Should I Diversify My Advisors?

There is a common myth out there that you have to diversify your financial advisors.  That is just not true.  Having more advisors will not give you better or more diverse advice.  You may think that each advisor gives you something different.  Perhaps they do, but maybe not in a good way.

The goal is to have a globally diversified portfolio of investments.  A common mistake is having one advisor that is purchasing large cap stocks at firm XYZ and another advisor purchasing similar large cap stocks at firm ABC.  That’s really not a diversified portfolio, because all you are really buying is large cap stocks.

Often I see investors that will hire one financial advisor to buy bonds, and another to buy stocks, without any coordination of those allocations  A better solution would be to find the right advisor that will buy large cap stocks along with international stocks, bonds and maybe even alternative investments.

Over time having multiple advisors can actually hurt your long-term investment plan.  Here are some reasons why:

• No cohesive investment strategy
• Possible overlapping of investments
• Break points or discounts not received due portfolio being divided
• Tax time will be more difficult with multiple documents at different firms

My best advice is understand your financial advisor, and where he is coming from.  More importantly, make sure your advisor has a complete understanding of your unique financial situation.  If you are both on the same page, multiple advisors will be unnecessary.