Is it Wise to Put All Your Money With One Financial Advisor?
Hiring a financial advisor is beneficial in multiple ways. You get access to financial expertise and knowledge on investments and money management, a deeper understanding of how markets work, and how to create and deploy the right investment strategies to attain your goals. The advisor can also help you plan for the future more efficiently and take advantage of opportunities that arise due to changing market conditions. There is a tendency to look at engaging the services of a financial advisor as an expense when it really is an investment for securing your financial future. Consult with a professional financial advisor and receive expert guidance on how to achieve your financial goals like building a significant retirement corpus, lowering your taxes, or creating an investment strategy suited to your needs.
Though you may be willing to hire an advisor, you may not be entirely sure about whether you should hire more than one advisor or not. This decision depends on whether you would benefit from hiring a single advisor or more. Some investors may require the services of multiple advisors as they have extensive investment portfolios comprising real estate, art, collectibles, global businesses, etc. How big your investment budget is also has a say in this decision.
No matter what decision you take, you must first understand the benefits and drawbacks of hiring a single financial advisor and those of engaging multiple professionals. Keep reading to find out.
What are the advantages of hiring one financial advisor?
The benefits of hiring a single financial advisor are as follows:
1. It is easier on the pocket:
The foremost benefit of hiring a single advisor is that it costs less compared to hiring multiple advisors. Based on the kind of advisor you choose to hire, it can be an expensive proposition for you. The advisors can be differentiated based on the fee structure they use to charge fees such as fee-only, commission-only, hourly-fee, monthly fee, etc. The more advisors you hire, the more you will have to pay. This may be unwise if you are unsure of what you are looking for. That said, you can benefit from hiring more than one investment advisor if you are able to make up for the costs through the returns generated for you backed by good financial advice and assistance. Do note that you will have to pay the fees in the present no matter how your returns turn out in the future. Lastly, if you cannot stretch your budget to hire multiple financial advisors, it may be better to hire only a single financial advisor.
2. It helps avoid conflicting advice:
By hiring a single investment advisor, you receive more streamlined advice as only one person manages all your money matters removing any chance of conflicting advice or any disagreement. This also allows the chosen individual to clear up your doubts and offer guidance to you on how to best attain your financial goals. The advisor can also clear up any confusion that may arise to singularly focus on achieving your targets. Doing so also helps you avoid any potential conflicts that may arise in the future if you end up choosing people who do not align well together. Their bias toward one another may influence your decisions which may result in potential losses for you.
By choosing a single financial advisor, you can not only consolidate all your financial information but can also keep a tab on your investments. It reduces errors and oversight and makes it easier for you to follow through with the professional’s advice.
3. Ideal for managing smaller investment portfolios:
If you are just starting out and looking to build an investment portfolio, you may be better off using only one investment advisor. In the beginning, your portfolio may be limited to fewer investments belonging to the same category in terms of tax, contribution rules, etc. For example, an average investor may begin with having a retirement savings account such as a 401(k) and student loans that he has to pay off. In this case, the individual can make do with a single financial advisor until he has cleared off his debt and maxed out his contributions to the 401(k). That said, as the investor nears his retirement, he may have to account for different goals such as writing a will, planning the estate, reducing his tax output, and more. At this juncture, he may consult with financial experts in each field to make an informed decision.
What are the disadvantages of hiring one financial advisor?
The drawbacks of hiring a single financial advisor are as follows:
1. You may receive limited advice:
Considered to be the biggest drawback of hiring a single financial advisor, being hampered by limited advice can prove to be disadvantageous when it comes to achieving your financial goals. When hiring an advisor you have to assess their experience, educational qualifications, expertise, and more to gauge the quality and integrity of their advice. Ensure that you hire someone who has the right credentials to handle your portfolio, otherwise, you may miss out on potential opportunities to make money.
2. The advisor could be biased:
Each individual has a certain set of biases and is influenced by them. This is true for financial advisors too. While some advisors tend to be risk-averse and favor traditional investment instruments, other advisors may be more on the aggressive side and be more inclined to explore risker options. It is you who decides which kind of advisor you choose to hire. However, by doing so, you run the risk of being influenced by the advisor’s personal bias that may come up in their recommendations and suggestions. It may also be the case that the advisor pushes a particular investment in the hopes of earning a commission. Suffice to say, this may not always be in your best interests.
