3 simple questions to ask a financial adviser
- Robin Powell
- 1 hour ago
- 11 min read
Vanguard's settlement with the US financial regulator announced last week for hiding adviser conflicts has exposed widespread problems across the financial advice industry. With consolidation creating new incentive structures and even trusted firms misleading clients about compensation, knowing the right questions to ask a financial adviser has never been more critical. These three essential questions can help you identify conflicts of interest, understand hidden fees, and find genuinely independent advice that puts your interests first.
Do you remember the moment you discovered your favourite restaurant had been adding mysterious "service charges" to your bill for months? That sinking feeling when you realised the friendly staff who always said they "just wanted to make your experience perfect" were actually working to targets that had nothing to do with your satisfaction?
That's precisely what Vanguard clients in the US experienced last week when the company — built on transparency and putting investors first — agreed to pay $19.5 million (£15.6 million) to settle charges that it misled clients about how its advisers were compensated.
For over three years, Vanguard told clients its Personal Advisor Services representatives received "no outside compensation or financial incentives" whilst simultaneously paying those same advisers bonuses, salary increases, and promotions based on how many clients they enrolled in fee-generating managed accounts. The very company that championed low costs and honest dealing had been caught in a web of undisclosed conflicts.
If Vanguard — the poster child for investor-first principles — can fall into this trap, what does that tell us about the rest of the advice industry?
The uncomfortable truth about adviser incentives
The Vanguard settlement isn't an isolated incident. It's the latest confirmation of what academic research has been documenting for years: conflicts of interest among financial advisers are far more widespread than most clients realise.
Professor Simon Gervais from Duke University's Fuqua School of Business, whose groundbreaking study with Professor John Thanassoulis from Warwick Business School has exposed the scale of industry misconduct, describes the situation as "eye-opening." Their research found that asset management firms routinely use commissions and incentives to encourage advisers to favour certain products over others, even when those products aren't in the client's best interest.
"The funds understand that, with the proper convincing, they can buy the advisers' ethics," Professor Gervais explained in a recent interview.
The numbers supporting this claim are sobering. In the UK, the Financial Ombudsman Service handled 305,726 complaints in 2024/25 — the highest number in six years. Of those, 5,032 were investment-related complaints with a 36% uphold rate, and 7,399 were pension complaints with a 48% uphold rate. When you examine specific categories, the statistics become even more troubling: defined benefit transfers to SIPPs show a 59% uphold rate, whilst non-standard investments see an astonishing 89% uphold rate.
Meanwhile, the Financial Services Compensation Scheme paid £110 million in compensation for unsuitable investment, pension, and SIPP advice in 2024/25 alone.
These aren't just statistics — they represent thousands of people who trusted advisers with their life savings, only to discover that advice was tainted by undisclosed conflicts.
The new threat: How consolidation changes everything after Vanguard's wake-up call
While regulatory focus has traditionally centred on commission-based conflicts, a more insidious problem has been developing. The UK advice industry is consolidating rapidly, creating new conflicts that the Retail Distribution Review never anticipated.
The numbers are startling: 101 adviser firms were acquired in 2022, rising to 134 in 2023, with assets under management changing hands surging from £26 billion to over £48 billion. More than 30 private equity firms now hold stakes in UK advice businesses, creating what one industry report described as a "Pac-man"-like appetite among consolidators.
This consolidation wave is fundamentally changing how advice works. The Financial Conduct Authority has warned that consolidation can lead to "governance failures and misaligned incentives, potentially harming clients if firms prioritise profit over good client outcomes." The regulator has stated it will take "prompt and assertive action" where there's evidence of consumer harm.
What does this mean in practice? Several concerning patterns have emerged:
Loss of true independence:Â When an independent financial adviser gets acquired by a larger group, especially one with its own investment products, there's significant risk that advice becomes less impartial. The new parent company may have preferred investment platforms or funds, creating pressure on advisers to recommend in-house products over the best options in the whole market.
Proprietary product pressure:Â Perhaps most concerning is the trend towards consolidators launching their own range of funds and incentivising advisers to sell these products. This is problematic because research consistently shows that the vast majority of actively managed funds underperform their benchmarks after fees.
Fee increases:Â Many consolidators have introduced higher fees or increased minimum investment requirements after acquisitions. Whilst existing clients are often initially "grandfathered" on old terms, this protection doesn't always last.
Service deterioration:Â Clients may experience a shift from the personal service of a small practice to a more centralised, potentially impersonal model, dealing with call centres rather than their trusted adviser.
The cruel irony is that whilst the RDR banned traditional commission payments to advisers, it couldn't address the structural ownership conflicts that private equity consolidation has created.
Why good people give bad advice: Lessons from Vanguard and beyond
The Vanguard case reveals something particularly troubling about how these conflicts operate. This wasn't a case of rogue advisers or obviously corrupt behaviour. These were Vanguard employees — people who likely joined the company because they believed in its mission of helping investors.
