Hiring a financial advisor is a significant decision that can impact various aspects of your life. Many individuals contemplate whether having multiple financial advisors is a beneficial strategy. In this article, we'll explore the reasons people consider multiple advisors and weigh the advantages and disadvantages of this approach to finally answer the question: “Is having more than one financial advisor bad?”. Let’s see!
Why Have a Financial Advisor? Reasons & Considerations
“Is it really necessary to have a financial advisor?” You may be asking.
Hiring a financial advisor is not something you should take lightly. If a financial advisor is doing their job correctly, they will be a person quite involved in your life. Ideally, when a major life event occurs (job change, birth, death, move) one of the first handful of calls you make will be to your financial advisor. You need to make sure you like this person. Just because your parents or neighbors like their advisor doesn’t mean they are a good fit for you.
The goal of financial advisors is to help you manage your money, walk you through financial decisions and create a path for you to reach your financial goals, so of course it’s a good idea to hire one. Some advisors have a specific expertise, focus on a client's particular phase of life or are transactional. Others take a comprehensive approach to your financial situation. Some advisors only handle managing your investments or selling insurance, while others are comprehensive and focus on financial planning.
Should You Have More than One Financial Advisor?
If the question is “Can I have more than one?”, the answer is yes, of course you can do it. Many people hire multiple financial advisors to diversify the information they receive. The thinking is that if I have one advisor to talk to when life changes, events occur or if I have questions, having two (or more) advisors for those situations will provide me with more information to make decisions and be super prepared for life’s curveballs.
You need to ask yourself, how do you want your advisor to fit into your life? Do you want to have your advisor involved in your life and be a resource to you when life changes? Or do you want to know they’re in the background and looking at your accounts and there if you need something? Check out my blog on questions to ask when interviewing a financial advisor.
Having more than one resource may provide you with a lot of opinions and information, maybe even too much? Analysis paralysis could occur. Plus, if you were looking for a lot of information, Google can help with that.
Pros & Cons: Is It Better to Have One, Two, or More?
A common misconception is that multiple financial advisors mean you are more prepared to meet your financial objectives. If having one advisor is good, having two is better, right? Unfortunately, this isn’t always the case. Bringing on more than one financial advisor can come with some significant disadvantages.
Advantages of Multiple Financial Advisors
The advantages to having more than one advisor are pretty clear: multiple answers, more than one person to call if you need a question answered quickly, possibly more resources, different products and solutions, more diversification and “not having all your eggs in one basket.”.
Let’s analyze the disadvantages of having multiple financial advisors, giving you the information needed to make more informed decisions surrounding your financial team.
Disadvantages of Multiple Financial Advisors
There’s no universal guidebook that financial advisors must follow. Financial Advisors have a series of exams they must pass in order for them to offer certain products. Advisors also have continuing education, and compliance requirements, but then after that, an advisor can offer solutions to their clients that they find suitable, based on their experience and research.
This means that opinions and best practices can vary among financial advisors. Plus, your client experience can vary from advisor to advisor. One advisor might suggest investing heavily in alternative investments, while another wouldn’t touch alternatives with a 10-foot pole. Some financial advisors buy, sell and manage their client’s portfolios themselves, while others prefer to utilize professional money managers for their clients' money.
There’s generally no right or wrong approach. As long as the advisor is acting in your best interest and they can prove that, then they are doing a good job. But as the end user, it can be difficult to follow guidelines when you have multiple advisors with different opinions, giving you differing recommendations. If one advisor wants you to save 30% of your wages while another suggests only saving 10%, you are stuck in the middle wondering which advisor is right.
Silent rivalry is another disadvantage of working with multiple advisors. Most advisors won’t flat-out say they don’t agree with the other, creating a silent rivalry. This silent rivalry can lead to advisors fighting for your business, feeling insecure about your advisor-client relationship, and creating unrealistic promises. Maybe one advisor promises you can earn a specific performance rate in hopes you will drop your other advisor, not taking into account if the product is best for you, regardless of performance.
The indirect consequences of silent rivalries might include confusion surrounding your finances, difficulty knowing which advisor’s plans to implement, and an endless comparison. Also, you may forget what information you shared with what advisor, leaving important details unsaid. Advisors can only advise on the information you are providing and if you’re leaving information out, the advice provided may not be complete. You want to make sure your efforts are improving your financial position.
