The Top 5 Red Flags to Watch Out for When Hiring a Financial Advisor

Choosing a financial advisor is one of the most important decisions you’ll make for your financial future. The right advisor can help you build wealth, plan for retirement, and avoid costly mistakes. But the wrong advisor can do just the opposite, draining your returns with high fees, poor communication, and advice that serves their interests, not yours. Here are the top five warning signs to look out for before you trust someone with your money.

1. Excessively High Fees That Eat Into Your Returns

One of the biggest dangers when hiring a financial advisor is paying more than you should in fees. Some advisors charge well above-average rates or have confusing fee structures that make it hard to know exactly what you’re paying. Over time, these costs quietly erode your investment returns, leaving you with less money for your goals. A good advisor should be upfront and transparent about their fees, whether they charge a flat rate, a percentage of assets, or an hourly fee. If the costs seem vague, layered, or disproportionately high, it’s a clear red flag.

Average assets under management charges are usually 1% per year on the total account value. Here at First Shelbourne, I only charge this amount on the first $200,000, with every dollar amount after that being charged 0.65%. I believe this is a much fairer fee structure. Charging someone 1% - 1.5% on a $1 million portfolio, which many advisors charge, is extremely excessive in my opinion.

2. Hidden Fees from High-Fee Mutual Funds

It’s not just the advisor’s own fee you need to watch out for. Many advisors invest client money in high-fee mutual funds or products that tack on another layer of expenses. This “double-dipping” can easily cost you 2% or more each year, making it even harder to keep up with the market. Often, these funds underperform low-cost index funds over the long run, meaning you’re paying more for worse results.

There have been many lawsuits in the past of firms using high-fee mutual funds. In 2022, the Securities and Exchange Commission imposed a $5.8 million penalty on Private Advisor Group for recommending high-fee mutual funds to clients and failing to disclose related conflicts of interest.

3. Advisors Who Push Products Instead of Solutions

Be wary of advisors who seem more interested in selling you financial products than in understanding your needs. If you feel pressured to buy specific mutual funds, annuities, or insurance policies, especially early in the relationship, it could mean the advisor is earning commissions or incentives for selling those products. This creates a conflict of interest and may lead to recommendations that aren’t in your best interest. A trustworthy advisor will focus on your goals and offer solutions tailored to your situation, not their bottom line.

First Shelbourne doesn't sell financial products or receive a commission on anything they do.

4. Poor Communication and Unresponsiveness

A financial advisor should be easy to reach and proactive in keeping you informed. If your advisor is hard to contact, takes too long to reply, or avoids answering your questions, it’s a major warning sign. Good communication is essential for building trust and making sure your financial plan stays on track. If your advisor goes silent after the initial meetings or doesn’t follow through on promises, it’s time to reconsider the relationship. My clients have access to my cell phone and can call or email me directly whenever they want. There is no "call center" or waiting for a return phone call three days later.

5. Lack of Personalization and Attention

Every investor’s situation is unique, and your advisor should take the time to understand your specific goals, needs, and risk tolerance. If you’re getting cookie-cutter advice or feel like just another number, you’re not getting the value you deserve. A quality advisor will tailor their recommendations to your life stage, financial situation, and long-term objectives. If you sense you’re being offered generic solutions or your advisor seems stretched too thin to give you personal attention, it’s a sign you may need to look elsewhere.

At my company, I go over each individuals financial situation and construct a custom portfolio for each. If you are paying an advisory fee, you deserve a portfolio custom tailored to your needs. When you need income in retirement, or you are younger and you need more growth, you need a specific portfolio that fits you the best.

Another large danger of these one-size-fits-all approaches is that valuation matters. Just throwing client money into funds and not caring at all where we are in an economic cycle is outright dangerous. Many advisors loaded up clients into long-term treasuries over the years that were barely paying 1%. A completely foolish use of funds that eventually backfired on these advisors because they were using a cookie-cutter approach.

You can read my client letters from years back in the Press Release section of this website where I warned about long-dated bonds. Many are now sitting on heavy losses.

Bonus Red Flag: Advisors Who Let Clients Steer Into Dangerous Waters

While it’s important for financial advisors to listen to their clients’ goals and concerns, there’s a hidden danger when advisors simply go along with every investment idea a client brings to the table. Sometimes, clients, driven by emotion, headlines, or fear of missing out, want to chase the latest fad or put too much money into risky trends. It’s tempting for an advisor to acquiesce, especially if it keeps the client happy in the short term. But in reality, letting clients steer their portfolios into speculative or unsuitable investments can be one of the biggest disservices an advisor can do.

Advisors have a responsibility to protect clients from their own worst impulses. Behavioral finance research shows that investment decisions are often shaped by hidden biases, emotions, and psychological triggers, especially during times of market stress or excitement. Clients can get caught up in the hype of hot stocks, meme trades, or the latest “can’t-miss” sector, losing sight of their long-term goals and risk tolerance. When this happens, the results can be devastating: portfolios become dangerously unbalanced, and years of careful planning can be undone by a few poor decisions.

A skilled advisor doesn’t just act as a yes-man. Instead, they provide a steady hand and clear guidance, helping clients separate fleeting trends from sound, long-term strategies. This means having the courage to say “no” when a client’s idea could jeopardize their financial future, and taking the time to explain why discipline and diversification matter more than chasing the next big thing.

Ultimately, the best advisors know that their job isn’t just to execute client wishes but to help clients avoid costly mistakes, even when that means having tough conversations.

Disclaimer:
The information provided in this article is for general informational purposes only and does not constitute investment, financial, legal, or tax advice. While every effort has been made to ensure the accuracy of the information, First Shelbourne makes no guarantees regarding its completeness or reliability. Readers should consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Investments involve risk, including the possible loss of principal. First Shelbourne is not responsible for any actions taken based on the information provided herein.