One green flag and four red flags to consider when selecting a financial advisor.

Seeking advice from a qualified professional can be beneficial when feeling stressed about finances.

With numerous financial advisors and planners available, selecting the most suitable one to manage your finances can be challenging.

Understanding common red flags can help you avoid making poor decisions.

According to certified financial planners and advisors from across the U.S., there are four red flags to look for when choosing a financial professional, plus one green flag that an advisor could be a good fit.

Red flag No. 1: The financial advisor does most of the talking

If a financial planner is dominating the conversation without giving you a chance to contribute, it's a red flag. This could manifest in various ways, such as bragging about their success and the wealth they can generate for you or presenting a one-size-fits-all approach.

Ametrine Wealth's founder, Carla Adams, a Michigan-based CFP, suggests looking for a financial planner who actively listens to understand your needs and goals.

According to Adams, if your planner is not receptive to discussing your needs and objectives, they are unlikely to assist you in achieving your distinctive goals.

From the start, paying attention and posing insightful inquiries are effective methods for determining if a colleague values your perspective and requirements.

Red flag No. 2: They do not disclose their payment methods.

It is essential for a financial advisor to clearly convey their fee structure to you, according to Adams. If the fees are unclear or claimed to be nonexistent, then the planner is likely promoting products that pay them a commission, she explains.

A financial advisor must provide transparency on the payment amount and the commission they receive for a product they sell to you.

"According to Sean Williams, a CFP at Cadence Wealth Partners in North Carolina, if someone is providing financial planning without charging a fee, it's a warning sign. They must be compensated eventually, and it's likely through the sale of products."

Mutual fund shares or insurance plans may earn an advisor a commission, but they may not always align with your financial goals or be the best fit for you.

Red flag No. 3: Their lack of transparency regarding their background and qualifications is a concern.

Before engaging a financial advisor, utilize the free search tool provided by the Financial Industry Regulatory Authority, known as BrokerCheck, to examine their background and history in the industry.

You can discover a financial advisor's work history, licenses, and any past regulatory issues through BrokerCheck, which are known as "disclosure events."

Investment advisors who are also registered as financial advisors will have a public disclosure record with the SEC.

Reviewing "disclosure events" is crucial to make an informed decision about working with an advisor or company.

Verify that your financial advisor is truly certified by checking their registration with the authorities that oversee their accreditation. While certified financial planners and chartered financial analysts are often regarded as industry benchmarks, it's crucial to confirm their certification with the relevant regulatory bodies.

Red flag No. 4: You don't trust them

If a potential advisor doesn't inspire trust or gives you a bad feeling, it's okay to move on.

Can you provide more context or clarify what you are asking for?

According to Marisa Rothstein, a CFP at Siena Private Wealth in Avon, Connecticut, you should leave meetings with your advisors feeling confident and informed, not intimidated or bewildered.

Rothstein suggests that advisors who use excessive jargon or fail to clarify concepts may be attempting to create a sense of dependency and confusion in their clients.

"According to Ashton Lawrence, a CFP at Mariner Wealth Advisors in South Carolina, a great financial advisor won't simply dictate what to do. Instead, they will guide you through the reasoning behind their recommendations, explaining the consequences and empowering you to make well-informed decisions."

Green flag: They ask for your tax returns

What should you be cautious of when a financial advisor asks for and reviews your tax returns?

Examining a patient's tax return is crucial for a doctor to write a prescription, just as looking at someone's financial plan is essential for a CFP to provide advice, says George Gagliardi, founder of Coromandel Wealth Strategies in Massachusetts.

Seek out financial planners who are fiduciaries, as they have a legal obligation to prioritize your interests.

Lawrence warns that if a "financial planner" provides the same advice or products without customizing their recommendations to your specific objectives, it's a sign of poor service.

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