/a><\/p>\n Red flag #3: Prioritizes product sales over client needs<\/p>\n Working with some advisory services or financial coaches might feel more like working with salespeople, as they push financial products that generate commissions rather than developing personalized strategies that serve your interests.<\/p>\n “Many advisors push high-fee annuities or cash-value life insurance, not because they’re the best fit, but because they come with high commissions for the seller,” says Jen Swindler, CFP.<\/p>\n This sales-focused approach particularly troubles Avanti Shetye, CFA, CFP and founder of Wealthwyzr, a financial planning firm in Ellicott City, Maryland. “A big warning sign is when a financial advisor dives straight into their own products and solutions without hearing about your life goals and what you’re trying to accomplish through financial planning.”<\/p>\n \ud83d\udd0d Look out for these signs of an advisor who prioritizes selling over advising:<\/p>\n Recommends complex products like annuities or whole life insurance during your first meeting<\/p>\n Rushes you to make decisions without fully explaining alternatives<\/p>\n Dismisses your questions or concerns about product features and doesn\u2019t focus on your specific financial situation<\/p>\n Emphasizes guaranteed returns without clearly explaining risks or restrictions<\/p>\n Todd Bryant, CFP and founding partner of Signature Wealth Partners in Orlando, Florida, points out that \u201cmany insurance salespeople will market themselves as financial advisors without holding investment licenses. They ultimately push high-commission insurance products.” That\u2019s why you should verify that your financial advisor carries the proper licenses and certifications for the services they offer.<\/p>\n \ud83d\udcdc The most common licenses and certifications include: <\/p>\n License or certification<\/p>\n Description<\/p>\n Certified financial planner (CFP)<\/p>\n \u2022 Focuses on comprehensive financial planning including retirement, taxes and estate planning<\/p>\n \u2022 Requires exams, experience and ethics<\/p>\n \u2022 Issued by the CFP Board<\/p>\n Chartered financial analyst (CFA)<\/p>\n \u2022 Covers advanced investment analysis, portfolio management and ethical standards<\/p>\n \u2022 Focuses on institutional investing<\/p>\n \u2022 Issued by the CFA Institute<\/p>\n Chartered financial consultant (ChFC)<\/p>\n \u2022 Focuses on financial planning with an emphasis on insurance, estate planning and tax strategies<\/p>\n \u2022 Issued by The American College of Financial Services<\/p>\n Series 7<\/p>\n \u2022 Allows advisors to sell most securities, including stocks, bonds, mutual funds and ETFs<\/p>\n \u2022 Required for brokers<\/p>\n \u2022 Administered by FINRA<\/p>\n Series 6<\/p>\n \u2022 Permits selling packaged investment products such as mutual funds and variable annuities<\/p>\n \u2022 More limited than Series 7<\/p>\n \u2022 Administered by FINRA<\/p>\n Series 63<\/p>\n \u2022 Covers state securities laws and regulations<\/p>\n \u2022 Required in most states to conduct securities transactions<\/p>\n \u2022 Administered by FINRA<\/p>\n Series 65<\/p>\n \u2022 Qualifies advisors to act as investment adviser representatives (IARs) for fee-based advisory services<\/p>\n \u2022 Required for assets-under-management (AUM) models<\/p>\n \u2022 Administered by FINRA<\/p>\n Series 66<\/p>\n \u2022 Combines Series 63 and 65 content<\/p>\n \u2022 Allows advisors to act as both securities agents and investment adviser representatives<\/p>\n \u2022 Administered by FINRA<\/p>\n Todd Bryant, CFP, suggests looking up the advisor you plan to work with using the BrokerCheck tool from FINRA<\/a>. This tool shows the history of the advisor and the licenses they carry.<\/p>\n Learn more: Not sure how to invest? How robo-advisors automate your portfolio and do the work for you<\/a><\/p>\n Red flag #4: Guarantees investment returns<\/p>\n Uncertainty and risk are a fundamental part of financial markets. That\u2019s why “any advisor who claims they can beat the market consistently or guarantees a specific return is either reckless or dishonest,” states Jason Gilbert, CPA and founder of RGA Investment Advisors in Great Neck, New York. “Investors should ask for audited performance reports or GIPS-compliant returns.”<\/p>\n The Global Investment Performance Standards are voluntary ethical standards for calculating and presenting investment performance based on fair representation and full disclosure.<\/p>\n These unrealistic promises often target inexperienced investors who don’t realize that even the world’s top investment managers rarely outperform market indexes consistently over long periods. More than 90% of actively managed funds underperform the standard market benchmarks they aim to beat over any typical 15-year period, according to S&P Global’s semiannually research<\/a> that began in 2002.