Choosing a financial advisor can be a big deal for your financial well-being. While most advisors demonstrate integrity and competence, a few do not adhere to these high standards. Selecting the right advisor could determine whether you achieve your financial objectives or become susceptible to faulty advice or fraudulent schemes. Given the high stakes involved, recognizing potential red flags that may indicate an advisor is not prioritizing your best interests is crucial.

This guide will help you identify warning signs and equip you with the knowledge to choose a financial advisor who can genuinely help you secure your financial future. 

12 Red Flags to Watch For

Here are some red flags to watch out for when selecting a financial advisor.

1. "I Can Beat the Market!"

If an advisor claims they can consistently beat the market, that's a huge red flag. The stock market is unpredictable, and even the best investors can't guarantee returns above the average. If an advisor promises returns that sound too good to be true, they probably are. Choose a financial advisor who offers solid investment advice and helps you create a long-term plan.

2. All About Me

It's normal for traditional financial advisors to talk about their experiences and successes, but if they spend most of your meetings bragging about themselves, that’s a problem. The focus should be on your financial goals and how they can assist you. If an advisor can’t stop talking about how many clients they have or how much money they manage, it's time to find a new one.

3. Where Did They Go?

A good advisor should prioritize communication with their clients. If they’re slow to respond to your emails or calls, that’s a bad sign. For example, if they promise to send you a financial planning guide and it takes days to get it to you, they might not be very attentive. You need an available and prompt advisor, especially when urgent issues arise.

4. Shady Past

Always check an advisor’s background for any disciplinary actions or unethical behavior. Tools like BrokerCheck from the Financial Industry Regulatory Authority (FINRA) or the SEC’s Investment Advisor Public Disclosure (IAPD) can help you. If an advisor has a history of unethical behavior, it’s probably best to avoid them. You should seek an advisor with a clean record and who operates with transparency.

5. Obsession with Short-Term Gains

Good financial planning involves setting long-term goals, such as retirement planning, tax strategies, and wealth management. If an advisor primarily focuses on short-term returns or get-rich-quick schemes, that’s a red flag. A reliable advisor understands the importance of long-term strategies and assists you in achieving your financial goals over time.

6. Pushing Products

Be wary of advisors who immediately promote specific products, like annuities or variable insurance, right off the bat. This might mean they get commissions for selling these products, which isn’t always in your best interest. A financial advisor should recommend products based on your needs, not their commission. Always ask whether they receive compensation for selling a product.

7. Sketchy Credentials

Ensure your advisor possesses the required qualifications and certifications. Look for credentials such as Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA), or Chartered Financial Consultant (ChFC). These designations show that the advisor has undergone thorough training and adheres to high ethical standards. It's best to avoid advisors who can’t prove their qualifications or have questionable certifications.

8. Portfolio Talk, Not Life Talk

A good financial plan considers all aspects of your life, not just your investments. If an advisor only focuses on your portfolio and doesn’t inquire about your personal goals and circumstances, they might not be the right match for you. They should ask about your life, spending habits, and financial aspirations. A financial advisor’s advice should be tailored to you.

9. Fee Confusion

Transparency in fees is vital when choosing a financial advisor. They should communicate how they get paid, whether they charge a flat fee, an hourly rate, or a percentage of assets under management. Be cautious of advisors who are unclear about fees or promise “free” advice, as there are usually hidden costs. Understanding their fee structure helps avoid surprises and ensures their interests align with yours.

10. Panic Mode

Markets can be unpredictable, and how an advisor handles market downturns is important. An advisor who panics or makes rash decisions during market drops can put your financial future at risk. Look for a registered investment advisor who stays calm and sticks to a solid investment philosophy, managing your investments proactively rather than reactively.

11. Values? What Values?

The right financial advisor should understand and respect your values and beliefs. Whether you are focused on charitable giving, saving for specific goals, or balancing spending and saving, an advisor should align their plan with your values. If they don’t take the time to understand what’s important to you, they might not provide the personalized guidance you need.

12. High-Pressure Sales

High-pressure sales tactics are a major red flag. If an advisor tries to rush you into decisions or uses phrases like “once-in-a-lifetime opportunity” or “guaranteed returns,” walk away. Financial decisions should be made carefully, with plenty of time to understand the implications and risks involved.

How to Protect Yourself

To protect yourself from bad advisors, here's what you should do:

• Always check their backgrounds thoroughly.

• Look for any disciplinary actions or complaints using tools like FINRA’s BrokerCheck and the SEC’s IAPD (Investment Advisor Public Disclosure) website.

• Ask for an advisor’s ADV Part II document outlining their services, fees, and strategies. Verify their credentials and ask for references from long-term clients. Ensure you understand their fee structure and avoid giving them power of attorney over your accounts. Always obtain statements directly from the institution holding your investments.

The Aligned Perspective: Advisor Red Flags to Avoid

Choosing a financial advisor is a big step. By watching out for these red flags and thoroughly vetting potential advisors, you can find someone trustworthy who will help you achieve your financial goals. Good advisors should be transparent, responsive, and dedicated to your long-term success, guiding you with integrity and expertise. A well-chosen financial advisor can offer invaluable assistance in navigating complex financial decisions and planning for a secure and prosperous future. Don't rush the process—your financial success depends on it.

Simple, strategic, and designed to give you clarity as you grow.