5 Mistakes Your Financial Adviser Can Make

You trust your financial adviser to work in your best interests, but do you really know when they are making the right moves with your money? There are a number of things that a financial adviser might do that seem smart on their face, but when you dig a little deeper you’ll realize that they actually are costing you money that you shouldn’t be spending. First, let’s get some terminology clear that many people don’t understand. There is a distinct difference between a financial planner who has a fiduciary duty to put your needs first in the transactions they propose, and a financial adviser or broker who only needs to recommend “suitable” financial products to you. The U.S. Securities and Exchange Commission (SEC) formalized the distinction between fiduciary-bound planners and suitability-standard advisers under Regulation Best Interest (Reg BI), which took effect in June 2020. Obviously there is a big difference between a suitable product that will work, and the best product that is for your situation. Understanding the difference between advisers and planners can help you be on the lookout for potential problems in products that are being recommended for you. Read on to find my top 5 mistakes I regularly see when talking to people about what their advisers recommended for them.

1. Active Fund Bias

An active fund is a managed mutual fund where the manager takes frequent action to change the underlying investments of the fund based on how they perceive the overall market. A passive index fund is not actively managed and is a grouping of investments in a mutual fund that are meant to mirror a specific type of index, like the S&P 500, or Blue Chip stocks. Typically advisers recommend active funds to their clients because they claim that there is somebody looking out for the health of the fund and this will translate to better returns. However, active funds are much more expensive than passive funds and historically low-fee index funds have actually performed significantly better than active funds over time. According to the S&P SPIVA Scorecard for 2025, nearly 80% of actively managed large-cap U.S. equity funds failed to beat the S&P 500 over a 15-year horizon. If your adviser recommends an active fund over a passive fund, it’s time to start grilling him over how the fee structure is set up and ask for comparisons to passive funds over 3, 5, 10, and 20 year periods to see if it actually makes any sense. Providers like Vanguard, Fidelity, and Charles Schwab all offer low-cost index fund options with expense ratios well below 0.10%, giving individual investors robust passive alternatives without requiring an adviser’s guidance.

Active vs. Passive Funds: A Side-by-Side Comparison

The data strongly favors passive investing for most retail investors. Below is a direct comparison of key metrics between active and passive funds to help you evaluate what your adviser is recommending.

2. Rolling Your 401(k) To An IRA When You Shouldn’t

The traditional advice is that you should always roll your 401(k) to an IRA when you leave a job, but there are situations where this isn’t the best idea. Typically when somebody is in the middle of their career and switches jobs they should roll their 401(k) from their old employer into an IRA, which gives them much more flexibility on the investments they choose and the fees they incur on their money. However, if a worker is nearing retirement and switches jobs or is retiring and doesn’t need the 401(k) money right away the best course of action is probably to leave the money alone. When you roll money into an IRA you are probably going to incur fees for the transaction and you won’t get to benefit from the long-term growth and savings in lower cost structures since you’re close to retirement. The IRS outlines specific rules for 401(k) rollovers that every investor should review before making any transfer decision.

When Rolling Over Your 401(k) Makes Sense — And When It Doesn’t

The rollover decision is not one-size-fits-all. Your age, proximity to retirement, the quality of your employer plan, and the fees associated with the receiving IRA all play a role. The Department of Labor (DOL) under its updated fiduciary rule guidance — revised and re-proposed in 2024 — now requires advisers recommending rollovers to document why the rollover is in the client’s best interest, including a comparison of fees and investment options between the existing 401(k) and the proposed IRA. This rule change came after the DOL found that rollovers into higher-fee IRA products were one of the most common sources of conflicted advice in the industry. Firms like Fidelity Investments and Vanguard offer IRA platforms with minimal rollover fees, but many smaller advisory firms and insurance-based advisers may direct you toward variable annuities inside an IRA — products that can carry surrender charges of 5% to 10% for up to seven years.

3. Load Fees

A load fee is basically a percentage of the total amount invested that you pay when you purchase a mutual fund from a broker that is intended to pay for the brokers time in advising you on what funds to choose. Before the Internet came along this would make plenty of sense as most people don’t understand the market or what investments they should use and advisers could help them to make smart decisions. Today there is a wealth of information available through financial magazines, websites, blogs, and other sources that can give you all the tools you need to make decisions on your own and then go to the broker and make specific choices. According to FINRA’s investor education resources, front-end load fees on mutual funds typically range from 3% to 8.5% of the invested amount — meaning on a $10,000 investment you could lose up to $850 before your money even enters the market. There are also plenty of no load funds out there that have excellent fee structures and returns that you can choose from so in this day and age it just doesn’t make sense to pay a load fee. Always ask your broker or adviser about load fees and insist on trying to find alternatives to the fund they recommend with no fees or lower fees whenever possible. Platforms like Schwab, Fidelity, and TD Ameritrade (now part of Schwab) provide access to thousands of no-load, no-transaction-fee mutual funds.

