10 Alarming Signs Your Financial Advisor Is Trying to Scam You (2024)

Between the turbulent stock market, unprecedented real estate landscape, and the rise of cryptocurrency, you may feel like making your money work for you has never seemed so urgent — or so confusing.

If this is you, there’s a good chance you have considered hiring a financial advisor to help you profitably navigate this economy. You want to work with someone who is knowledgeable about all types of investments, insurance, and other personal finance issues.

Finding a reliable and skilled financial advisor comes down to knowing the warning signs of the bad ones so you can avoid them.

Here are 10 red flags to watch out for in a financial advisor.

Let’s begin with the big one: If it’s too good to be true, it probably is. Almost all of us recognize this because we’ve been gullible before. Yet your financial advisor’s assurances that an investment is low risk and high reward may be awfully tempting.

So no matter how enticing an investment may look, remember that a risk-free sure thing is also a glaring feature of a Ponzi scheme.

An invitation to a free steak dinner at a popular local restaurant may sound like a great night out. But If you hear the words “Act fast!” come out of anyone’s mouth, you should act fast and leave. Someone using high-pressure sales tactics to influence your financial decisions may not be a great advisor.

These free events aren’t necessarily scams. If you do receive an invitation, check out the host’s credentials at FINRA’s BrokerCheck, the CFP Board’s planners, or the National Association of Personal Financial Advisors database before you RSVP.

Diversifying your portfolio is standard advice because it’s common sense. If you put all your money in one stock, for example, and it tanks for any reason, you may lose everything.

If your financial advisor is encouraging you to invest in a specific area, they may have an ulterior motive. A good financial advisor will help you choose a balanced portfolio to protect your investments.

We tend to think of advisor-client relationships as one person with all the answers offering those answers to someone who doesn’t have any. And while there is some truth to that characterization, an advisor-client relationship is worthless if the advisor doesn’t also listen to the client.

Every individual has a unique set of needs and circ*mstances that should be considered, especially by a person who is being paid to advise on decision-making. If a financial advisor bulldozes you to invest in something, ask yourself why they are so determined to put your money there.

Pro tip: If you don’t think you need one-on-one help with your financial life, you might consider an online brokerage account. This is a low-cost way to begin building a portfolio, and often includes online tutorials to help you learn.

Having confidence that your financial advisor knows how to invest money better than you do is the basis of a good relationship with them. As with any professional you’re considering working with, you might ask friends or family for recommendations.

Regardless of how you find a financial advisor, do the legwork to learn whether the one you’re considering is actually qualified to handle your money. You can start by searching the Certified Financial Planner Board’s professionals. Making sure they aren’t misrepresenting their abilities and qualifications is key to avoiding a scammer.

If you and everyone you know is making the same investment based on the same person’s advice, you may be the victim of affinity fraud. Affinity schemes are often perpetrated around religious organizations, social clubs, or specific ethnic groups.

A shady financial advisor will often target these types of groups because they can take advantage of you and your community’s shared interest or belief. Often they will use your investment to pay the returns of their other investors and vice versa, usually for their own personal gain. When this happens you have become a victim of a “Ponzi” or a “pyramid” scheme.

Pro tip: If you or a group of friends want to start investing, you might consider looking at the best robo-advisors. These algorithm-based financial advisors offer a low-cost way to begin investing, and guide you toward your stated goals.

Financial advisors are doing you a service, so of course they ought to be paid. But when they become vague or misleading about how they are being paid, you should hear alarm bells ringing.

Advisors may be getting a commission from the mutual funds in which they are investing your money. Or they might be charging “fees” to your account at every opportunity. They should disclose these things.

When you interview a potential advisor, be sure to ask them how they make money. Do they earn a commission on products they recommend? Do they charge a flat fee that is a percentage of your assets under management? Are they a fee-only advisor whom you will pay just for the work they do?

If an advisor isn’t forthcoming about their fee structure, that’s a red flag.

Regardless of your financial planner’s gender, there’s always the chance that when you and your spouse begin discussing your financial goals with them, they may behave like one of you isn’t even in the room.

A good financial advisor will be sure both halves of a couple understand the investments and the steps needed to achieve set goals. If you can’t trust your financial advisor to listen to both you and your spouse, you can hardly expect them to look out for both of your interests.

If your monthly statements appear to be a hotbed of activity but your actual earnings aren’t increasing, you may be the victim of a churning scheme. “Churning” is when financial advisors frequently and unnecessarily trade your assets in order to earn commission fees.

This practice is not only a sign that your financial advisor doesn’t have your best interests at heart, but it’s also illegal.

Handing your financial advisor your checkbook so they can handle your investments may seem incredibly convenient. But it’s also handing someone else your checkbook. No matter how much you trust your financial advisor, you just made embezzlement easy for them.

Keep control of as much of your finances as you feel comfortable handling. A financial advisor should be your financial guide, not your spouse.

Finding a trustworthy financial advisor who knows what they are doing can make your life a whole lot easier. And doing the research to find a good one may end up being the hardest part.

Most financial advisors work for either commissions or fees. Deciding which way you want to compensate an advisor may also determine what you want an advisor to do for you.

The main thing to remember is that it’s your money. Whether you decide to work with an online brokerage, a robo-advisor, or an independent financial advisor, no one is going to care about your money like you do.