December 6, 2011
Reid from Redmond, WA:
Should I engage several advisors to manage my investments or concentrate with one?
This is a great question with no “right” answer. There are benefits to both methods and ultimately you will need to evaluate your own needs to best choose. Here are several of the typical benefits identified.
The main benefit is simply the diversification of your risk in making the wrong choice in a single advisor. Even with multiple advisors, it is important to evaluate their experience, methodologies, and procedural safeguards. Selecting more than one advisor adds to your time spent performing due diligence, but reduces your risk in potentially making a single “bad choice”.
Another benefit is if one advisor is no longer meeting your needs, you already have another engagement in place. Some advisors have a waiting period to withdraw your funds (we recommend you always check BEFORE you enter into an advisory agreement), but having another relationship will generally reduce the time it takes to exit a relationship with an advisor.
The biggest benefit to having one advisor (or money manager) manage your investments is that your portfolio can be managed holistically. This can lead to better total risk measurement, since all investments can be examined for correlation and combined risk profile. If you decide to use several advisors, YOU will need to be the quarterback and coordinate risk profiles as they will not likely communicate with each other. There may be times when one advisor negates positions in another advisor’s portfolio and other times when risks are “doubled-up”.
Concentrating your investments with one advisor is generally more cost effective, since many fee based advisors offer price breaks for larger accounts (which wouldn’t be realized if assets were spread around several advisors.) Sometimes Mutual Funds are available in lower cost structures for larger investments. This might not be optimized if assets are split. In addition, splitting assets would result in a greater number of transactions, which could drive up costs.
Simpler tax planning and reporting – Having one advisor and fewer accounts may make tax planning easier for your accountant. If multiple advisors are utilized, you may need to coordinate efforts related to your tax implications.
We hope that helps and provides fodder for discussion. Please let us know if we can be of further service!
The Friedenthal Financial Team
Please send us your questions!! If we don’t know the answers, we’ll find someone who does!
If you know someone who would like to discuss their investment needs with us, we certainly appreciate the introduction.