7 Red Flags Your Advisor Isn't Acting as a Fiduciary

Fiduciary Financial Advise
14 hours ago
12 min read

When it comes to managing your finances, working with a fiduciary is critical. Fiduciaries are legally required to act in your best interest, but not all financial advisors meet this standard. Some operate under less stringent rules, which can lead to higher fees, conflicts of interest, and poor financial outcomes for you.

Here are seven warning signs your advisor might not be acting as a fiduciary:

Unclear Fees: If your advisor can't clearly explain how they’re paid or hides costs, it’s a problem.
No Written Fiduciary Commitment: Refusing to sign a document guaranteeing they’ll act in your best interest is a major red flag.
Pushing Commission-Based Products: Recommending high-fee products without clear benefits for you often signals conflicts of interest.
High-Pressure Sales Tactics: Rushing decisions or using urgency to sell products shows a lack of prioritizing your goals.
Confusing Statements: Reports that are hard to understand or fail to disclose real costs suggest a lack of transparency.
Frequent Trading: Excessive buying and selling in your account may indicate they’re chasing commissions rather than your financial goals.
Missing Credentials: Advisors without proper certifications or a clean regulatory history may not be trustworthy.

To protect yourself, ask your advisor directly: “Are you a fiduciary 100% of the time?” Always verify their credentials, request clear documentation of fees, and avoid advisors who dodge transparency. Your financial future depends on choosing someone who truly prioritizes your best interests.

1. Unclear or Confusing Fee Structures

A genuine fiduciary should lay out how they get paid in a way that's easy to understand and upfront. If your advisor dodges questions about fees or insists their services are "free", consider it a warning sign. Vague explanations often hide extra or undisclosed charges.

"If an advisor can't tell you plainly how they make money for their services, that's a major red flag." – Physicians Side Gigs [8]

Be wary of layered fees that make it hard to see the full picture. For instance, your advisor might charge a 1.00% management fee, but the mutual funds or annuities they recommend could tack on expense ratios ranging from 0.50% to 1.00% or more [5]. Without a detailed breakdown, it’s nearly impossible to know the true cost. As Paul Brahim emphasizes, advisors should clearly explain both how they’re paid and what the total costs are [3]. Additionally, be cautious of "free" financial plans - they’re often a gateway to high-commission products like whole life insurance or complicated annuities [7].

"High or unclear fees can eat into your investment returns over time, leaving you with less value in the long run." – SmartAsset [5]

To safeguard your finances, take a proactive approach. Always ask for Form ADV Part 2, a public document where advisors outline their fee structure and disclose conflicts of interest [1]. Also, confirm whether your advisor is "fee-only" (compensated exclusively by you) or "fee-based" (paid by you and through commissions on product sales). This distinction is important - fee-only advisors generally have fewer conflicts of interest [5]. Clear, transparent fees are a cornerstone of a fiduciary’s obligation to prioritize your best interests.

2. Refusal to Sign a Written Fiduciary Commitment

A written fiduciary commitment is a document where an advisor formally agrees to always act in your best interest. If an advisor hesitates or outright refuses to sign such a commitment, it could be a warning sign. This might indicate they only follow a suitability standard, which allows them to recommend options that earn them higher commissions rather than prioritizing your needs[2].

"The biggest red flag is lack of fiduciary duty. If an advisor is not a fiduciary, they may not legally be required to act in the client's best interest." – Ben Loughery, Lead Certified Financial Planner, Lock Wealth Management[2]

Some advisors operate in dual roles, meaning they can switch between acting as fiduciaries and as broker-dealers. This flexibility allows them to recommend commission-based products when it benefits them, potentially creating a conflict of interest and making their obligation to prioritize your interests less clear[1].

To protect yourself, ask directly, “Are you a fiduciary 100% of the time for all your services?” If they say yes, request a written fiduciary commitment. Then, verify their credentials using resources like the CFP Board or the SEC's Investment Adviser Public Disclosure system. This written agreement is more than just a formality - it provides legal protection if your advisor prioritizes their commissions over your financial goals[4]. Having this in place is a crucial step before assessing other aspects of their behavior.

