The 5 Biggest Red Flags of Financial Advising

Tyler Gardner (0:00)

Plenty of advisors are skilled at making you feel like you're requesting a hall pass from the person in charge of your own life. Say it with me, this is your money, not theirs, yours. You're not asking permission to leave, you are informing them of your intentions.

Hello friends, this is Tyler Gardner welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance and investing. So let's get started and get you one step closer to where you need to be.

Quick note before we start, September's pre-order bonus for my book Real Wealth is something I've wanted myself for years and never been able to find. So I created it. It's called the Real Wealth Money Calendar. 12 months, 5 action items per month, all on one page. Because most people I know already know what to do. They just don't necessarily know when, and they don't have accountability. So this is your 2027 on one page. 60 moves in the month you actually need to make them. Pre-order Real Wealth at tylergardner.com/book. Let me know you did, and your money calendar will be in your inbox in early October. Welcome back, my friends, to the show where we talk about money, like actual humans, with lives to live. Not like people who alphabetize their tax documents for fun, but hey, never judging those of you who do, because, well, that might be what I do for fun. I'm your host, Tyler, and today we're going somewhere that I've been circling for months. And for those of you who follow the short form videos, you know I touch on this about every two weeks or so, just as a gentle reminder. And I get this question a lot. We're talking about how to choose and how to vet and what to be terrified of when it comes to financial advisors. Specifically, the five red flags that should send you sprinting in the other direction. Whether you're thinking about hiring an advisor or you already have one, and something in your gut has been clearing its throat daily, trying to get your attention. And fair warning right up front, red flag number one describes the majority of the industry, not the fringe, not the bad apples, the standard operating model. So if you have an advisor, today might be uncomfortable. And if you are an advisor, and I know some of you listen, today might be very uncomfortable. But my guess is you know where I'm going with this, and I'd invite you to sit with the discomfort the same way I sit with my dog when there's thunder. Patiently, with snacks, and always truly reflecting on whether or not there's a better way forward and a way to solve this problem. Before we get into it, familiar ask if this show has ever saved you money, made you understand something about money, or simply made your commute a little less terrible, would you take 30 seconds and consider leaving a review on Apple or Spotify? It is genuinely the single best way to help other people find the show, it costs you nothing, and I appreciate it more than you know. Okay, one more thing before we get into the red flags, because I always want to be fair. This is not an episode called Never Hire a Financial Advisor and They're All Evil. A good advisor can be genuinely worth it. Tax planning across decades, estate coordination so your family isn't untangling accounts while grieving, and the big one, the one nobody puts on the brochure, simply being a trusted additional voice in your life for all things financial. Vanguard has published research suggesting that good advisors can add meaningful value, and the majority of it comes not from investment selection, but from behavioral coaching, which is a polite way of saying the most valuable thing an advisor does is prevent you from being you at your worst moment. That's a real service. I provided it for years. Some of my best work as an advisor was essentially professional handholding, and I say that with zero shame, because the hands needed holding, and the portfolio performance usually benefited from it. So the question is never are advisors worth it? The question is, is this advisor worth it? And that's what the five flags are for. So let's get into it.

Red flag number one. They charge you a percentage of your assets. This is the traditional AUM model, assets under management. It's the industry standard, and that is precisely the problem I have. Roughly 1% of your portfolio, every single year, forever. Regardless of performance, regardless of effort, regardless of whether they did anything at all that year beyond sending you a fruit basket at Christmas that was paid for out of your own 1% fee.