Retirees: Beware of These 6 Red Flags When Working with a Financial Advisor

When working with a financial advisor, the hope is that the advisor is someone you can trust and that the advice is honest and only presented with your best interest in mind. Unfortunately, this isn’t always the case, as too many financial advisors give off red flags. 

The hope is that you find one of the good ones, and even if your financial advisor makes a mistake every now and again, you have someone who owns up to it immediately. However, if you are in a situation where any red flags concern you about a financial advisor, walk away as fast as possible. 

Excessively High Fees

If there is any concern about the fees you are paying to a financial advisor, this is a major red flag. Ultimately, the prevailing rule of thumb is that you have a financial asset that you pay around 1% (or less) of any assets you have under management that they are in charge of growing. 

While it’s not unheard of to have some advisors charging a flat fee, the 1% fee is standard enough around the industry that it doesn’t raise eyebrows. However, suppose you are going above this number, especially if you don’t have an exceptionally high net worth (tens of millions or more). In that case, you should shop for other financial advisors with fees that align with standard rates. 

If you’re signing anything and the fee information isn’t right up front in any documents, that is a red flag. If they are reluctant to put anything about their fee in writing, that is a red flag. Any hesitancy to discuss fees at any point in a conversation is a giant red flag. 

Not Attentive Enough

You will never be guaranteed to get a financial advisor on the phone at any given time, but you should have a financial advisor who proactively wants to speak with you. Ideally, this would mean quarterly reviews where you determine exactly how your portfolio performs based on your goals. 

You can track your performance daily if your portfolio is loaded up in an app or online, but you may want to talk to a financial advisor. However, the reality is that you absolutely should have an advisor who is calling you with every major decision and one that spends more time listening than talking. If you find out a week later they made some big move in your portfolio without your approval, that’s a giant red flag. 

Any time you place a call to a financial advisor and don’t get a call back within 24 hours is a concern. In some cases, during high market volatility, 48 hours would be okay, especially if it’s on a Friday, but not getting return phone calls for a week is reason enough to walk away. 

Singular Focus

If you are working with a financial advisor who regularly pushes a specific financial product like an annuity every time you speak, run for the hills. This would be especially true if it’s one of the first times you’ve spoken, as they can’t possibly know enough about you in a phone call or meeting to truly understand exactly what your risk tolerance is and what you value financially. 

This is likely to happen if you find a financial advisor at any company with “Life” or “Mutual” in the name, as this company provides financial advice and sells insurance, including annuities. The bottom line is that you should be on the lookout for anything and anyone that makes you think you aren’t getting a fully-developed financial plan that includes a diverse set of recommendations. 

What’s worse is that someone in this category is rushing you to decide without explaining any of the alternatives or downsides. If you see them dismiss your questions, specifically ones that should have a clear and direct answer, it’s okay to stop the convo for good. 

Promising Guaranteed Returns

The job of a financial advisor is very much in the name of providing you with the best possible advice on making money. Unfortunately, financial advisors don’t have a magic ball that can see exactly where the market will go and when. 

The big red flag here would be that any advisor who promises you a certain percentage of growth should be viewed cautiously. A good financial advisor will tell you that the goal is to earn X% per year, but they can’t make any promises toward that. All they can do is structure a portfolio to help you attain what they believe you need to hit your financial goals. 

What’s worse is finding a financial advisor who promises you they have a “secret sauce” for beating the market. There isn’t one, and even the best investors, like Warren Buffett, acknowledge that some of the money made in the market is just dumb luck. 

Too Much Bragging

In many ways, it’s okay for financial advisors to tout their success stories because they want you to believe they are doing well. This isn’t a red flag in and of itself, as you want to hear how well they have done, just as you want to hire someone with a strong track record of success. 

However, this is a giant red flag when it crosses over from discussing their wins to bragging about them, especially if they don’t identify or acknowledge any losses. Any time a financial advisor says you need them, this is a reason to laugh out loud and walk away. 

Financial advisors are plentiful and the best exist in a bubble that doesn’t require any bragging about their successes, as word of mouth alone can take care of that. 

If they tell you their clients’ average net worth is X or that they have Y amount of assets under management, none of this is important to you. What is important is how well they have done historically, which every good financial advisor knows, at least as well as they know their wedding anniversary and birthday. 

Your Portfolio Is Stuck

As there is no exact science to investing, it’s hard to gauge from year to year just what kind of gains (and losses) you will see. However, if you know the S&P 500 went up by 20% in the past year, and your portfolio only had modest gains, this is a reason to question your advisor’s financial strategy. 

It should go without saying that every portfolio is and should be different, but poor performance against a strong market is another thing altogether. If anything, your advisor should be proactive about calling you and saying, “Hey, we’re not seeing the returns we need, so let’s rework the portfolio this month.” That is the sign of a good financial advisor. 

If your portfolio is only designed to grow a certain way, this, too, should be a red flag, as you want a diverse portfolio to help offset any down years in the market. While you can’t beat market volatility or stop a bear market from happening, you can be diversified enough so it minimizes any losses. 

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