3. Recommending Commission-Based Products Without Clear Reasons

When an advisor suggests specific financial products without fully understanding your financial situation, it could signal that their own earnings are taking precedence over your needs. Products like annuities, cash-value life insurance, and high-fee mutual funds often come with hefty commissions - ranging from 3.00% to 6.00% per transaction and sometimes climbing as high as 8.50% [2]. This creates a strong temptation for advisors to recommend pricier options, even when simpler, more affordable solutions might suit you better. This misalignment of incentives is a breeding ground for conflicts of interest, as experts frequently point out.

"Many advisors push high‑fee annuities or cash‑value life insurance, not because they're the best fit, but because they come with high commissions for the seller." – Jen Swindler, CFP and Owner, Money Illustrated [2]

Unlike fiduciary advisors, non-fiduciary advisors only need to show that a product is "suitable" for you - it doesn’t have to be the best option [7]. Adding to the confusion, dually registered advisors can switch between acting as fiduciaries and salespeople, making it harder to discern their true motivations [5].

To uncover potential conflicts, ask direct questions like: "How much will you earn if I purchase this product?" or "Are there less expensive alternatives that achieve the same goal?" [8]. If they sidestep the questions or fail to provide a clear comparison, consider it a red flag. A fiduciary advisor should be able to explain exactly why a product is included in your financial plan and how it aligns with your overall goals [3].

4. Using High-Pressure Sales Tactics or Rushing Decisions

A fiduciary's role is built on providing careful, well-thought-out advice. If an advisor pushes you to make quick decisions or uses tactics like limited-time offers, they might be stepping away from their fiduciary responsibility. Genuine fiduciaries take the time to thoroughly evaluate your financial situation before offering any recommendations. Rushing decisions contradicts their duty to base advice on a "thorough and accurate analysis" [11].

"Pressure can be a red flag of inappropriate behavior or potentially fraud." – Gerri Walsh, President, Financial Industry Regulatory Authority (FINRA) [3]

Be cautious of advisors who immediately start pitching products without first understanding your goals or risk tolerance. This behavior often signals a focus on sales rather than personalized financial planning. As Paul Brahim, President of the Financial Planning Association, explains: "The recommendations for products emerge from the financial plan, they don't come before the financial plan" [3].

Another red flag is when advisors dismiss questions about risk or boast about a "secret formula" for guaranteed returns. If your concerns are brushed aside, it’s a clear sign to reconsider working with them [2].

If you feel rushed, take a step back and question why urgency is being emphasized. Ask for written explanations and take the time to review all available alternatives. A trustworthy fiduciary will encourage your due diligence and gladly provide detailed, written recommendations for you to evaluate [3].

5. Providing Unclear Account Statements and Reports

Building on the issue of fee clarity, transparency in account reporting is just as critical.

Fiduciaries are required to clearly disclose all fees and compensation [6][9]. If your advisor hands you reports that are hard to understand, it’s a major red flag. Account statements should clearly show exactly what you’re paying in real dollar amounts, not just percentages [2][1].

Additionally, your statements should include risk-adjusted performance metrics such as alpha, beta, and the Sharpe ratio. Avanti Shetye, founder of Wealthwyzr, emphasizes:

"Investment returns can't be isolated from risk" [2]

These metrics help you determine whether returns are the result of a sound investment strategy or excessive risk-taking. Without them, it’s nearly impossible to assess the quality of your advisor’s decisions.

Another warning sign is inconsistent communication. Advisors who only reach out during market highs or fail to maintain regular contact may not have your best interests in mind. Lawrence D. Sprung, CFP and founder of Mitlin Financial, highlights this concern:

"Once the financial plan is in place or the assets are transferred, the communication wanes. Confirm a consistent communication schedule" [2]

To ensure full transparency, ask for an invoice detailing all fees and commissions. Carrie Catlin, principal at Fenway Financial Advisors, advises:

"Get an invoice to see how much you are paying" [1]

Lastly, a trustworthy fiduciary will ensure your reports come from an independent third-party custodian, not the advisory firm itself. This safeguard is essential to protect against unauthorized transactions [5]. Regular updates, especially during volatile markets, are a hallmark of a fiduciary who prioritizes your financial well-being.

