The check valve circled in red is not placed in the correct place. It should be between the T and the heater out line to prevent water from backflowing into the heater coils when the heater is bypassed. As it is now when the heater is bypassed water will flow up and down the T and go into the heater. You do not want that if the heater is leaking or if the water is acidic.
The actuator is not set properly int he picture for either the bypass being open when the heater is not running or closed when the heater is running.
The end of the handle says OFF should be on the green line when the heater is ON allowing water to flow through the heater.
The end of the handle says OFF should be on the blue line when the heater is OFF allowing water to bypass the heater. This should be cocked a bit open but we will fix that later.
Show me the actuator position when the heater is ON and OFF.
View attachment 601275