Yet academic research shows that even well-intentioned advisers can be led astray by structural incentives. The Gervais-Thanassoulis study found several disturbing patterns:
Asset management firms deliberately use commissions to incentivise advisers to favour their products, even when clients can't easily determine what's most suitable for their situation.
Wealthy clients are particularly vulnerable because advisers may prioritise building a clean record to attract high-net-worth clients, but once they have those relationships, they may be more likely to give inappropriate advice that benefits their own compensation.
Perhaps most troubling, misconduct tends to increase as advisers progress in their careers. In the later stages of their professional life, the consequences of a tainted record are less likely to hurt their reputation and lifetime earnings, so the incentive to maintain ethical standards diminishes.
Even when regulators crack down and improve detection of misconduct, fund companies often respond by simply increasing the size of commissions they offer to advisers.
In today's consolidation environment, these problems are amplified. Private equity owners need returns, creating cascading pressure down to individual advisers who may find themselves incentivised to recommend products that generate higher fees rather than better outcomes.
The three essential questions to ask a financial adviser
When Professor Gervais was asked what advice he would give to people choosing a financial adviser, his response was remarkably straightforward: "If an adviser is very good, they're not going to be insulted if you ask them 'how do you get paid from this decision that I'm making?' The other thing I would try is to ask them about the financial products that they themselves buy."
Building on this insight and the lessons from the Vanguard settlement and ongoing industry consolidation, there are three essential questions every client should ask:
"If an adviser is very good, they're not going to be insulted if you ask them 'how do you get paid from this decision that I'm making?'
Question 1: How exactly are you compensated?
Don't accept vague answers like "we're fee-based" or "we don't earn commissions." The Vanguard case shows how misleading such statements can be. Push for specifics:
Do you receive bonuses based on which products you recommend?
Are there incentives tied to client retention in certain services?
Has your compensation structure changed since any recent firm acquisitions?
Do you get different payments from different fund companies or platforms?
A good adviser will welcome this question and provide a clear, detailed explanation. They might even show you their regulatory disclosure documents that outline their compensation structure.
Post-consolidation, this question becomes even more critical. If your adviser's firm has been taken over, ask specifically whether new performance metrics or bonus structures have been introduced.
Question 2: Do you have a commercial incentive to recommend certain funds or services over others?
This question cuts to the heart of potential conflicts, especially in today's consolidation environment. Some advisers receive higher compensation from certain fund families, insurance companies, or investment platforms. Others work for firms that manufacture their own investment products and are incentivised to use them.
Ask specifically about:
Relationships with product manufacturers
Participation in adviser reward programmes
Whether the adviser's firm has proprietary products they're encouraged to recommend
Any "preferred provider" arrangements, especially following firm takeovers
The consolidation wave has made this question particularly important. Many private equity-backed consolidators are launching their own investment products and creating internal pressure to use them, even when better alternatives exist in the open market.
Question 3: What funds are you yourself invested in?
This might be the most revealing question of all. If an adviser is recommending expensive active funds to you but investing their own money in low-cost index funds, that tells you something important about what they really believe works.
Research by finance academics has found that advisers' personal portfolios often perform just as badly as their clients' portfolios — and sometimes worse. This suggests many advisers genuinely believe in the active strategies they recommend, which raises questions about their competence rather than just their incentives.
But if an adviser can't or won't tell you how they invest their own money, that's a significant red flag. Transparency about personal investments demonstrates alignment between their advice and their beliefs.
 If an adviser can't or won't tell you how they invest their own money, that's a significant red flag.
What good answers sound like versus red flags
When you ask these questions, here's what you should hope to hear:
Transparency about compensation:Â "I'm compensated entirely through the management fee you pay, which is 0.75% annually. I don't receive any commissions, 12b-1 fees, or other compensation from fund companies. Since our firm's recent acquisition, my compensation structure hasn't changed, and I'm not incentivised to recommend any particular products."
Clear conflict disclosure:Â "I want to be completely upfront about potential conflicts. Following our acquisition by [Parent Company], we do have access to some proprietary investment products, but I'm not incentivised to use them and will only recommend them if they're genuinely the best option for your circumstances. I can show you exactly how I evaluate all available options."
Personal investment alignment: "I invest my own money the same way I invest yours—primarily in low-cost, globally diversified index funds. I can show you my allocation if you'd like. I don't believe in recommending strategies to clients that I wouldn't use myself."