6. Frequent Trading or Portfolio Churning

Excessive trading is a major red flag when it comes to protecting your investments. The U.S. Securities and Exchange Commission (SEC) defines churning as:

"When a broker engages in excessive buying and selling (i.e., trading) of securities in a customer's account without considering the customer's investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning." [12]

In simple terms, frequent trading often prioritizes broker commissions over your financial well-being. While your account value might still show growth, the constant buying and selling can quietly eat into your returns. This practice not only creates a conflict of interest but also undermines the broker's fiduciary duty to act in your best interest.

Real-world examples show how damaging this can be. SEC enforcement cases have revealed instances where clients suffered millions in losses due to these unethical practices [12].

To safeguard your investments, here’s what you can do:

Request a break-even analysis. Find out what percentage return is needed just to cover commissions and transaction fees.
Review trade confirmations. Look for unauthorized trades or transactions that don’t align with your investment goals.
Question high trading volumes. If the activity seems excessive, ask for a written explanation of how the strategy supports your specific objectives.

Churning, much like unclear fees or rushed decisions, is a clear indicator of a broker failing to uphold their fiduciary responsibility. Staying vigilant and asking the right questions can help you spot and address these issues early.

7. Missing Credentials or Poor Regulatory Standing

When it comes to protecting your financial future, verifying an advisor's credentials and regulatory history should be non-negotiable. These details reveal whether the advisor is legally required to prioritize your interests - a critical factor in determining their reliability and trustworthiness.

Credentials that matter most. Certified Financial Planners (CFPs) are held to high ethical standards and must always act as fiduciaries when giving financial advice. The CFP Board enforces this requirement, ensuring their advisors prioritize clients' best interests [2]. As Paul Brahim, President of the Financial Planning Association, explains:

"Certified financial planners, at least from a code of ethics perspective, have the highest fiduciary standing" [3].

Similarly, Registered Investment Advisors (RIAs) are legally obligated to put your interests above their own and disclose any potential conflicts of interest [1]. Other noteworthy designations include the Chartered Financial Analyst (CFA) for investment expertise and the Series 65 or 66 licenses, which are essential for offering fee-based fiduciary services [2].

Why verification matters. According to Investor.gov, a significant amount of investment fraud in the U.S. can be traced to unlicensed individuals [13]. To safeguard yourself, use tools like FINRA's BrokerCheck and the SEC's Investment Adviser Public Disclosure system to verify an advisor's credentials and history [13]. Additionally, CFP certification can be confirmed directly on the CFP Board's website [2].

Reviewing Form ADV Part 2 is another important step. This document provides insights into an advisor's fee structures, business practices, disciplinary history, and whether they have dual registration. Pay close attention to any indicators that the advisor is also an insurance broker or broker-dealer, as this dual role can lead to conflicts of interest. Larry Miles, CEO of Choreo, offers a clear warning:

"If the 'advisor' is dually registered as both a broker and a fiduciary, turn and run" [1].

How to Verify Fiduciary Status

If you've noticed potential red flags, it's time to ask a critical question: "Are you a fiduciary in every situation?" This is essential because some advisors operate as dually registered professionals, meaning they can switch between fiduciary and commission-based roles depending on the product they're promoting. This step ensures their claims align with verifiable evidence and protects your financial interests.

Check Key Documents

Request Form ADV Part 2 and Form CRS. These documents are rich in detail about your advisor’s practices. Form ADV Part 2 outlines fee structures, business practices, disciplinary history, and any conflicts of interest, such as kickbacks for referrals [1]. Form CRS (Customer Relationship Summary) adds clarity on the advisor's duties and the services they provide.

Leverage Regulatory Tools

Use regulatory databases. The SEC’s Investment Adviser Public Disclosure (IAPD) system is a valuable resource for reviewing Form ADV filings and verifying Registered Investment Advisors. On the other hand, FINRA’s BrokerCheck offers insights into an advisor’s employment history, licenses, and any customer complaints. Gerri Walsh, President of FINRA, highlights its usefulness:

"You can learn a lot about the person [via BrokerCheck]... including how long they have been in the industry and whether they have bounced around from firm to firm." [3]

Clarify Compensation Structure

Ask: "How are you compensated?" Understanding how your advisor earns their income is key. Fee-only advisors, for instance, charge either hourly rates - usually between $150 and $300 - or an annual fee of about 1% for managing a $1 million portfolio [10]. Some financial experts suggest limiting fees for asset allocation and investment selection to no more than 0.25% [1].

