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In the absence of a coherent strategy, multiple advisors may put a client into the same investment multiple times. Tax-related decisions may also suffer. In addition, this strategy may cause advisors to compete for all the assets and take undue risk to outperform the competition
“People have money spread all over the place,” said Ben Greenfeld, a certified financial planner with Waldron Private Wealth. “Often, when we meet a new client, they have assets managed by two, three or four different groups.
“We work to consolidate them to have them be managed in a more coordinated approach.”
Instances of clients having multiple advisors rose after 2008, when Madoff’s epic Ponzi scheme was unveiled and the financial crisis leading to the Great Recession came to a head, advisors say. In good times and bad, however, they advise against multiple advisors.
“An investor generally will get much more out of the advisor when he or she also shows commitment to that advisor,” said Monica Sipes, a CFP with Exencial Wealth Advisors. When a client won’t commit, Sipes suspects she is not well suited to serving that client. “Therefore, I will not take on a new client looking to retain multiple advisors, because they will not experience the best outcome of what I provide,” she said.
Lack of coordination by different advisors is a frequently cited reason for this attitude. “Oftentimes when a prospect comes to me with multiple advisors, I see a completely disjointed investment strategy,” Sipes said.
In the absence of a coherent strategy, multiple advisors may put a client into the same investment multiple times. “You may wind up overweight or underweight in certain sectors, not intentionally but because advisors don’t know what the others are doing,” said Greenfeld at Waldron Private Wealth. “You may run undue risks which can ultimately affect your long-term returns.”
Tax-related decisions also can suffer when multiple advisors are involved, he noted. “If advisor A has $100,000 taxable gains for the year, but manager B has $100,000 of unrealized losses, if they coordinate those, you’ll have a much lower tax bill.”
Similarly, clients can benefit from a single source of advice when choosing investments to sell to generate income. For instance, Greenfeld said clients raising cash to buy a home or to pay for a vacation tend to keep aggressive investments that have performed well recently, while selling conservative investments that have lagged behind the riskier assets.