After 40 years in this business, I’ve learned that people often ask me the same question:
“Dan, how do I know if my financial advisor is actually doing a good job?”
It’s a fair question, and honestly, it’s one more people should be asking. According to a 2024 YCharts survey, 75% of clients either considered switching or did switch advisors in 2023, up from 48% of respondents between 2020-2022. Understanding these financial advisor red flags can help you evaluate your own situation.
Let me share some insights that might help.
When Your Advisor Can’t Explain What They’re Doing
One of the most important financial advisor red flags is unclear communication about investment strategies.
According to FMG’s 2024 Advisor-Client Communications Survey, only 64% of the content in a typical conversation with their advisor resonates with clients, down from 70% in 2023. That means more than one-third of what advisors are saying isn’t connecting with people.
If your financial advisor can’t explain their strategy in terms you understand, that’s worth considering carefully. Effective advisors should be able to walk you through exactly what they’re doing and why it makes sense for your situation.
Your money is too important for guesswork. Any advisor worth their fee should be able to provide clear explanations of their approach.
Red flag #1: Advisors who use confusing jargon instead of clear explanations, or seem defensive when you ask questions about your investments.
The Mystery of Missing Performance Reports
This is another significant concern. Many investors don’t receive clear performance reporting that helps them understand their progress.
A study by CNBC found that nearly three-quarters of investors say their financial advisor has let them down, with investment track record being one of the two biggest reasons.
Effective advisors should provide regular reports that include:
- Performance compared to appropriate benchmarks
- Explanation of what changes were made and why
- Progress updates on your long-term goals
- Complete fee disclosure
Some investors find themselves with beautifully designed statements that lack meaningful performance comparisons. This can make it difficult to evaluate whether the advisory relationship is working effectively.
Red flag #2: Unclear performance reporting, or reports that don’t show how you’re doing compared to relevant benchmarks.
The Endless Product Parade
Another bad financial advisor characteristic is constantly pitching new products instead of focusing on your long-term plan.
If every meeting feels like a sales presentation for something new, you might be dealing with someone focused more on product sales than comprehensive planning.
The enemy of good is perfect. A solid plan that’s consistently executed often works better than constantly changing strategies.
Red flag #3: Advisors who constantly pitch new products instead of maintaining focus on your long-term strategy.
When You Can’t Reach Them
This should be obvious, but it’s worth mentioning: your financial advisor should be reasonably available when you need guidance.
According to J.D. Power’s 2023 Financial Advisor Satisfaction Study, nearly one-third (28%) of financial advisors say they do not have enough time to spend with clients. If your advisor is in that group, you’re not getting the service you deserve.
YCharts research shows that clients who receive infrequent communication from their advisor displayed decidedly less confidence in their financial plan. Of respondents who are infrequently contacted (every 4-6 months or less), just 22% are very comfortable with their financial plan, compared to a 71% rate by clients who receive frequent contact (monthly or more).
I learned early in my career that communication is part of the job, not an interruption to it. When people are concerned about their money, they deserve timely responses.
More communication is generally better than less, especially when people are worried about market conditions or their financial situation.
Red flag #4: Poor communication, slow response times, or only hearing from them when they want to sell you something.
The Fee Shell Game
Fee transparency is crucial in any advisory relationship. Some advisors advertise “no fees” but use high-commission products that essentially hide the costs.
According to a recent financial advisor fee study from Bob Veres’ Inside Information, the true all-in cost for financial advisors averages about 1.65%, not “just” 1%. A 2024 study by YouGov revealed that cost of services comes in second priority with almost 50% of Americans concerned about fees when choosing an advisor.
“Fee-free” advice that comes with expensive products isn’t actually free – you’re just paying in a way that’s harder to see.
According to the 2024 State of Financial Planning and Fees study from Envestnet, the average financial advisor fees last year included a fixed-percentage fee for a human advisor of 1.05%. Transparent fee structures help you understand exactly what you’re paying and what you’re receiving for those fees.
Red flag #5: Fee structures that don’t make sense for the services provided, or “fee-free” advice that comes with expensive products.
The Fiduciary Question
This is an important consideration when evaluating advisors. A fiduciary is legally required to put your interests first, while other advisors only need to make “suitable” recommendations.
According to research from Human Investing, only 4.92% of financial professionals operate as fee-only fiduciaries. This percentage has seen growth from an estimated 2% in 2018, reflecting progress but also underscoring the rarity of this practice in an industry dominated by commission-based models.
Even among Investment Advisor Representatives (IARs), who are often seen as closer to the fiduciary standard, 47% still receive commissions, leaving only 53% as truly fee-only fiduciaries.
When someone is helping manage your family’s financial future, understanding their legal obligations can be valuable.