Sometimes the rivalry won’t be so silent. One advisor may flat out say they disagree with your other advisor’s recommendations, which then creates a bad scenario. They are inadvertently making you feel bad for the financial decision you made. Finances are tough enough without being made to feel bad by a resource you hired.
If you’re lucky to have advisors that think similarly and you’re receiving generally similar information, you may be paying more in fees for duplicate information. Advisor fees are generally based on your portfolio value, with a common range of around 1%. Many advisors have a reduced tier fee schedule once your account reaches a certain dollar amount. So instead of being in a lower fee schedule with one advisor, you’re in a higher fee schedule with two advisors.
You could be better off spending those extra fees elsewhere, such as saving for your short-term and long-term goals. Maybe you take the extra money and put it into a spousal IRA or you stash a little more cash away for your Christmas fund.
Whatever the case, you want to maximize the value you receive from advisors while minimizing costs, which can be difficult when working with more than one advisor.
Less Control Over Your Money
The phrase “you shouldn’t keep all of your eggs in one basket” has compelled countless individuals and families to enlist the help of multiple advisors. Although it’s true that diversification is generally a good idea, it doesn’t mean you need to diversify your advisors.
When your money is spread between different companies, it can be difficult to effectively control your money. If you need to withdraw money, which account do you pull from? Where do you contribute money? Splitting contributions between two accounts can lower your purchasing power.
On the contrary, if you have just one account, you won’t have to spend extra time evaluating your options. All of your money is in one place. This doesn’t mean that your investments aren’t diversified. It just means that you have one advisor you can turn to with any questions that can give you complete advice because they know your entire story.
Just because your money is with multiple companies, doesn’t mean it’s allocated differently. Many investments have different names but are allocated similarly. This can result in the same portfolio diversification but in different accounts. How diversified really is your account if you have the same investments in each account? Probably not as diversified as you would like or think it is.
Partnering with just one advisor gives you more clarity into the big picture of your finances, ensuring you have the proper diversification. Maybe you notice that stock market returns aren’t going as planned so you choose to pursue alternative investments, or you find a rental property that can further expand your diversification potential.
Whatever the case, you want to work with an advisor that understands your full financial picture and can effectively guide you on the strategies best for your situation.
Statement overwhelm is another disadvantage of having multiple financial advisors. With multiple accounts, it can be hard to review the statements every month. Not to mention the difficulties of gathering your tax information each year.
Trying to understand the specifics of multiple accounts can be time intensive and open the door to errors. For example, you could forget to tell Advisor #1 that you have an IRA with a monthly contribution into that you maxed out your IRA with Advisor #2 for the year. This can lead to overcontributing with penalties on your individual tax return.
With one advisor and limited accounts, you can take a hands-on approach to your money management instead of just going through the motion. You control your money versus your money controlling you. Understanding your finances is an integral part of implementing the right strategies and solutions to reach your financial goals.
So, should you have multiple advisors? In my opinion, no.
If you needed heart surgery, would you have surgery with one surgeon, get sewn back up and then have a second surgery with another surgeon at another hospital for him to finish the procedure? Sounds silly, but it's kind of the same thing. If heart surgery sounds too dramatic, what about needing new brakes? Would you go to one mechanic and have him fix your front brakes and then a second mechanic for the back? No, you find one mechanic who you trust and have him do the whole job. Finances are no different.
Instead of spreading out your energy on two advisors, find one that you really like and go with them 100%. Take your time interviewing them, ask lots of questions and think to yourself “Do I want to have a decades-long relationship with this person? Do I want to call them when something good or bad happens to me?” If you answered Yes to both of these questions, then you know who you should work with.
Also, if you’re toying around with the idea of having multiple advisors, dig deep and figure out why. It may be because advisor #1 isn’t getting the job done for you, emotionally or financially.
If you want an advisor that understands the big picture of your situation or are looking for clear, concise strategies, you will benefit the most from one advisor. Working with one advisor reduces uncertainty and confusion surrounding your accounts, giving you someone you can turn to with any and all questions.
Most individuals and families find it advantageous to build a relationship with one advisor. If this sounds like you, it’s important that you find an advisor that can help you with every aspect of your finances, from saving for retirement to creating a monthly budget.
Greenway Wealth Advisory has the knowledge and experience to help you take your finances from surviving to thriving. Start the conversation with us today to learn more.