6 Red Flags Your Financial Advisor Isn’t Acting Ethically

Choosing a financial advisor isn’t a matter of just picking a name from the phone book or listening to your cousin Eddie when he says, “I know a guy.” The right person will help you make decisions to build your own wealth and a secure financial future. The wrong person will steer you down the wrong path — and pay more attention to their own bottom line than yours.

By some accounts, ethics are the dividing line between good financial advisors and bad ones. No one is perfect, and financial professionals are just as likely to make mistakes as anyone is, and certainly, not all maintain the same levels of professionalism. In general, though, it’s an advisor’s ethics that stand out the most when assessing their suitability. Obviously, you want to hire an advisor with knowledge and experience, but you also want to make sure he or she will act ethically. Your advisor should have learned about proper ethical behavior while earning their advanced degree at university.

On the surface, an unethical financial advisor might look and act like any other. However, there are also some red flags to watch out for, both before and after you hire an advisor. If you ignore these common signs, you could face major financial losses — or worse.

Red Flag #1: Making Guarantees

The number one rule of any investment is that there are no guarantees. Every investment comes with some type of risk, and usually the greater the risk, the greater the potential reward. Granted, certain investments come with a very low level of risk, but that still doesn’t make them a “sure thing.” If an advisor makes any sort of guarantee, or even promises that he or she can time the market to ensure an above average return, walk away. The best (unlikely) case scenario is that you escape the “sure thing” unscathed or with a small return; the worst case, and more likely, outcome is a major loss — and the possibility that your advisor is doing something illegal.

 Red Flag #2: Ignoring Your Wishes

A financial advisor is just that: an advisor. At the end of the day, you are still in control of your money and have the right to make all of the decisions about how it’s used. If you want to change an investment in any way, your advisor has an obligation to make suggestions about better options or provide insights you might not have considered — and then to carry out your wishes, whether or not they are in accordance with his or advice. If you your advisor buys or sells investments without your permission, you have grounds to terminate the contract, not to mention possible legal action.

Red Flag #3: Requests Personal Access to Your Money

You should never make out checks to your advisor directly, or transfer money into his or her accounts for your investments. Ethical advisors will never request direct access to a client’s money, but instead have the funds directly routed to the investment brokerage.

Red Flag #4: Pushing Products

Financial advisors’ primary purpose is to provide advice and guidance, not to sell products. If an advisor tries to push you toward certain products over others, he or she most likely has a stake in those products, and is not being ethical. Look for an advisor who will present you with all of the options, and help you explore the merits and drawbacks of each.

 Red Flag #5: Using Jargon

You hire a financial advisor to help you understand concepts that you might not otherwise understand, and to simplify potentially complex decisions. But if you cannot understand your advisor, how much help can he or she really provide? Your advisor should use clear language and terms you understand, and willingly answer questions and provide explanations when necessary. If he or she uses jargon, or is otherwise unclear, despite your requests for clarification, he or she may be trying to deliberately confuse or mislead you, and it’s time to find another advisor.

Red Flag #6: Flashing Their Own Wealth

Successful financial advisors have the potential to earn substantial salaries. However, when your advisor seems more intent on impressing you with what he or she has and makes a big show of being successful, he or she may be more intent on promoting themselves than advising you. Look for an advisor who is humble, yet effective, and you will feel more confident in his or her advice.

The majority of financial advisors are ethical, and have their clients’ best interests at heart. However, the few advisors who don’t have the potential to cost their clients a lot of money, so take care to watch for signs of unethical behavior and make changes before it’s too late.