Many investors don’t realize there are different standards that advisors operate under, so this is worth asking about directly.
Red flag #6: Advisors who won’t clearly state they’re fiduciaries or seem unclear about their obligations to clients.
The Cookie-Cutter Problem
Your financial situation is unique, and your investment approach should reflect that. Generic, one-size-fits-all approaches exist because they’re easier and less expensive for advisors to implement.
However, they may not address your specific situation and goals effectively.
Red flag #7: Generic investment approaches that don’t seem tailored to your specific situation and goals.
The Promise Trap
Be cautious of anyone who guarantees specific returns on investments. Claims like “we can get you 12% annually” or “our strategy never loses money” should raise immediate concerns.
Even experienced professionals with strong track records cannot guarantee future performance, as market conditions are inherently unpredictable.
Things happen for you, not to you – but nobody can predict exactly what those things will be or when they’ll happen.
Red flag #8: Guarantees about future performance or promises that sound too good to be true.
What Good Financial Advisors Actually Do
Let me share what you might expect from an effective advisory relationship.
During market volatility, good advisors help you understand what’s happening historically, why staying disciplined often pays off long-term, and how your specific situation affects the appropriate response.
This kind of guidance can be valuable when emotions are telling you to make reactive decisions.
Effective advisors typically provide:
- Clear Communication: Explanations in terms you can understand
- Transparent Fees: Clear information about what you’re paying and why
- Regular Reporting: Honest updates on your performance and progress
- Reasonable Availability: Responsiveness when you have questions
- Accountability: Responsibility for results and willingness to make changes when needed
- Clear Standards: Understanding of their legal obligations to clients
A Personal Perspective on Making Changes
Early in my career, I had to change contractors who was working on my house. The person was reliable and likable, but the work wasn’t meeting expectations.
It was uncomfortable – but my family’s home was too important to accept subpar results just because the relationship was pleasant.
Your family’s financial future deserves the same consideration.
If you recognize these financial advisor red flags, it doesn’t necessarily mean your advisor is a bad person. But it might mean they’re not the right fit for your needs.
What to Consider Next
If any of these warning signs seem familiar, you might consider:
- Asking more questions. Don’t accept vague answers about your investments or performance.
- Getting a second opinion. Having another advisor review your situation independently.
- Documenting everything. Keeping copies of all your statements and records.
- Evaluating your options. Your financial security may be more important than avoiding an uncomfortable conversation.
The Bottom Line
Research from Financial Advisor magazine shows that 72% of advisors said their client fired a previous advisor for failing to communicate in a timely way. That tells you something about what really matters to people.
Changing financial advisors isn’t always easy, but staying with an advisor who isn’t serving your needs effectively can be costly over time.
Your family’s financial future deserves someone who’s genuinely competent, truly accountable, and focused on helping you succeed.
We don’t run our business on autopilot, and you shouldn’t have to accept autopilot service from your advisor either.
Sources
- YCharts Advisor-Client Communication Survey 2024 https://get.ycharts.com/resources/blog/why-frequent-advisor-communication-matters-insights-from-ycharts-latest-survey/
- J.D. Power 2024 U.S. Financial Advisor Satisfaction Study https://www.jdpower.com/business/press-releases/2024-us-financial-advisor-satisfaction-study
- J.D. Power 2023 U.S. Financial Advisor Satisfaction Study https://www.jdpower.com/business/press-releases/2023-us-financial-advisor-satisfaction-study
- FMG Suite 2024 Advisor-Client Communications Survey https://fmgsuite.com/resources/webinar/breaking-down-the-2024-advisor-client-communications-survey/
- Financial Advisor Magazine Industry Survey https://emoneyadvisor.com/blog/4-reasons-why-clients-leave-financial-advisors-plus-4-client-retention-strategies/
- Bob Veres’ Inside Information Financial Advisor Fee Study (via Kitces Research) https://www.kitces.com/blog/independent-financial-advisor-fees-comparison-typical-aum-wealth-management-fee/
- YouGov 2024 Consumer Survey (via U.S. News) https://money.usnews.com/financial-advisors/articles/what-to-know-about-financial-advisor-fees-and-costs
- Envestnet 2024 State of Financial Planning and Fees Study (via NerdWallet) https://www.nerdwallet.com/article/investing/how-much-does-a-financial-advisor-cost
- Human Investing Research on Fiduciary Standards (2024) https://www.humaninvesting.com/450-journal/only-5-percent-of-advisors-are-true-fiduciaries
- CNBC Financial Advisor Performance Study https://www.cnbc.com/2017/12/08/financial-advisors-fail-on-investment-performance-client-trust.html
- Financial Planning Magazine – Advisor Communication Research https://www.financial-planning.com/list/financial-advisors-losing-clients-over-poor-communication-skills
This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. 8368975.1
