Should You Have More Than One Financial Advisor?
It’s no secret I like financial advisors. After all, I am one. Thus, I believe people should have an advisor. Advisors can tell you how much and what type of insurance you need, how to plan your estate, how to invest your money, what to do to reduce taxes, and most importantly, how to get the most enjoyment from the money you worked so hard for.
I was recently asked whether it is a good idea to have more than one financial planner. I don’t think so. The reason is simple: if you’re turning to several advisors, you become responsible for what each advisor is doing, as if you were doing it on your own.
When I take a client’s assets and create an investment strategy, I don’t choose the stocks and bonds for the client. What I choose are the money managers that I plan to hire to manage the stocks, bonds and remaining assets. In my case, those money managers come in the form of mutual funds. You can also use "private" money managers if you prefer.
But here’s the problem. If I’m managing only some of your money and another advisor is managing another portion, then my recommendation might conflict with what the other advisor is doing. Or, I might give you a recommendation that is redundant to the other advisor.
The only way to avoid that conflict is for one of us to manage your situation. If you don’t want me to manage all of your money, which some clients don’t want me to do, then I at least want to know about what I’m not managing.
That’s why I always ask my clients about their 401(k) plan. I ask them how much money is there and where it’s invested. I do this because I need to know that the money I’m managing doesn’t interfere or overlap with what you’re doing.
Say you have a stock portfolio with a discount broker, and you’re giving me $100,000 to invest. I need to know about the brokerage account so I can invest the $100,000 properly. Make sense?
Unfortunately, I often meet people who have one broker managing one bucket of money, another advisor managing another bucket of money, an insurance agent managing a third bucket and so on. The result is that you end up being the quarterback: You become the one who must coordinate the activities of all your advisors. It’s a lot of work. And if you’re not sure of what’s going on, you can create serious estate planning and tax implications if one advisor isn’t aware of what the others are doing. The advisors might end up doing you harm!
But if you have only one advisor coordinating everything for you, then you are free of the workload, and you reduce the risk that the left hand doesn’t know what the right hand is doing.
So unless you have a coordination of effort, you could be reducing the efficiency of what you’re trying to accomplish. You also could be incurring greater expenses by employing multiple advisors who are performing redundant tasks.
Therefore, I recommend that unless you want to be the quarterback -- and unless you have the skills to do the job -- you should pick one person. And, of course, make sure you hire the right person!