Conversely, these responses should make you walk away immediately:
Vague or evasive answers about compensation, especially claims that "it's complicated" or "it doesn't matter because I always act in your best interest"
Refusal to discuss personal investments, citing "privacy" or claiming it's "not relevant" to your situation
Defensive responses to questions about conflicts, suggesting you "shouldn't worry about" compensation structures
Claims about guaranteed returns or proprietary strategies that "beat the market"
Consumer Duty progress: Encouraging but incomplete protection
In the UK, the Financial Conduct Authority's Consumer Duty, which came into full effect in July 2024, was specifically designed to address some of these conflicts. The regulation requires firms to demonstrate they're delivering good outcomes for consumers, including fair value for money and appropriate products and services.
Early signs suggest the Duty is having an impact. St James's Place, one of the UK's largest advice firms, set aside £426 million to refund clients for historic ongoing-service failures. This wasn't an FCA fine—it was a supervisory outcome aligned with the new Consumer Duty requirements, showing how the regulation can drive better outcomes even without formal enforcement action.
The FCA has also been cracking down on "retained interest" conflicts, where platforms and SIPP operators keep interest on clients' cash deposits. In December 2023, the regulator warned that this practice might breach the Consumer Duty and required remediation.
However, Consumer Duty only applies in the UK, and even here, it's still early days. The regulation focuses on outcomes rather than preventing conflicts from arising in the first place. For comprehensive protection, asking the right questions upfront remains essential.
The enduring value of good financial advice
Despite these concerns about conflicts and consolidation, it's crucial to understand that good financial advice provides enormous value. Professor Gervais himself acknowledges this: "Many people without financial advisers do weird things. I know a financial adviser who manages the money of some artists and professional athletes. Many of these clients want to open their own restaurants, which are oftentimes atrocious investment choices."
Research by Vanguard on what it calls "Advisor's Alpha" suggests that working with a competent adviser can add around 3% to an investor's net returns annually through better asset allocation, rebalancing, tax management, and most importantly, behavioural coaching during volatile markets.
The problem isn't financial advice itself—it's the hidden conflicts that can compromise the quality of that advice. Good advisers help clients avoid costly emotional decisions, maintain appropriate diversification, manage taxes efficiently, and plan for complex life events like retirement and inheritance.
The key is finding an adviser whose interests are genuinely aligned with yours, which means asking tough questions and being prepared to walk away if you don't get satisfactory answers.
Taking control after Vanguard's warning
The Vanguard settlement should serve as a wake-up call for anyone who has assumed their adviser is free from conflicts of interest. Even well-intentioned firms with strong reputations can create perverse incentives that compromise the quality of advice.
This challenge is compounded by the ongoing consolidation wave reshaping the UK advice landscape. As more independent firms get acquired by private equity-backed consolidators, the potential for conflicts increases. Clients who thought they were working with truly independent advisers may find themselves dealing with firms that have subtle but powerful incentives to recommend certain products over others.
The three questions outlined here — about compensation, commercial incentives, and personal investments — provide a practical framework for protecting yourself. But they're most effective when asked before problems develop, ideally when first choosing an adviser or immediately after learning your adviser's firm has been acquired.
Remember: if an adviser becomes defensive or evasive when you ask about compensation and conflicts, that tells you everything you need to know. The best advisers welcome these questions because they have nothing to hide and understand that transparency builds trust.
Your next steps: Finding truly independent advice
If you're currently looking for a financial adviser, or if your adviser's responses to these questions have raised concerns, you need a reliable way to find genuinely independent professionals who put your interests first.
That's where TEBI's Find an Adviser service becomes invaluable. Rather than leaving you to navigate the increasingly complex landscape of consolidators, restricted advisers, and conflicted recommendations alone, TEBI has done the hard work of identifying truly independent, evidence-based advisers who share your commitment to low-cost, transparent investing.
The advisers in TEBI's network have been carefully vetted not just for their qualifications and regulatory status, but for their commitment to putting client interests first. They understand that successful investing is built on evidence, not expensive products or market timing, and they're transparent about how they're compensated.
After the Vanguard settlement and the ongoing consolidation of the advice industry, finding an adviser you can truly trust has never been more important — or more challenging. Don't leave your financial future to chance.
Visit TEBI's Find an Adviser service today and take the first step towards working with a professional whose interests are genuinely aligned with yours. Because in a world where even Vanguard can get conflicts wrong, asking the right questions isn't just helpful —i t's essential.
Your wealth depends on it.
References:
Gervais, S., & Thanassoulis, J. (2023). Ethics and Trust in the Market for Financial Advisors. Duke Fuqua School of Business.
Securities and Exchange Commission. (2024). SEC Orders Vanguard Advisers to Pay $19.5 Million for Disclosure Failures. SEC Press Release.
Financial Ombudsman Service. (2024). Annual Review 2024/25. FOS.
Financial Services Compensation Scheme. (2024). Annual Review 2024/25. FSCS.
Financial Conduct Authority. (2024). Consumer Duty Implementation and Enforcement Actions. FCA.
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