<\/p>\n Over the 15-year period ending December 2024, SPIVA data<\/a> showed that in every reported category, most active funds underperformed their benchmarks. In several categories, as many as 90% of active funds underperformed their benchmarks.<\/p>\n \u26a0\ufe0f Warning signs to watch out for include:<\/p>\n Promises of guaranteed returns, especially double-digit ones<\/p>\n Claims of having a secret formula or exclusive investment strategy<\/p>\n A record of only winning investments with no losses<\/p>\n Pressure to invest quickly to capture limited-time opportunities<\/p>\n Avoiding discussing associated risks<\/p>\n Avanti Shetye, founder of Wealthwyzr, explains that “investments are only one part of a financial plan, and when evaluating performance, one must talk about risk-adjusted performance. Investment returns can\u2019t be isolated from risk.”<\/p>\n Legitimate financial advisors acknowledge market uncertainty and focus on long-term strategies tailored to your risk tolerance and financial goals. “You can ask the advisor for risk-adjusted performance numbers. A few measures to be cognizant of are alpha, beta, standard deviation and Sharpe ratio,” Shetye adds.<\/p>\n What common investment performance terms mean:<\/p>\n Term<\/p>\n What it measures<\/p>\n Why it matters<\/p>\n Alpha<\/p>\n Returns above the target market benchmark<\/p>\n Shows the real value the active management of your investments adds<\/p>\n Beta<\/p>\n Market sensitivity<\/p>\n Indicates how sensitive your portfolio is to market changes<\/p>\n Sharpe Ratio<\/p>\n Risk-adjusted returns<\/p>\n Tells you the quality of the returns you get considering the amount of risk you take<\/p>\n Standard Deviation<\/p>\n Performance volatility<\/p>\n Measures the intensity of potential ups and downs for your investments<\/p>\n Learn more: Best low-risk investments for retirees<\/a><\/p>\n Red flag #5: Communicates poorly and is difficult to reach<\/p>\n Ben Loughery, CFP, says that an issue often overlooked is \u201cadvisors not following up with their clients or returning emails or phone calls. This can be very frustrating to many, especially when you’re not feeling like you’re being heard or seen in client meetings. It\u2019s key to find an advisor that is a great listener and collaborator who will help guide you through your financial journey.”<\/p>\n Poor communication can take various forms:<\/p>\n Dominating conversations rather than listening to your concerns and goals<\/p>\n Failing to return calls or emails within a reasonable timeframe<\/p>\n Rushing through meetings without addressing all your questions<\/p>\n Using excessive jargon or technical terms without explanation<\/p>\n Speaking condescendingly or dismissively when you ask for clarification<\/p>\n Not providing regular portfolio updates or financial reviews<\/p>\n \ud83d\ude4b\u200d\u2642\ufe0f We asked an expert: What communication expectations should I set with my financial advisor?<\/p>\n Ask specifically how and how often the firm will contact you. This is an area where many advisors fail. Once the financial plan is in place or the assets are transferred, the communication wanes.<\/p>\n Know what you should expect in terms of ongoing communication and make sure they keep to that schedule. Find out who at the firm you will be corresponding with. Depending on the complexity of your situation, you want to be sure that the people you will be working with have the credentials and the experience to assist you.<\/p>\n Lastly, understand what you are going to get for the fee you are paying. The services needed should match the services provided. You do not want to work with an advisor who is not providing you with the advice and guidance you need<\/p>\n \u2013 Lawrence D. Sprung, CFP, Founder Communication issues typically worsen during market downturns \u2014 precisely when you need guidance the most. Many advisors become noticeably less responsive when your investments aren’t performing well. Disappearing during turbulent markets signals an advisor who prefers delivering only good news rather than providing the steady guidance you need throughout market cycles.<\/p>\n A good advisor takes time to understand your specific financial needs, answers questions clearly and proactively keeps you informed about your financial situation \u2014 especially during volatility. They also explain complex concepts in plain language without talking down to you.