Advertisement
retirement

Like Your Portfolio, Your Financial Team Should be Diversified, Too

You don't put all your eggs in one basket, neither should you put all your trust in one financial professional. Having a cadre of pros making decisions about your investments together makes for a better result.

While it’s often overlooked by many financial professionals, diversifying your financial management team can be just as important as diversifying your portfolio. That means you should consider avoiding relying on a financial professional who has a single individual calling the shots and, instead, opt for a financial professional who taps into the expertise and experience of many people.

Too many individuals simply aren’t aware that they have the ability to ask questions about who allocates their money and makes financial decisions. If you want real diversification and strategies that can help preserve your financial assets, you need to ask questions about who gets to sit at the table when your financial professional makes the important decisions.

Advertisement - Article continues below

Most individuals don’t think much about the process of how their financial professional makes financial decisions. They simply trust their financial professional and leave it at that, not asking important questions about who controls their money. That can be a major mistake.

Everybody thinks they understand what the market is going to do, and they never stop to consider the alternatives. Take, for example, last year’s presidential election. Hillary Clinton was expected to win the White House, and many financial professionals planned accordingly. Of course, when the smoke cleared, Donald Trump was elected, and growth portfolios did better while interest-bearing investments, which were expected to do well if Clinton won, stalled. Investors would have been better served working with financial professionals who were ready for either Clinton or Trump to win and reacted accordingly, rather than those who simply expected Clinton to prevail.

Advertisement
Advertisement - Article continues below

The election’s impact on investments serves as a reminder that listening to a single financial professional who follows one philosophy can undermine your portfolio. Financial professionals can bet on the wrong financial vehicles and destroy their clients’ holdings through their bad takes on the market. Frankly, it happens all the time.

Diversifying your holdings in the market is a great strategy, of course, to help protect your assets, but it’s not enough. You also need to consider diversifying your financial management team. That means you need a team of professionals who listen to numerous voices and draw on their insights and experience as they craft together a plan to help increase your holdings and while striving to preserve your retirement.

Advertisement - Article continues below

Different managers rely on different thought processes and often follow different philosophies when it comes to wealth management. That’s usually a plus because they usually will expose you to new ideas and opportunities. Of course, there are downsides when it comes to relying on multiple professionals. Let’s say, for example, you bring in three professionals who invest your portfolio. They might not be talking to each other or looking at your entire portfolio on a real-time basis. That can be a recipe for trouble because they might be putting your money in the same financial vehicles or not seeing the bigger picture. But even the best attempts to diversify your financial professionals can lead to duplication and put your hard-earned wealth in peril.

One way to avoid this kind of problem is by asking questions of your financial professional on how they and their firm operate. The right kind of fiduciary adviser team can help to ensure you are relying on truly diversified management while avoiding duplication. If a company relies on multiple individual institutional managers who each have committees helping guide their investments, that’s a good sign they understand how important it is to diversify the thought process, especially if there is internal coordination and full transparency to cut down on duplication. This kind of adviser team might have two or more income managers who rely on completely different committees and specialists when it comes to managing portfolios. Such diversification also helps ensure your advisers do not follow a single management philosophy, which could be a big problem for your portfolio if all of your eggs are in a flimsy basket.

There are other important questions you can ask to make sure your financial professionals rely on true diversity when it comes to building, maintaining and increasing your wealth.

  • Ask who makes the investment and buying and selling decisions.
  • Ask if one person, many people, a single team or multiple teams make these decisions.
  • Ask who ultimately gets the say when it comes to buying and selling.

The overwhelming majority of financial professionals rely on a single broker who has the power to make decisions. You’ll be better served to work with a professional who relies on numerous experts instead of one individual calling the shots. Simply put, your chances for growing your portfolio are far better if you are relying on numerous experts — some of whom will get the market wrong, most of whom will get it right — rather than a single broker.

About the Author

Reid Johnson, Investment Adviser

Insurance Professional and President, Lake Point Advisory Group LLC

Reid Johnson, TX license 1068067, is president and founder of Texas-based Lake Point Advisory Group, LLC (www.lakepointadvisorygroup.com). As a financial professional and fiduciary when providing financial advice, he is dedicated to providing his clients with the individual attention necessary to help them pursue their financial goals. He has contributed to various media sites, including Wall Street Select, CNN and The Star-Telegram.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020

Recommended

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 10, 2020
Saver's Credit: A Retirement Tax Break for the Middle Class
Tax Breaks

Saver's Credit: A Retirement Tax Break for the Middle Class

Your retirement contributions could be the key to a lower tax bill.
July 9, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Avoid Blindly Following Random Benchmarks on the Road to Retirement
retirement planning

Avoid Blindly Following Random Benchmarks on the Road to Retirement

Unless the benchmark is relevant to your personal plan, it could steer you into taking a wrong turn.
July 8, 2020