4. Vague or Confusing Fees

Fees can crush the investment performance of your money and many fees are hidden in long documents that are difficult to read or understand. When you talk to your broker or adviser ask for them to clearly explain all the fees that you are going to pay on the investment they recommend and ask if these are annual fees or one time fees. You might be surprised to find that many investments actually have 1.5%-5% annual fees when you add them all together and if your fund is only giving you 8% returns that is a hefty chunk of change that is going to fees. The SEC’s Office of Investor Education and Advocacy warns investors to examine the full fee layer of any mutual fund, including the expense ratio, 12b-1 fees, redemption fees, account fees, and purchase fees — all of which can add up well beyond the headline number your adviser quotes. The Consumer Financial Protection Bureau (CFPB) also provides tools to help investors understand the compounded impact of fees on long-term wealth accumulation.

Understanding the Full Fee Stack on Investment Products

Many investors focus only on the advertised expense ratio, but the true cost of ownership in a mutual fund can be substantially higher once you account for all fee layers. Here is a breakdown of the common fee types you should ask your adviser to disclose in writing:

• Expense Ratio: The annual cost of running the fund, expressed as a percentage of assets under management (AUM). Ranges from 0.03% (passive ETFs) to over 2.0% (some active funds).
• 12b-1 Fee: A marketing and distribution fee embedded in many mutual funds, legally capped at 1.0% annually by the SEC. This fee goes partly toward compensating your broker for ongoing account maintenance.
• Front-End Load: A one-time fee charged when you buy into the fund, ranging from 3% to 8.5%.
• Back-End Load (CDSC): A contingent deferred sales charge applied when you sell the fund within a specified period, often 1%–5%.
• Redemption Fee: A short-term trading penalty charged by some funds if you sell within 30–90 days of purchase.
• Surrender Charge (Annuities): Applicable if your IRA contains a variable annuity; can reach 10% in the first year and typically phases out over 6–8 years.

Asking your adviser to provide a full, itemized fee disclosure in writing is your legal right. Under SEC Regulation Best Interest, brokers are required to provide a Form CRS (Client Relationship Summary) that outlines fees, conflicts of interest, and the services they offer. You can also look up any registered broker or investment adviser using the FINRA BrokerCheck tool or the SEC’s Investment Adviser Public Disclosure (IAPD) database.

5. Bad Performance

You’ve probably noticed that most of my tips revolve around fees and how much you are charged for your investment choices. When you get down to it, the higher fees for a fund, the more likely it is that fund offers a larger commission to your broker. Many firms even give bonuses to their brokers for having their clients buy certain funds that may not be the best option available for their clients. According to a landmark study by the U.S. Department of Labor, conflicted financial advice costs Americans approximately $17 billion per year in underperformance and excessive fees — largely because brokers are incentivized to recommend higher-commission products over better-performing alternatives. It’s not unreasonable to ask your broker what his commission is on a fund he recommends for you. They may not always tell you, but it’s worth asking. Paying more in fees is a sure fire way to torpedo your potential earnings so don’t be scared to ask, it’s your money! You can also independently verify fund performance and fees using tools from Morningstar, which provides independent ratings and fee analysis on thousands of mutual funds and ETFs.

How to Protect Yourself: A Practical Action Guide

Knowing the five mistakes is the first step. Taking concrete action to protect your money is what matters. Here is what you should do, as of March 25, 2026, to ensure your financial adviser is truly working in your interest.

Step 1: Verify Your Adviser’s Fiduciary Status

Not all financial professionals carry the same legal obligations. A Certified Financial Planner (CFP), a Registered Investment Adviser (RIA), or a CFA (Chartered Financial Analyst) operating as an investment adviser is held to a fiduciary standard. A stockbroker or insurance agent is typically not. Use the CFP Board’s verification tool to confirm whether your planner holds an active CFP designation and whether any disciplinary actions have been filed against them.

Step 2: Request a Form CRS

All SEC-registered brokers and investment advisers are required to provide a Form CRS (Client Relationship Summary) — a plain-language, standardized two-page document disclosing fees, conflicts of interest, and services. If your adviser cannot or will not provide this document, that is a serious red flag. You can download Form CRS directly from the SEC’s IAPD database.

Step 3: Benchmark Against Low-Cost Index Funds

Before agreeing to any actively managed fund, ask your adviser to provide a 5-year and 10-year performance comparison versus a comparable passive benchmark. For example, if they are recommending a large-cap active fund, ask how it has performed against the Vanguard 500 Index Fund (VFIAX) or the iShares Core S&P 500 ETF (IVV) over the same periods, net of all fees.

Step 4: Use Independent Tools to Verify Fund Costs

Several free, authoritative tools exist to help you independently analyze fund fees and performance:

• Morningstar: Independent mutual fund ratings, expense ratio data, and manager analysis.
• Vanguard’s Expense Ratio Calculator: Models the long-term dollar impact of fee differences.
• FINRA Fund Analyzer: Allows direct fee and performance comparison between mutual funds.
• SEC EDGAR: Access prospectus documents filed by any registered investment fund.

