7 Warning Signs You Hired the Wrong Financial Advisor

A financial advisor should help you make informed decisions, but there are warning signs of a bad financial advisor that could indicate when they are doing otherwise. These signs generally  include pushing unsuitable products, lacking transparency about fees, or being unresponsive to your questions or concerns. If you’re unsure about sticking with an advisor, here are six red flags that could help you avoid costly mistakes and potentially move on from the wrong advisor to find a better fit.

1. They Have Poor Communication

A financial advisor’s fees should be straightforward, and your advisor should clearly explain how they are calculated—whether it’s hourly, as a percentage of assets under management or commission-based. An advisor with a confusing or well above-average fee structure may not have your best interests at heart.

If costs are vague, layered with hidden charges or seem disproportionately high without clear justification, it could indicate a lack of transparency or fees that aren’t proportionate for the services they’re providing. High or unclear fees can eat into your investment returns over time, leaving you with less value in the long run.

You should be aware of whether your advisor is fee-based or fee-only, as that can make a difference in what you pay.

• Fee-based advisors can charge clients fees, but earn money through other avenues, such as commissions on investment products they sell.
• Fee-only advisors only make money from the fees they charge their clients. 

Fee-only advisors are typically fiduciaries, which means they’re required to act in your best interests when making investment recommendations. An advisor who is not a fiduciary is only required to recommend investments that are “suitable” for their clients.

2. They Have a Confusing or Expensive Fee Structure 

An advisor with a confusing or well above-average fee structure may not have your best interests at heart. A financial advisor’s fees should be straightforward, and your advisor should clearly explain how they are calculated—whether it’s hourly, as a percentage of assets under management or commission-based. 

If costs are vague, layered with hidden charges or seem disproportionately high without clear justification, it could indicate a lack of transparency or fees that aren’t proportionate for the services they’re providing. Further, high or unclear fees can eat into your investment returns over time, leaving you with less value in the long run.

3. They Push Certain Financial Products and Services

Some financial advisors may be dually registered as representatives of broker-dealers or licensed to sell insurance products. These dual roles can create a potential conflict of interest if the advisor buys specific products to earn commissions rather than focusing on what fits with your investor profile and best interests.

If you feel pressured into buying a particular financial product—like an insurance policy, annuity or mutual fund—without a clear explanation of how it fits your financial goals, this could be a warning sign. They may be trying to sell you on something that doesn’t really align with your needs just to claim a higher commission. 

An advisor should prioritize your financial objectives over their own compensation in all cases. If their recommendations are driven by anything other than strategy, it may be time to evaluate whether their advice truly serves your best interests.

4. They Ignore Your Unique Needs

Every client’s financial situation is different and a reputable advisor understands that. An advisor who provides cookie-cutter services that aren’t tailored to your life situation, investment preferences or objectives isn’t really serving you in a productive way.

For example, if you’re nearing retirement, an advisor should create a plan that considers your income needs, healthcare costs and risk tolerance, at the very least. Similarly, a younger client may require strategies focused on debt management and long-term growth. 

A good advisor may present clients with a risk tolerance questionnaire to assess their needs. A truly great advisor asks questions of their clients to better understand where they are financially, where they want to go and how to make that happen.

5. They Churn Investments in Your Portfolio

Account churning occurs when a fee-based advisor excessively trades the assets in your account to generate more commissions for themselves. This illegal practice can lead to unnecessary fees and can negatively impact your short- and long-term investment performance. 

If you notice frequent buying and selling without clear, justifiable reasons, it could be a sign of churning. Keep an eye on your account statements and question any activity that doesn’t align with your investment goals.

A responsible advisor should always have a sound strategy behind each trade and be transparent about the reasons for their actions. In turn, churning can signal that your advisor may be prioritizing their own profits over your financial interests.

6. They Don’t Use an Independent Custodian

An independent custodian is a third party that holds and safeguards your assets, adding an extra layer of protection against fraud. Registered investment advisors (RIAs) are required to use a custodian to ensure compliance with the 1940 Investment Advisers Act. 

If a financial advisor does not use an independent custodian, it could be a red flag. Without this safeguard, there’s an increased risk of unauthorized transactions or even misappropriation of your assets.

An advisor who manages and holds custody of assets may have too much control, which could lead to unethical behavior. Verify that your advisor uses an independent custodian to protect your investments and reduce potential conflicts of interest.

7. They Lack Proper Credentials or Regulatory Standing

A financial advisor should be able to demonstrate that they’re properly licensed and in good standing with regulators. If an advisor cannot provide their registration details with the SEC, FINRA or state regulators, that may signal a problem. You can check your advisor’s background using FINRA’s BrokerCheck tool, or the SEC’s Investment Adviser Public Disclosure system to confirm an advisor’s background.

Credentials, while not always required, reflect a commitment to professional standards. Designations like CFP® or CFA, for example, indicate specialized training and adherence to strict ethical guidelines. Generally, advisors must have a minimum level of education and experience to obtain these types of designations. 

 If your advisor avoids discussing their qualifications, or if their background shows repeated regulatory actions or disciplinary issues, you may think twice about entrusting your assets and financial plan to them. A lack of credentials or a spotty disciplinary history could expose you to unnecessary risk.

Bottom Line

Choosing the right financial advisor involves more than just checking credentials—it requires paying attention to how well they meet your specific needs, communicate with you and protect your assets. Being aware of the warning signs of a bad financial advisor can help you determine if your advisor truly has your best interests at heart. Searching for an advisor who prioritizes transparency, tailored advice and ethical practices can help you find someone you feel comfortable working with and who will genuinely serve your needs.

Financial Advisor Tips

• Finding a financial advisor involves choosing someone who can help you with your areas of need. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to know how much your money could grow over time, SmartAsset’s investment calculator could help you get an estimate.

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