{"id":35934,"date":"2025-09-22T17:54:55","date_gmt":"2025-09-22T17:54:55","guid":{"rendered":"https:\/\/financialrush.com\/?p=35934"},"modified":"2025-09-22T17:54:55","modified_gmt":"2025-09-22T17:54:55","slug":"red-flags-to-watch-out-for-when-picking-a-financial-advisor","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=35934","title":{"rendered":"Red flags to watch out for when picking a financial advisor"},"content":{"rendered":"

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Image Source | Image Source | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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Whether through a friend of a friend or on\u00a0FinTok<\/a>, there are a lot of ways to find a financial advisor<\/a> these days. Picking the right person for your needs is a different story.<\/p>\n

\u201cIf you can\u2019t make a connection, chances are the advice might be a little sterile because it\u2019s not about you,\u201d said Paul Brahim, a certified financial planner and president of the Financial Planning Association.<\/p>\n

Fortunately, there are some tried-and-true rules for vetting a financial professional, as well as a few key red flags to watch out for.<\/p>\n

Before initiating what could be one of your most important relationships, here are those warning signs, according to experts.<\/p>\n<\/div>\n

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More from Financial Advisor Playbook:<\/h2>\n
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Here\u2019s a look at other stories affecting the financial advisor business.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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Red flag: Questions about credentials<\/strong><\/h3>\n

For starters, a financial professional must be qualified to make sound decisions to help you reach your personal and financial goals.<\/p>\n

To that end, some advisors are bound by the fiduciary standard, which means that they are required to act in your best interest. Otherwise, financial planners and investment advisors may recommend investments that fit your needs under a less strict suitability standard.\u00a0<\/p>\n

\u201cCertified financial planners, at least from a code of ethics perspective, have the highest fiduciary standing,\u201d said Brahim.<\/p>\n

To verify a CFP\u2019s background, go to the CFP Board\u2019s\u00a0website<\/a>. Brokers and brokerage firms can be looked up on the\u00a0Financial Industry Regulatory Authority<\/a>\u00a0site and investment advisors can be checked out on through the U.S. Securities and Exchange Commission\u2019s\u00a0Investment Adviser Public Disclosure, or IAPD<\/a>.<\/p>\n<\/div>\n

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\u201cYou can learn a lot about the person\u201d by doing a quick check, said Gerri Walsh, president of the Financial Industry Regulatory Authority, known as\u00a0FINRA<\/a>. That includes how long they have been in the industry and whether they have bounced around from firm to firm, \u201cwhich is not necessarily a red flag but could be a yellow flag for you to consider.\u201d<\/p>\n

FINRA\u2019s online\u00a0Broker Check<\/a>\u00a0also includes complaints by customers against registered investment professionals. Complaints are not necessarily deal breakers either, Walsh said; however, a minor records violation is one thing, and unauthorized trading may be another.<\/p>\n

Red flag: Lack of transparency<\/strong><\/h3>\n

There are different ways advisors earn money, but another red flag is \u201cif there is a lack of transparency around fees,\u201d Brahim said.<\/p>\n

\u201cIt\u2019s important to understand the form of compensation and the total cost,\u201d Brahim said. Also, an advisor should be able to articulate that \u201cpretty quickly.\u201d<\/p>\n

The \u201cnorm\u201d tends to be a fee based on assets under management, according to Walsh, but that doesn\u2019t mean that\u2019s right for everyone. For example, \u201cif you have $100,000 and you are paying 2%, are you getting $2,000 of value? You might be better off with a fee-for-services model.\u201d<\/p>\n

In that case, you may pay a flat fee or an hourly rate or even a combination of the two. But advisors could also earn a commission based on the transactions they make, or products they sell.<\/p>\n

\u201cYou want to make sure you understand how the investment professional gets paid and how you pay them \u2014 those are two different things,\u201d Walsh said.<\/p>\n

Red flag: You wouldn\u2019t swipe right<\/strong><\/h3>\n

Although you don\u2019t have to love your financial advisor, it\u2019s generally a green flag if you do.<\/p>\n

\u201cWe become part of each other\u2019s lives,\u201d Brahim said. \u201cIt should be a long-term collaborative relationship; it\u2019s not just about math.\u201d<\/p>\n<\/div>\n

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Just like when dating, a prospective advisor should be asking you questions about your life at the outset \u2014 \u201ca lot of folks in our industry will start talking about themselves, that\u2019s a red flag,\u201d Brahim added. It helps if they have an understanding, broadly, of who you are and some experience with others in your field. \u201cHave they seen your scenario a time or two in the past?\u201d<\/p>\n

Still, no two relationships are the same.<\/p>\n

To that end, Walsh said, share all of your goals \u2014 whether that\u2019s saving for a home, college or retirement \u2014 as well as challenges and financial constraints you face, such as caring for an aging parent.<\/p>\n

\u201cYour goals are going to be unique to you,\u201d Walsh said. \u201cYour circumstances are going to be different and your capacity to absorb risk.\u201d<\/p>\n

Red flag: Products come before planning<\/strong><\/h3>\n

According to Brahim, another red flag is if \u201csomeone is simply pitching an idea for an investment or an insurance product without having clarity around your goals and objectives.\u201d<\/p>\n

A good advisor should know that your interests come first, with a thorough assessment of your financial situation, he said. \u201cThe recommendations for products emerge from the financial plan, they don\u2019t come before the financial plan.\u201d<\/p>\n

Pitching products early on could indicate that you are dealing with a salesperson rather than an advisor acting in your best interest. \u00a0<\/p>\n

In fact, anytime someone is leaning on you to make a particular investment or quickly decide on a sale or purchase, \u201ctake a step back,\u201d Walsh said. \u201cPressure can be a red flag of inappropriate behavior or potentially fraud.\u201d<\/p>\n

Subscribe to CNBC on YouTube.<\/strong><\/em><\/a><\/p>\n<\/div>\n<\/div>\n\n
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