Entrusting our financial future to any financial advisor without doing our own due diligence can leave us worse off with a complex portfolio, hidden fees and a costly exit.
Sid Roy & Sanjib Saha
14 June 2025
All of us are busy trying to keep things afloat be it at work or at home. Often, we do not make the time to learn the basics of investing and look to outsource the problem. Many people turn to financial advisors hoping for peace of mind — a professional to simplify the complexities of investing and money management. But what happens far too often is quite the opposite: clients end up in worse shape than they started — saddled with excessive fees, complex portfolios, subpar investment return and locked-in tax consequences that are hard to unwind.
And the worst part? While it might seem unfair, it is legal. You need to take care of yourself. If you want to get better outcomes, a little due diligence can go a long way.
Know the financial advisory market
The financial advisory world is filled with two types of providers. There are the competent ones who work in the best interests of their clients, and there are unfortunately those who aim to squeeze maximum profit out of their clients, often putting their own interests above those of the clients.
Those of us seeking professional help with managing money often do not know the difference, let alone know how to identify one type from the other. Unlike other essential service sectors like medical or legal, the financial service sector has no universal mandate requiring the professionals to be fiduciaries (a term that means legally obliged to always act in the best interests of their clients). Money managers have the liberty to pick an impressive job title that may not need much meaningful qualification for the job they are supposed to do.
As a result, many professionals who appear trustworthy and competent may turn out to be little more than a slick salesperson in disguise.
How do you assess that? Here are some tips.
They…:
- …hint at delivering market beating returns and doing better than a DIY investor.
- …nudge towards high-commission annuities and insurance products that may not be the best choices for the client.
- …sell actively managed funds or financial products with high internal or hidden fees.
- …trade more often than necessary, just to justify their fees than to serve the client.
- …make the portfolio unnecessarily complex so that even once the client realizes their mistake, it’d be difficult and expensive to walk away.
How do we get into a bad situation
Here’s what this might look like in real life:
- We walk in expecting to work with a professional. We may’ve even heard good recommendations from our friends, who themselves have misperception about the actual quality of advice. Or we may’ve been approached by someone from the firm holding our money, offering to provide free advice exclusive for their “premium” clients.
- We bite the bait. The “Pro” designs a “custom” portfolio — but it’s either loaded with proprietary, commission-generating products or imposing unreasonable, often hidden, costs.
- We don’t ask about performance benchmarks or alternatives because… well, they’re the expert, right?
- Neither do we ask about the total cost of the advice over the long term, nor we question whether it’s worth the expected service over the long term.
- All too often, the returns lag simple diversified portfolios with similar risk over time. The underperformance, however, is not obvious because the portfolio is complex and lacks clear benchmarking. Since the portfolio is likely to rise with the market, we may actually feel good about going to a “Pro”.
- Eventually, if we are lucky, we’d realize something’s off. Maybe our own retirement accounts, consisting of simple low-cost funds, performed much better. Or maybe we start noticing the mounting fees.
- But by now, selling everything to start from scratch means realizing massive capital gains, triggering a big tax bill. We feel trapped.
- When we look at the overall opportunity cost by back-testing a simple portfolio and comparing it with that of the “Pro” portfolio, we feel cheated.
Even for diligent clients, untangling these portfolios can be a financial and emotional nightmare.
This Isn’t Rare
This kind of situation happens more often than people realize — and it’s not just with shady or inexperienced advisors. Many big-name firms train advisors to sell certain products, incentivize behaviors that generate revenue (not necessarily results for the clients), and intentionally create complexity that makes clients dependent and less likely to leave.
We wouldn’t hand over our health decisions to a doctor who earns commission on every drug they prescribe. Neither do our doctors charge higher fees proportional to our growing wealth. Why should we treat our financial future any differently?
Let’s Protect Ourselves If we’re going to work with a financial advisor — and again, there are many great fiduciary advisors out there — we need to be vigilant. Ask:
- Are you a fiduciary at all times, in writing?
- How are you paid? (Hourly or Service-based = best, Fee-only = can be ok depending on the fee and services provided. Commission-based = big red flag.)
- What’s the total cost, including fund-level fees and internal expenses?
- Why shouldn’t I simply use low-cost, passive investments on my own and be done with it? What value do I get from your engagement and why is it worthwhile?
- How will I measure performance, and what’s the benchmark?
If an advisor dodges or dances around these questions, walk away. On the flip side, if the advisor explains market uncertainty, importance of asset allocation, importance of investment and tax cost, and above all, the importance of controlling emotions to stick with the plan, this might be the right person who can help and put the effort to deliver the best. The only consideration at this point would be the ongoing cost, and whether it’s worth the benefit received by going with a Pro.
And let’s please not underestimate our own ability to manage a simple portfolio on our own. A mix of diversified, low-cost funds (like a U.S. stock fund, international stock fund, and a bond fund) outperforms most high-fee strategies over the long run if we stay the course — and costs almost nothing. When in doubt, we can always consult with a fiduciary and competent advisor to review the plan and get insights to implement on our own.
Final Thought
Hiring an advisor isn’t inherently bad. But doing so casually without knowing what we’re paying, why we’re paying it, and what value we’re getting is a gamble — and our wealth deserves better.
Blind trust or hope is not a strategy. Due diligence is.
This article is part of the Big Mistakes series