Do You Have More Than One Advisor?
Personal finance is one of the least understood & most important subjects, not because it’s so complicated, but because Wall Street wants you to think it is. Only 35% of Americans work with a financial advisor, but a surprising number of those who do actually work with more than one!
Many of these multiple advisor relationships are legacy, or, “inherited,” relationships, as a result of marriage, or a change in circumstance where someone feels the need for a new advisor, but either feels uncomfortable ending the previous relationship, or has been convinced that the existing advisor must be, “doing something,” for them that they can’t get anywhere else.
There are very few situations where it’s prudent to work with more than one financial advisor.
For financial planning to be accomplished adequately, a financial advisor needs to know a client’s full financial picture. The term, “holistic financial planning,” may have become just another marketing buzz term, but It’s an appropriate term. A non-holistic financial plan is no plan at all. Do you only plan out half of the route to your next vacation destination, just hoping you’ll get there eventually?
Would you work with two travel agents to plan a trip, giving each of them only part of your information? What would that itinerary look like?
Surveys have shown that people who work with financial advisors are happier, regardless of the quality of that advisor’s work, frankly. If, “I have a guy,” is good, then two must be better, right? Wrong. For financial planning to have the greatest chance of success, your advisor needs to know everything they can about you & your life, not just the numbers in your portfolio. It’s difficult enough to gain the comfort level needed to share personal things with one advisor, never mind two. What did you share with one and not the other? Will one interpret & use the information differently, in possibly competing strategies?
“But I’m not paying double.”
I recently asked someone who has two advisors why they would pay double for the service. I’m so used to the concept of flat fee advisory that I naturally saw consolidating to one advisor as an obvious opportunity to save money. Her answer was that she, “only,” paid a percentage of the assets under management to each advisor, so it wasn’t double, but just the same as what she’d be paying if one advisor managed all her assets. There’s a certain logic to this, I agree, but if neither advisor has the complete information to adequately handle the assets they do manage, I’d argue that person is overpaying both advisors.
What are you paying for?
The Wall Street marketing machine has cultivated the idea that main job of a financial advisor is to manage your investments. They coopted the title, “financial advisor,” because, “stock broker,” had gained a bad reputation, but, spoiler alert, the job description didn’t change. As the industry transitioned from generating profits by commissioned sales to accumulating assets, it became important to convince people that their investments needed to be, “managed,” so Wall Street could earn a percentage of every one of your dollars they hold.
As a former fund manager, I recognize the value of professional investment management in some cases. I do not, however, believe that the average investor needs a financial advisor to be their investment manager, especially when anyone can, “hire,” professional investment managers by purchasing low cost index funds. Have you hired your financial advisor to be your investment manager, or to advise you on all issues financial?
Either way, the same argument applies. Unless the investment management mandate you’ve given to each advisor is very narrow, using multiple advisors will result in suboptimal outcomes. In fact, those suboptimal outcomes won’t even be the advisors’ faults. How many of us, in no matter what field, can do our best work with incomplete information?
No one likes breaking up.
To be sure, moving from two advisors to one is not an easy thing, because it requires ending a relationship, and maybe even two. These are genuine relationships, and no one likes breakups, even professional ones. The thing is, personal finance is personal, and your finances are important. Important enough to be working with the right person. Give yourself credit, but give your advisors credit too. They’re professionals, and they will understand why you’re leaving if you choose to. I’ve had clients leave. It’s just part of the business.
One final thought on the breakup: if you’re afraid to end an advisory relationship because you’re worried about how they’ll react, if they’ll get upset with you or it will end your friendship, then they’re likely neither professional nor your friend.
