6 Red Flags When Searching for a Financial Advisor

Published October 21st, 2020 

Reading Time: 4 minutes

Written by: The Zoe Team

If you’re in the process of finding your ideal advisor, make sure you’re on the lookout for the most important advisor red flags to spot before you make any decisions.

Common Advisor Red Flags

Having a bad financial advisor means working with someone who doesn’t have your best interest in mind. This may cause you to lose focus on what’s important to you, and even find it more challenging to fulfill your financial goals. 

If an advisor is speaking in a way that makes you think they have financial superpowers, stop and take a step back. You didn’t find “the one.” Although they may sound overly confident and smart, they also may be promising things that no advisor in the world can guarantee. 

Here are the most common red flags you should be on the lookout for when interviewing advisors:

1. They’re always talking about short-term returns

A financial advisor should never promise you returns of any kind. A majority of the people who search for a financial advisor are focused on long-term planning towards goals such as retirement, future home purchasing, college education, or estate planning. If you’re sensing a get-rich-quick vibe from one of the advisors you’re interviewing, run for the hills!

If a person focuses on short-term investment performance, this could mean that they don’t really have what it takes (or even understand what it means) to be a long-term investor. 

If you’re going to trust someone to give you sound financial advice for your specific needs, you’re going to want to work with someone who truly understands how to work towards your goals, however long it might take.

2. They’re pushing annuities or variable insurance products

Pushing you towards any sort of financial product or investment right off the bat is a total red flag, and annuities are often an early sign of this. Often, advisors will try to show “value” early on in the conversation by recommending products like annuities or variable insurance products – saying they are “right” for you. If this happens, ask yourself: How can someone who’s spoken to me for 20 minutes know what’s “right” for me? 

It happens all the time. If they seem to circle back to variable life insurance again and again, despite your inclination not to buy it, this could also be a sign that the advisor receives a high commission from the sale of that product and is not acting in a fiduciary capacity. 

If you sense the advisor is being pushy about a specific product, ask them point-blank if they receive any compensation from you buying that product. If they do, then you can assume the advisor’s incentives are not aligned with yours. Most likely, their end goal is not to recommend the products that are best for you but rather the products that pay them the most.

Again, run for the hills! 

3. They try to convince you they can beat the market

The magic of the stock market is the fact that it’s impossible to predict. If anyone had the power to beat the market, it would completely lose its purpose. For the past 140 years, the average stock market return has been 9.2%, according to Goldman Sachs. Outperforming this number may sound very appealing, but it’s also unrealistic. Even the most professional asset managers haven’t been able to beat this return, so if the advisor is trying to convince you that they can do it, they’re probably lying. 

Ultimately, you shouldn’t expect your advisor to outperform the market. Your ultimate goal should be to receive expert advice and support alongside a solid financial plan that will work for you. 

4. They BRAG

It’s normal for advisors to talk about themselves during your initial conversations. Think about it this way, if you’re interviewing for a job, you have a very small window of time to prove how much value you can provide in that specific role. But if you spend the entire time bragging about yourself and telling them how much they need you, they’ll probably go with a different (and less egocentric) candidate. 

The same situation applies here; if an advisor is trying to convince you that you need them because they have X amount of clients and have managed X amount of assets, definitely re-evaluate. The conversation should always be around how that specific advisor will help you fulfill your personal financial goals.

5. They’re unresponsive or take too long to reply

The financial advisor world is completely client-centric. You are the priority, you are the center of their universe. A common red flag is if an advisor sounds very client-centric and dedicated to you on the call… but then forgets about you afterward. 

You can spot this behavior in more than one way. For example, if they say “hey we have a financial planning guide that I think you’ll find very valuable”, they should send you the guide as soon as you finish the call or within the next few hours. 

Taking too long to reply, whether it is a simple email, a call-back, or a question about their structure, is a red flag. This means the advisor works around their own time and won’t budge if you ever have an urgent or time-sensitive request. 

Always remember: If they’re not following through during your initial calls, they won’t follow through once you’re a client. 

6. They have disclosures on their record

One common thing we’ve found in vetting thousands of advisors over the years is that there are advisors that sound amazing on paper and over the phone, but when you check, one of two things happen: 

  1. They have a record of being involved in unethical or disciplinary behavior (often referred to as a disclosure). 
  2. They have lied about themselves.

A great tool to make sure your advisor checks all the boxes is BrokerCheck. Not only can you tell if they have any disciplinary marks on their record, but you can also confirm if the advisor has been honest with you regarding their certifications, years of experience, and examinations. If you see any marks, steer clear. 

Advisor Red Flags In Summary 

Hiring a financial advisor should be about hiring someone who’s right for you, not just someone who seems right. This means someone who understands your goals, your values, your problems, and your aspirations. If your advisor is sitting on your side of the table, you can be confident that everything they are doing is for your benefit and not theirs. 

If you’re in the process of finding your ideal advisor, make sure you’re on the lookout for the most important advisor red flags to spot before you make any decisions. The things that may seem positive in your initial meetings (like an advisor who knows how to beat the market), can turn out to be the exact opposite throughout your financial journey. 

We’d love to speak with you about your experience interviewing advisors and be a resource to help you match with your ideal advisor! 

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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