3 Pros (and 4 Cons) of Hiring Multiple Financial Advisers

Several financial advisers discuss strategies.

(Image credit: Getty Images)

Most of my friends in the financial advice business will not take on new clients who are using multiple advisers.

I have never taken this strict stance. If a prospective client meets minimums, is a good relational fit and we can add a lot of value, they can split their investments between other advisers and me.

I do, however, admit that I am wrong in this approach. If a client invests half of their money with me, it tends to create more work for significantly less revenue.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

But this article is not about the pros and cons for me, the adviser; it's about the pros and cons of you, the client, using multiple advisers.

The pros of having multiple financial advisers:

1. You can dip your toe in the water

I had a client sell his business in 2015. He decided to split the proceeds among three different advisers.

His goal was never to keep three advisers, but he had never had large amounts of money to manage. His wealth was in the business, and this was all new.

This reason is purely behavioral — you'd rather dip your toe in the water than dive in headfirst and find out the water is freezing — but that doesn't make it wrong.

We were one of the first three firms he used and one of, what I assume, will be the final two. The third firm was not a good fit. It would have been a mistake to put all the money with them upfront.

2. You get diversified expertise

You worked with XYZ mutual company as you built your business. While your adviser's card indicates they can assist with your entire financial picture, the reality is that they are an insurance agent. Their expertise is insurance. This is an important piece of the puzzle.

As you started to build your wealth, you sent some money to a different representative at a major bank. They buy and sell stocks for you. Their card has a similar title, but the reality is that they are a broker. Investments are another important piece of the puzzle.

If you like the idea of dividing the labor among multiple firms, it may be beneficial to do it this way.

The trend in the industry is moving in the other direction. Our firm specializes in retirement income and tax planning. We are financial planners and tax professionals.

We have an insurance agency that employs agents to make sure you're not driving without airbags. We also have a large team of CFAs who manage the money for our clients. I believe these are different skill sets.

So, there are benefits to having different people do the work. The question becomes whether you want them at different firms or under one roof.

3. You can mitigate risk

"Don't put all your eggs in one basket." This is what prospective clients who are over 80 and have 15 bank accounts tell me.

The truth is that this is mostly an antiquated view when it comes to banking and investment platforms. The investment world used to be structured so that you would have to buy XYZ mutual fund directly from XYZ company.

Today, most of the biggest custodians are open platforms, meaning that you can buy or sell any publicly traded security on their platform. You don't need several different accounts to hold stocks, bonds and investment products from different companies.

This doesn't mean there isn't a risk-mitigation benefit to having multiple advisers. It comes in the form of different advisers who have different viewpoints on the global economy and how portfolios should be structured.

Your adviser at XYZ company believes you should use mutual funds and annuities. Your adviser at ABC company believes in individual stocks and ETFs.

There are arguments to be made on both sides. Rather than pick a side, you can put a little on red and a little on black (although a gambling analogy is probably not the best when we're talking about your life savings).

The cons of having multiple financial advisers:

1. Higher costs

Most advisers have fee breakpoints. For example, let's say your local firm has a fee schedule that is 1% up to $2 million in assets. It drops to 0.9% above $2 million in assets. Then again at $3 million to 0.55%. Every additional dollar beyond a breakpoint is charged at that new, lower fee.

Therefore, if you invested $2 million with that local firm and $2 million with a non-local firm with the exact same fee schedule, you would pay significantly more.

2. The risk of 'diworsification'

Imagine an orchestra without a conductor. That's often the reality of multiple advisers from an investment perspective. They are playing different songs. This one believes in U.S. growth. That one believes in international value.

At the end of the day, you typically end up paying more than necessary to own the entire market.

If you do go this route, I would strongly urge you to use an aggregation software that allows you to link your accounts so you can see everything in one place. This will allow you to see your overall asset allocation. Our planning software allows us to do this, and you can access a free version.

3. The risk of miscommunication

Ever been through a home renovation? Using multiple advisers is like using a lot of different companies to complete that renovation.

There are plenty of good reasons to do this. The HVAC guy knows exactly how to install the new system. The painter is pretty good at, you guessed it, painting.

The downside is that there are more balls that can fall because there are more balls than there would be if you used one design-build firm.

In the context of using an adviser, I'll provide an example. Imagine that I have a client who hires me to manage some of his money. He also relies on me, not his other adviser, for tax planning.

But because of the accounts I am holding, some of those tax strategies need to be executed with the other adviser.

I am relying on that adviser to be able to properly execute those strategies. If I don't clearly communicate them to the other adviser, something could get lost in translation.

More advisers means bigger cracks for things to fall through.

4. You're the quarterback

My wife and I have gotten into the Quarterback documentary on Netflix. At the beginning of the show, Peyton Manning states that quarterback is the most difficult position in all of sports.

I can't confirm this (I've played soccer my whole life), but I think it could be true. You are managing a lot of people and a lot of movement, and if things go wrong, you get crushed by a weirdly fast 300-pound guy.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

Your financial adviser typically plays that position, and this, I believe, is one of the greatest ways they add value.

Want to make sure your estate plan and beneficiaries are aligned with your wishes? Have your adviser call your attorney.

If you hire multiple advisers, however, you are the quarterback: To check your estate plans, look up all the beneficiaries and then ask your attorney to confirm. Then expect a bill in the mail.

I don't think there's a problem with having multiple advisers (except for the four outlined above). In fact, the larger the balance sheet, the more common this is.

However, I think it should be a means to an end. I recently had one client hire me and another adviser for two years. After two years, he will move his money to the adviser he is most satisfied with.

This way, he can dip his toe in the water but doesn't have to commit to a lifetime as quarterback.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.