<\/p>\n Learn more: 5 common investing myths \u2014 debunked<\/a><\/p>\n How to choose a financial advisor<\/p>\n Finding the right financial advisor typically takes a bit of research. Follow these steps to identify someone who’ll genuinely help you achieve your financial goals:<\/p>\n Ask if they’re a fiduciary. Make sure that your advisor is legally bound to act in your best interest at all times, not just for certain transactions.<\/p>\n Find out their fee structure. Understand exactly how much you’ll pay and how they earn money. Ask for this in actual dollar amounts based on your portfolio size, not just percentages.<\/p>\n Get a clear idea of the services they\u2019ll provide. Determine whether they offer comprehensive financial planning or only investment management, and ensure this aligns with your needs. If you need guidance specifically for retirement, consider working with a trusted retirement advisor<\/a> who specializes in the unique challenges retirees face.<\/p>\n How to verify a financial advisor’s credentials<\/p>\n Beyond asking about fiduciary status and fee structures, you need to verify the legitimacy of any advisor’s claimed credentials. Many financial professionals claim impressive titles and certifications that might sound legitimate but lack regulatory oversight or rigorous requirements.<\/p>\n Here’s how to verify credentials properly:<\/p>\n Check with issuing organizations directly. Visit the official websites of certification boards like the CFP Board<\/a> or CFA Institute<\/a> to confirm an advisor holds the credentials they claim.<\/p>\n Look beyond the letters. Some financial professionals use impressive-sounding designations that require minimal education or testing. The Financial Industry Regulatory Authority (FINRA) maintains a Professional Designations database<\/a> that explains the requirements for different credentials.<\/p>\n Verify state registration. Most financial advisors must register with state securities regulators or the SEC. Search your state’s securities regulator website to confirm registration status.<\/p>\n Proper verification takes just minutes but protects you from potential fraud or misrepresentation that could cost you thousands of dollars.<\/p>\n Alternatives to traditional financial advisors<\/p>\n If working with a financial advisor doesn’t fit your needs, there are several alternatives worth exploring:<\/p>\n Fee-only financial planners for one-time advice sessions. Some planners offer hourly consultations or one-time financial plan development without ongoing asset management.<\/p>\n More stories you might likeFAQs: Financial advisors and your money<\/p>\n Find out more about how financial advisors can help you manage your money. And take a look at our growing library of personal finance guides<\/a> that can help you save money, earn money and grow your wealth.<\/p>\n How do I know if I need a financial advisor?<\/p>\n Consider working with a financial advisor if your financial situation has become complex, you lack the time or interest to manage investments yourself or you face significant life changes like retirement, inheritance or business sale. Many financial advisors require $50,000 to $100,000 in assets under management, which is a general threshold for when to look for a financial advisor.<\/p>\n What’s the difference between a financial advisor and a financial planner?<\/p>\n A financial advisor typically focuses primarily on investment management, while a financial planner offers more comprehensive services, including retirement planning, tax strategies and estate planning. Many professionals use these terms interchangeably, so always ask about specific services offered rather than relying on titles.<\/p>\n Can I get free financial advice?<\/p>\n Many 401(k) plans<\/a> offer access to free or low-cost financial guidance. Some investment platforms, such as SoFi Invest<\/a>, provide you with a complimentary session with a financial planner to discuss your situation. However, these free services typically cover only general advice rather than ongoing comprehensive financial planning.<\/p>\n Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.<\/p>\n About the writer<\/p>\n Yahia Barakah is a personal finance writer at AOL, specializing in investing, banking and credit topics. As a certified educator in personal finance (CEPF) working toward his Certified Financial Planner (CFP) designation, he brings economics expertise and a genuine passion for helping readers make sense of financial decisions that shape their daily lives and future goals. When he’s not writing about finance, you’ll find him freediving and capturing underwater photography along Florida’s coast and around the globe.<\/p>\n Article edited by Kelly Suzan Waggoner<\/a><\/p>\n
Being in Abundance Wealth Management, Phoenix, Arizona<\/p>\n
Mitlin Financial, Hauppauge, New York<\/p>\n