That defines diversification for investments and that’s smart. It may not be as smart to diversify amongst financial advisors. Let’s look at a few reasons.
Here are 4 Reasons to avoid multiple financial advisors:
The first reason is potential investment overlap. Investment overlap is having two or more investments that you think are diversified, only to find out that a significant portion of each has the same asset classes. This definitely occurs with financial advisors. When a portfolio is created, advisors typically will use certain asset classes like large stocks, international and bonds. So if their is no coordination going on between them, they may in fact use very similar investments and you don’t get any further diversification.
Second, you may pay higher fees. Typically in financial services, the more money you invest, the better your pricing should be. You will receive breakpoints on commissions and fees the more money you place with an advisor. So when you divide $500,000 evenly between two advisors, then you will not get a break point for having the entire $500,000 with one. Get it?
Third, you’ll probably have increased risk. If both advisors buy the same thing, you may have too much of one particular asset class. It may not be immediately clear that’s what’s happening. For example, if you have both advisors purchase a bunch of technology stocks, then you will have way too much exposure here. On the flip side, you may have too much risk if both buy bonds. How so? You may run the risk of investing in an asset class that doesn’t help you reach your goals. Then the real risk is not being able to reach your goal, like retirement.
Finally, it’s really time-consuming. You may waste tons of time. You’ll have to evaluate two sets of phone calls with investment ideas. Two sets of meetings to review your investments. You’ll have two possible 1099s at year end (if it’s a taxable account), and two sets of statements to review as often as monthly.
Choose one primary investment advisor. If you plan on consolidating your investment assets here’s what you’ll want to think about. Look for a credential advisor. Preferably one that does comprehensive wealth management and financial planning. You also want to evaluate who will give you the best deal on fees. Don’t overlook the attention factor. Find out what the advisor plans on doing to service your account. Will it be multiple calls and in-person reviews? I do have a previous article you can review for questions to ask.
Do you have several financial advisors? Are you looking to simplify and consolidate? Feel free to contact me via email or call today. If you liked my article, you can subscribe right here for free! I’ll have my virtual paperboy deliver one to your inbox every Friday.