Not Having all your eggs in one basket
The risks of having more than one advisor for your retirement plan
One common question or issue I often encounter is whether it’s a good idea to have multiple financial advisors. It’s an understandable question, given that many people want to maximize their investment returns and get the best financial advice possible. However, I would strongly advise against having more than one financial advisor for the main reasons below:
- One of the most significant risks of working with multiple advisors is receiving conflicting advice. Each advisor may have a unique perspective on how to approach investing, financial planning, and risk management. When their opinions differ, it can be challenging to know which advice to follow, resulting in confusion and potential losses. This is especially true if you’re not experienced in investing and don’t have the knowledge to evaluate the advice effectively.
- Another downside of having multiple advisors is the higher costs and fees that can result. Every advisor will charge for their services, and if you’re working with several advisors, the fees can add up quickly, eroding your investment returns. Additionally, managing multiple portfolios can be time-consuming and costly, requiring more resources to track everything effectively.
- Working with multiple advisors can also lead to a lack of accountability and oversight. It’s hard to hold every advisor accountable for their actions, and if they’re not working together, it’s challenging to see the big picture of your investment portfolio’s health. This can lead to a lack of transparency and a reduced ability to evaluate your progress towards your financial goals.
- Lastly, having multiple advisors can lead to communication challenges. Each advisor may have their own way of communicating, and it can be challenging to ensure that everyone is on the same page. This can result in misunderstandings, missed opportunities, and missed deadlines.
If you are considering using more than one financial advisor, you will add complexity to your planning. However, having clear answers to the following questions might help you make an informed decision:
- Why do I need multiple advisors? Evaluate your reasons for wanting more than one financial advisor. Are you looking for different investment strategies or diverse opinions? It’s important to be clear about the purpose of having multiple advisors.
- How will each advisor work together? Understand how the advisors will communicate and work together. Will they coordinate their efforts, or will they work independently? Having a clear understanding of how the advisors will interact can help avoid potential conflicts.
- How will investment decisions be made? Ask how investment decisions will be made and how conflicts will be resolved if the advisors have different opinions. It’s important to have a plan in place for decision-making to ensure consistency and avoid confusion.
- How will fees be structured? How much will you be paying for each advisor’s services. You should also ask if there are any potential cost savings when with multiple advisors.
- What is each advisor’s area of expertise? Know the strengths and weaknesses of each advisor and how their areas of expertise complement each other. It’s important to have a clear understanding of each advisor’s skills and experience to ensure you are getting the best advice possible.
- How will performance be measured? What performance tracking will you use, as you need to track overall performance and evaluate each advisor. Having clear metrics in place can help you track progress towards financial goals and hold advisors accountable.
In conclusion, it’s best to work with a single trusted advisor who can provide a holistic approach to your financial planning and investment management. This advisor should be someone you trust, who has a good reputation, and who understands your financial goals and objectives. Working with one advisor can help ensure you receive consistent advice, lower costs and fees, and more effective communication, resulting in a better investment experience overall.