10 Financial Advisor Red Flags That Signal a Scam

Key Points

• Be wary of advisors promising guaranteed returns or using strategies they can't explain.
• Red flags include pressure to invest quickly, secrecy demands, unlicensed status, or unsolicited cold calls.
• Irregular statements and a history of client complaints can indicate a scam.
• Try these must-have investing apps to take control of your finances and avoid relying on risky advisors.

Many people turn to a financial advisor for help with money issues. However, in the worst-case scenario, a fraudulent financial advisor might set a trap to steal your money.

Falling for such a bad actor might seem like a surprising financial mistake, but it is more common than you think. Here are some red flags that might signal a financial advisor is engaged in a scam.

1. Promises of guaranteed high returns

When it comes to investing, everyone wants to get more bang for their buck. But when a financial advisor promises unusually high returns, it might signal a scam.

Unfortunately, all investments carry some degree of risk. That means it's impossible to guarantee success.

At best, an advisor making big promises could fail to deliver. At worst, they might walk away with your money.

2. Complex strategies

Beware if someone tries to sell you on a financial strategy you don't understand. A competent professional should be able to break down their strategy in terms you can easily grasp.

If they cannot map out the plan clearly, it's possible that something fishy is going on.

3. Pressure to invest immediately

Financial planning decisions are often complex, which means you might need some time to think through your options before committing.

If an investment professional gets too pushy, consider it a red flag. Even if the advisor is simply an overzealous salesperson — and not a bad actor — you might not want to work with them if you feel pressure to get on board.

4. Unlicensed or unregistered advisors

Before committing to work with any financial advisor, check into their credentials. Working with an unlicensed or unregistered advisor can be risky.

For example, if someone claims to be a certified financial planner, you can check that they actually hold that certification through the CFP website. If they are lying about their credentials, they aren't worthy of your trust or time.

5. Requests that you keep things secret

A financial professional should not ask you to keep any investment strategy secret from others in your life. You should feel free to discuss financial decisions with anyone you trust.

Demanding secrecy is a common tactic crooked advisors use to isolate the victim. So, if you feel the pressure to keep things hush-hush, consider taking your business elsewhere.

6. 'Cold calling' with investment opportunities

When a financial advisor you've never met calls you out of the blue, it's a good idea to be wary of any advice or suggestions they offer.

In fact, it's best to avoid responding to any cold calls via phone, text message, email, junk mail, or social media.

7. Statements that don't look right

Even if you find a financial advisor you like, remember to stay vigilant. Carefully review your financial statements each month, scanning the details of your account so you can spot any sneaky moves on the part of your advisor.

Look for unauthorized trades or missing funds. If you spot a problem, it could be the first sign of fraud.

8. Pushing unsuitable high-commission products

Unfortunately, some financial advisors push high-commission products, regardless of whether they work well for your needs. In many cases, these high-fee options help to line the advisor's pockets.

If a financial advisor is trying to sell you a product that clearly doesn't suit your needs, consider asking how the commission structure works. In some cases, you'll quickly discover that the advisor has their own best interests at heart, not yours.

9. Requests for direct access to your money

If a financial advisor asks for direct access to your funds, it might seem like a convenient solution. But generally, this is a red flag.

When you hand over your banking details, you make it incredibly easy for a shady advisor to steal from you. Even if they have no intention of taking from you at the moment, life can throw curveballs that change people.

You can ask your financial advisor for advice, but they don't need direct access to your funds to provide thoughtful guidance.

10. History of complaints

Before you jump in with a financial advisor, take a quick look at their background and search for any instances of bad behavior.

The U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) each keep records of complaints and lawsuits related to advisors.

If an advisor has a history of complaints or lawsuits, it's best to seek out a different option.

Bottom line

The unfortunate reality is that not every financial advisor has your best interests in mind. Some are actively trying to rip you off.

One way to avoid money mistakes, such as falling for scams, is to investigate a financial advisor's background and contact their clients before deciding to work with them.

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