What are the warning signs of a bad financial adviser?

Are you worried that your financial adviser doesn’t have your best interests at heart? 

It’s important to select someone trustworthy and properly qualified to handle your finances. Equally, you shouldn’t rush into signing up with an adviser because they are pushing you to with hard sales tactics. 

Read our guide on how to spot a bad IFA and what to do if you have concerns. 

What qualifications should my financial adviser have? 

It’s important that your financial adviser is qualified.

There are a number of different ways to become an financial adviser, but they should have qualifications recognised by the FCA.

What is the Financial Conduct Authority?

The Financial Conduct Authority (FCA) regulates around 42,000 UK-based financial businesses to ensure the health and quality of the financial markets.

To carry out certain activities, firms and individuals must be authorised or registered by the FCA.

To receive authorisation, firms must demonstrate they meet a range of requirements. The FCA oversees these companies to make sure they continue to uphold their standards.

As a minimum, your financial adviser should hold a Level 4 diploma for financial advisers. This is the FCA’s minimum qualification standard for providing professional advice.

A poor-quality financial adviser will not be registered with the FCA and is unlikely to have the proper qualifications.

You wouldn’t want an unqualified plumber or builder working on your home, and in the same way, you won’t want an unqualified financial adviser handling your financial affairs. 

All of the financial advisers available via Unbiased are properly qualified and registered with the FCA. 

What if my financial adviser isn’t clear about the fees they charge?

A major red flag for rogue financial advisers is that they may be vague about their fees. Professional and qualified financial advisers will be upfront about the fees they charge and more than happy to explain them to you. 

If your financial adviser skirts around the issue or seems to be charging excessive fees and isn’t able to explain why, it may be time to find an alternative provider. 

What if my financial adviser is uncommunicative?

If your financial adviser ignores your calls and emails and isn’t easy to reach when you need their input, this is also a bad sign. You are trusting this individual with your money, and they should be responsive and communicate with you regularly. 

Another warning sign is if your financial adviser doesn’t take on board your point of view or suggests they can handle your finances without your input. 

What if an financial adviser recommends funds that aren’t suitable for my risk appetite?

A classic sign of a bad financial adviser is that they don’t consider your risk appetite and recommend funds or other investment products that aren’t aligned with it.

This is most likely because they may be receiving commission from the providers selling these products.

As such, they may be more concerned with pocketing the money than with whether they are actually suitable for your needs. 

This is a major red flag that they don’t have your best interests at heart, and it's definitely a signal to look elsewhere for better quality advice. 

My financial adviser says he can offer ‘low-risk, high-return’ investments. Is this right?

There is no such thing as an investment that is low risk and high return, just as there is no such thing as a free lunch.

Generally, the greater the return an investment is expected to deliver, the higher the requisite risk will be. If it sounds too good to be true, then it usually is. 

If your financial adviser suggests they can provide you with such investments, then alarm bells should be ringing immediately.

It will likely be some kind of Ponzi scheme – one where investors are paid ‘returns’ from new investors’ cash – and will likely end in disaster for your finances, so it’s best to avoid this. 

I’m concerned that my financial adviser buys and sells my investments too often

Another sign of a rogue or poor-quality financial adviser is that they overtrade and buy and sell investments too frequently.

Most qualified financial advisers will recommend a buy and hold strategy for your portfolio, as holding investments for long periods, such as five to 10 years, tends to be the most effective strategy over time to overcome the peaks and troughs of the stock market. 

It is also lower cost because it avoids excessive trading fees eating into your capital. If your financial adviser is constantly pushing you to buy new funds or shares, then they likely do not have your best financial interests at heart.

Get expert financial advice

Unfortunately, there can be bad apples in the financial services industry, just as there can be in every industry. But luckily, the signs can be easily spotted, and these individuals can be avoided if you know what to look out for. 

When looking for a financial adviser, always select one with proper qualifications and meet and talk with at least three candidates before making your final choice. 

Let Unbiased match you with a financial adviser for expert financial advice.