Document Everything

Get it in writing. Request a signed fiduciary oath that explicitly states your advisor will act in your best interest for all accounts and services. Ensure their product recommendations are genuinely based on your financial plan, not the other way around [3]. Having these commitments documented provides peace of mind and reinforces their obligation to prioritize your financial well-being.

Conclusion

Your financial well-being hinges on partnering with someone who prioritizes your interests - every single time. The seven red flags - unclear fees, lack of fiduciary commitment, commission-driven recommendations, high-pressure sales tactics, confusing statements, excessive trading, and questionable credentials - are not just minor concerns. They’re serious indicators that could cost you significantly over time, both in lost returns and peace of mind.

Each of these warning signs represents a potential breach of trust. For example, unclear fees or conflicts of interest can quietly chip away at your hard-earned savings. Excessive trading might seem like activity, but it often benefits the advisor more than you. And without a fiduciary obligation, your advisor may not even be legally required to act in your best interest. That’s a risk no one should take.

If any of these red flags sound familiar, don’t dismiss them. It’s time to ask some direct questions - starting with: "Are you a fiduciary 100% of the time?" Insist on getting their answer in writing. Transparency is non-negotiable when it comes to protecting your financial future.

Your assets are more than just numbers - they represent your goals, dreams, and security. A true fiduciary is not only legally obligated but also ethically committed to putting your priorities above their own. That’s the kind of partnership that builds trust and ensures your financial journey aligns with your best interests.

Take a moment to review your advisor’s practices, ask the tough questions, and make informed decisions. Your financial future is far too important to leave to chance.

FAQs

What’s the difference between a fiduciary and a non-fiduciary financial advisor?

A fiduciary advisor is bound by law to prioritize your financial well-being above all else. This means they must act in your best interest, fully disclose any potential conflicts of interest, and typically operate on a transparent fee-only basis. Unlike commission-based models, this approach ensures their recommendations are not swayed by personal gain.

On the other hand, a non-fiduciary advisor operates under a less stringent standard. They are only required to suggest options that are "suitable" for your financial situation, which doesn't always guarantee the best choice for you. Often, their compensation comes from commissions on specific financial products they sell, which can lead to potential conflicts of interest - and they might not be obligated to disclose these incentives.

Here’s a quick breakdown of the key differences:

Client-first obligation: Fiduciary advisors are legally required to act in your best interest, while non-fiduciaries only need to meet a basic suitability standard.
Payment model: Fiduciaries typically charge straightforward fees, while non-fiduciaries may earn commissions or sales-based incentives.
Transparency: Fiduciaries are upfront about conflicts of interest, whereas non-fiduciaries might not be.

By understanding these differences, you can make a more informed decision when selecting a financial advisor who aligns with your goals.

How can I tell if my financial advisor is really acting in my best interest as a fiduciary?

To make sure your financial advisor is genuinely working in your best interest, start by asking them outright if they act as a fiduciary. Don’t stop there - request a written confirmation of their fiduciary commitment. Next, check their registration as an investment adviser with the SEC or your state. You can do this easily using the Investment Adviser Public Disclosure (IAPD) database.

Also, verify that their compensation model is fee-only. This means they’re paid exclusively through transparent fees and don’t earn commissions or other incentives that could lead to conflicts of interest. Taking these steps can give you peace of mind that your advisor is focused on your financial success, not their own bottom line.

What steps should I take if I think my financial advisor isn’t acting in my best interest?

If you suspect your financial advisor might not be acting in your best interest, the first step is to carefully review all related documents and communications. Look for anything that raises red flags, like questionable fee disclosures or product recommendations that don’t seem to align with your goals. Make sure to document your concerns and gather any evidence that supports your case.

Once you’ve organized your findings, reach out to the compliance department at your advisor’s firm to report the issue. You can also escalate the matter by filing a complaint with regulatory bodies such as the Securities and Exchange Commission (SEC) or FINRA. If you’ve experienced significant financial losses, it might be wise to consult an attorney who specializes in financial disputes. They can help you explore legal options or arbitration to recover your assets. Acting promptly can make a big difference in protecting your financial well-being.