Advisor Diversification Leads to Disjointed Investment Strategy
“’Don’t put all of your eggs in one basket’ has become a cliché when it comes to investing, so it’s not surprising that this mantra often extends to the financial advisor decision. Unfortunately, advisor diversification doesn’t necessarily have the same benefits as portfolio diversification”.
Here are a few risks that come with using multiple advisors…
1) Using multiple advisors can lead to a disjointed investment strategy.
One advisor can see the whole picture while multiple advisors might be taking different approaches. This may lead to asset allocation that differs from your original risk tolerance and goals. Even worse, it can lead to concentration risk, an overall undiversified portfolio, and eventually, potential losses of assets. In other cases, one advisor may sell an investment while the other adds it, canceling both decisions and potentially accruing fees for you. Eventually, this lack of cohesion could lead to you falling short of your retirement goals.
2) Poor tax-related decisions result from retaining advisors without tax knowledge.
Offset investment gains and minimize your tax bill by working with an advisor with thorough tax knowledge. When you hire multiple advisors, you risk one of them having little tax knowledge and another having a lot of it. On the other hand, you could also have two advisors who work to incorporate tax planning without knowing what the other is doing. For instance, one advisor may have a high amount of taxable gains while another has the same amount in unrealized losses, resulting in imbalance and an overall higher tax bill.
At Storen Financial, we eliminate avoidable tax consequences since your tax accountant and your investment manager are one and the same. This is a distinct benefit in working with us for both your investment and tax needs, since we marry the investment strategy to your current tax situation. This relationship enables us to avoid inconsistency in your portfolio that could otherwise lead to major tax hits down the road.
Click here to learn more in this “Understanding the Tax Implications of Retirement Planning” blog.
3) Higher fees can accrue.
The more money in your AUM, the more likelihood there is for your advisor to offer breakpoint discounts. In other words, the more you invest, the less advisor fees you’ll have to pay. When you use multiple advisors, you risk losing out on these discounts and thereby losing potential investment results.
4) It’s more work for you.
When you have a single advisor, you can be assured they’re managing all your assets in one place. Otherwise, you risk having to constantly check that both or all are following your investment strategy and not deviating from your goals. Handing over the workload to one qualified professional can relieve the stress of heeding conflicting advice and making sure both advisors are continually on the same page.
Consider the Whole Picture…
If your financial situation is complicated and you require expertise in an area where your advisor is deficient, it may be a good idea to get a second opinion. Oftentimes, you can do this without retaining multiple advisors. For instance, if you require expertise in estate planning, you could talk to an attorney or trust officer that specializes in this area.
When you are seriously considering another stockbroker or advisor because you feel you are lacking something (Ex: their investment philosophy feels unrealistic), we recommend using one fiduciary advisor, in advisory relationships, who looks at the whole picture of your portfolio and focuses on more than just the short-term performance of your AUM.
At Storen Financial, our fiduciary advisors, in advisory relationships, work to develop a holistic, long-term financial plan that implements customized, tax-saving strategies based on your unique situation.
Have questions? Or interested in a consultation? Click here to contact us now. Or click here to learn more about our Financial Planning and Investment services.
Want to learn more?
Here are a few more resources to help answer your questions…
Is Working with Multiple Financial Advisors a Good Idea – The Street
Having Multiple Advisors Could Increase Your Risk of Poor Returns – CNBC
Do You Need More than One Financial Advisor – Investopedia
Blog by Greg Storen, MBA – President, Advisory Services Director
Learn more about Greg and the rest of the Storen Financial team here.