3. A single advisor may not be ideal to manage large portfolios and high-net-worth individuals:
Hiring a single advisor to manage an extensive investment portfolio may be unwise and restrictive since it can include a large number of undertakings. High-net-worth investors’ portfolios may comprise several different kinds of investments such as real estate, art and antiques, collectibles, investments in international funds, and more. This may require multiple sets of experienced hands to guide and nurture the investments. This may render hiring a single financial advisor to manage relatively bigger portfolios a redundant exercise since wealthy investors may have multiple complex financial goals.
We will discuss the benefits and drawbacks of hiring multiple advisors to find out is it better to hire one financial advisor or multiple advisors.
What are the benefits of hiring multiple financial advisors?
The benefits of hiring multiple financial advisors are as follows:
1. Access to diversified advice:
Hiring multiple advisors exposes you to different approaches and strategies that they would be privy to. They have varied experiences and qualifications that you can use and leverage their expertise and strong suits to your advantage.
2. Easier to compare and follow the best advice:
One of the major benefits of hiring multiple advisors at the same time is that you can easily assess the advice offered by advisors and weigh them up against one another. Doing so not only breeds a sense of competition but also motivates the advisors to perform better and vie to become valued members of your team. In addition, by hiring advisors who have disparate approaches, you can evaluate them based on their performance and decide which strategy is the best one for you. You get unwavering attention from the advisor along with unbiased advice that enables you to make good decisions.
3. Can hire multiple specialists:
Being able to hire more than one financial advisor is most advantageous if you ensure that you are hiring professionals having different areas of financial expertise. These advisors may hold expertise in fields such as tax management, real estate, estate planning, investment management, etc. This strategy may be ideal for high-net-worth investors as it helps ensure that they receive better attention, diligence, and caution. Another benefit of hiring multiple advisors for managing your investment portfolio is that you would be able to reduce the occurrence of errors.
What are the drawbacks of multiple financial advisors?
The drawbacks of hiring multiple financial advisors are as follows:
1. You may have to pay higher fees:
Fees have always been one of the major reasons why people tend to shy away from hiring an advisor. This is exacerbated if you choose to hire multiple advisors as you would be paying a much higher amount of fees. Not only will this affect your budget but also eat into your returns. The higher fee may not be a big deciding factor if you belong to a higher income bracket but for many, it may be the difference between hiring an advisor or not.
2. It can become confusing to handle multiple advisors:
If you hire more than one financial advisor, you run the risk of creating a scenario wherein there is extensive confusion and duplication of ideas. In addition, your team of advisors may not gel together and look to undermine one another to gain approval from you. Not to mention broadly diverse plans and courses of action may be suggested by the advisors which may add to the confusion. Moreover, you may find it challenging to track your investments and keep a tab on your progress.
3. It can be tedious to manage a team of advisors:
To manage a team of multiple financial advisors, you would have to set up multiple appointments and meetings to discuss your investments on a regular basis. This requires considerable time and effort on your part. Doing so can be quite challenging if you are hard-pressed for a time due to your professional and personal commitments. Having to manage a hectic schedule may cause you to neglect your finances.
What should you keep in mind when hiring a financial advisor?
There are many benefits of hiring a financial advisor. However, if you are still on the fence about whether to hire one advisor or several, go through the following tips to make up your mind:
- Assess your portfolio size. Doing so would give you an accurate idea about whether you really need more people to manage your finances or not.
- Do not look at others and what strategies they are deploying. Each individual has unique financial needs and goals and even if you belong to the same income and age group, it does not mean you have to copy them and hire multiple advisors. If you want more people to handle your finances, first assess if your portfolio size warrants that or not.
- Find out how much it would cost you to hire a financial advisor. If your finances do not allow you to hire an advisor on a retainer, hire one on an hourly basis. Also, pick a fee-only advisor over a commission-based one as the former is legally bound to place your best interests before their own.
- If you do possess a large estate and portfolio, you can consider hiring multiple financial advisors. This would allow you to reap significantly larger benefits in the long run.
Deciding whether to hire one or several advisors is a tricky business. You need to first evaluate your goals, budget, and needs and find out if you can even afford to hire more than one advisor. This would help you simplify the investment process. Your investment advisor should be someone who can help grow and nurture your investments. Do a thorough background check and hire qualified, and credible professionals only. Moreover, you do not have to hire several advisors at once. Start with one and if you feel you need more help to manage your portfolio, you can go ahead and hire more people should you feel the need to.
There are several pros to engaging the services of a professional financial advisor. Consider choosing at least one to manage your finances. Use the free advisor match service to engage with a professional financial advisor or more, who can help you attain your unique financial needs and goals. Based on your requirements, the service matches you with 1-3 advisors suited to meet your financial needs and goals.