How to Identify Red Flags When Choosing a Financial Advisor

Identifying red flags in a financial advisor can be easy to overlook, especially since, in most cases, you hire them because you lack industry knowledge. Depending on the financial environment and your goals, some actions may be justified. That being said, here are a few things to watch out for.

​First, consider the advisor's fees. If they don’t provide a written process or clear documentation about their fees at the time of billing, this should raise a red flag. Even if you’re not concerned about how they make their money as long as you get yours, you still need to understand the cost of that approach. A transparent fee structure ensures clarity and eliminates doubts about their intentions. A simple question to ask is, "Are you a fiduciary?" Fiduciaries are required to disclose fees and demonstrate how the products they recommend are in your best interest.

Another point to be cautious about is the "alphabet soup" behind their name. While prestigious designations may look impressive, you should research the requirements to maintain those credentials and assess whether their expertise aligns with your needs. Always trust, but verify. The Financial Industry Regulatory Authority (FINRA) offers a database where you can check these qualifications and requirements: FINRA Professional Designations.

Additionally, visit BrokerCheck to see if they have any citations or disciplinary actions on their record. If they do, ask for documentation and review it thoroughly before proceeding, rather than relying on hearsay.

Finally, one of the most telling signs of a good advisor is their approach to trading frequency. If your advisor doesn't have a written process for fund selection and trade execution, that’s a major concern. If they outsource these decisions to a third party, ensure there is a documented process and ask how they guarantee that your financial objectives are being met. In the worst-case scenario, you may encounter an advisor who uses fixed products to avoid actively managing your portfolio. Even worse, they may not have exit strategies in place for the positions they’ve purchased. Selling is just as important as selecting investments—if not more so.

Let's Meet Up