The True Cost of Bad Adviser Advice: A Long-Term Perspective

The cumulative impact of fee differences and misaligned adviser incentives is not trivial — it is wealth-altering. Consider this scenario: An investor places $200,000 into a fund at age 35 and does not touch it until age 65. With a 7% gross annual return:

• At a 0.05% expense ratio (passive index fund): ending balance of approximately $1,497,000
• At a 1.0% expense ratio (typical active fund): ending balance of approximately $1,147,000
• At a 2.0% expense ratio (high-fee active fund or variable annuity): ending balance of approximately $874,000

The difference between the low-cost and high-cost scenario is more than $623,000 — enough to fund an entire decade of retirement income. This is why the SEC, FINRA, and the Consumer Financial Protection Bureau (CFPB) all publish investor education materials emphasizing fee awareness as a primary determinant of long-term investment success.

Frequently Asked Questions

What is the difference between a financial adviser and a fiduciary?

A fiduciary — such as a Certified Financial Planner (CFP) or a Registered Investment Adviser (RIA) — is legally required to act in your best interest at all times. A standard financial adviser or broker operates under the “suitability” standard, meaning they only need to recommend products that are appropriate for your situation, not necessarily the best option. The SEC’s Regulation Best Interest (Reg BI) narrowed this gap somewhat, but the fiduciary standard remains a higher and more protective legal obligation for investors.

How much do financial adviser fees typically cost?

Financial adviser fees vary widely depending on the structure. Fee-only advisers typically charge between 0.5% and 1.5% of AUM annually, or flat fees ranging from $1,000 to $7,500 per year for a comprehensive financial plan. Commission-based advisers earn between 3% and 8.5% in front-end load fees on mutual fund sales, plus ongoing 12b-1 trailer fees of up to 1% annually. Always ask for full fee disclosure before engaging any adviser.

Are active funds ever better than index funds?

Active funds can outperform index funds in specific market environments — particularly in small-cap or international markets where pricing inefficiencies exist. However, according to the S&P SPIVA Scorecard (2025), fewer than 20% of active large-cap U.S. equity funds beat the S&P 500 over a 15-year period net of fees. For most retail investors with long time horizons, passive index investing provides superior risk-adjusted returns after accounting for the fee differential.

Should I always roll over my 401(k) to an IRA when I change jobs?

Not necessarily. Rolling your 401(k) to an IRA makes sense if your new employer’s plan has limited or high-fee investment options, or if you want greater investment flexibility. However, if you are over age 55 and have separated from service, keeping funds in your 401(k) may allow penalty-free withdrawals under the Rule of 55 — a benefit not available in IRAs. Always compare your existing 401(k) plan’s investment options and fees against the proposed IRA before making a move.

What is a 12b-1 fee and should I be paying it?

A 12b-1 fee is an annual marketing and distribution charge embedded within a mutual fund, capped at 1.0% per year by the SEC. Part of this fee typically flows back to the broker who sold you the fund as a trailing commission. Most no-load index funds carry no 12b-1 fee. If your fund has a 12b-1 fee, ask your adviser whether a comparable fund without this fee is available.

How do I know if my broker is recommending a fund because of commissions?

You can ask your broker directly to disclose their compensation on any fund they recommend — they are required under SEC Regulation Best Interest to disclose material conflicts of interest. You can also cross-reference the fund’s prospectus on SEC EDGAR to find the fund’s 12b-1 fee and load structure. Additionally, use the FINRA BrokerCheck tool to review your broker’s employment history and any regulatory actions filed against them.

What is the Rule of 55 for 401(k) withdrawals?

The Rule of 55 is an IRS provision that allows employees who separate from their employer at age 55 or older (50 for certain public safety employees) to take penalty-free withdrawals from their 401(k) plan. This provision does not apply to IRAs. This is one key reason why rolling your 401(k) into an IRA near retirement is not always the right move, as you would lose access to this early-withdrawal provision.

How can I verify that my financial adviser has a clean disciplinary record?

You can check your adviser’s disciplinary history using two free public databases: the FINRA BrokerCheck tool (for brokers and brokerage firms) at brokercheck.finra.org, and the SEC’s Investment Adviser Public Disclosure (IAPD) database at adviserinfo.sec.gov. Both tools are free, require no account creation, and provide full disclosure of past complaints, regulatory actions, and employment history.

What is Regulation Best Interest (Reg BI) and how does it protect me?

Regulation Best Interest, or Reg BI, is an SEC rule that took effect on June 30, 2020. It requires broker-dealers to act in the “best interest” of their retail customers when making investment recommendations, and to disclose all material conflicts of interest. While Reg BI is stronger than the previous suitability standard, it still falls short of the full fiduciary standard applied to RIAs and CFPs, as it does not require brokers to place client interests above their own at all times — only at the point of recommendation.

What are the biggest red flags that my financial adviser is not acting in my best interest?

Key red flags include: recommending only actively managed funds without comparing passive alternatives; inability or reluctance to disclose their full fee compensation; placing your retirement assets in variable annuities with long surrender periods; encouraging frequent account activity (churning); and being unable to explain why a specific product is better for your situation than lower-cost alternatives. If you encounter any of these behaviors, consider seeking a second opinion from a fee-only, fiduciary adviser through the National Association of Personal Financial Advisors (NAPFA).