Written by Tyson Ray, FORM Wealth Advisors | CFP®, CExP®, CIMA®
When clients come to us, they often have several different financial advisors and/or several different investment or retirement accounts with different firms. This is a pretty common scenario, but it’s not ideal. We recommend consolidating all your accounts with one advisory team.
So, how does this happen? Maybe a young woman began working with an advisor when she graduated from college and started her career. And then when she got married, her husband had another advisor. And then maybe someone the couple knows is starting out as an advisor and sells them a product, or maybe someone knocks on their door and sells them a financial product.
Now we have several different advisors involved. Adding to the complexity of the situation, imagine that both individuals have several 401(k) retirement accounts still invested with former employers, and they have other retirement and investment accounts with several different companies.
Some people think having different advisors and different accounts is a form of diversification — but the truth is, it’s a form of chaos!
Why it’s not ideal to have multiple advisors and multiple accounts with different companies
Now, sometimes people seek out different advisors who have different specialties. For example, they might consult one advisor about investing, another for insurance and a third advisor for retirement planning. This makes sense on the surface; however, the more advisors who are involved in your financial planning from different companies, the more you run the risk of receiving conflicting guidance, duplicating paperwork unnecessarily and even paying duplicate fees.
And often, people consult different financial advisors for the same type of planning. This scenario creates a lot of potential issues.
Imagine that you have a health condition — let’s say a history of heart issues. Ideally, you will choose one cardiologist who will take care of all your procedures, surgeries, medications and overall guidance for heart health. Imagine if you saw four or five different cardiologists regularly. Well, your insurance probably wouldn’t pay all of those doctors, but even if you paid them on your own, you would most likely end up with a lot of redundant exams, imaging and medications — and possibly confllicting recommendations. You can see how that could get expensive and confusing for everyone involved — and potentially dangerous for you.
Here are some reasons why it can cause potential problems if you have multiple accounts with multiple advisors:
- Working with many advisors can cause conflicts. Different advisors have different ways of getting paid. Some receive a percentage of assets under management (AUM). Others receive a flat fee for a specific service, such as preparing a personal financial plan for you. And others get paid commissions. When you are working with different advisors, it can create conflicts among the people who are supposed to be looking out for your best interests.
- It can make tax planning and other paperwork more complex. Because when you have your finances scattered in different places with different firms, it’s very hard to see what you really have. What’s overlapping? What does your portfolio even look like from a risk-adjusted standpoint? Having all your accounts with one advisory firm not only helps you see what you have; it makes it easier to manage taxes, required minimum distributions (RMDs) upon retirement and more.
- It can make it difficult to sort out your estate in the event of your death. When your advisory team has all your accounts in one place, it makes it easier for your heirs to settle your estate upon your death. Your team will know what your situation and your final wishes and will make sure your beneficiaries match on all your legal documents.
Avoid this common mistake when choosing an advisor
One of the greatest mistakes people make when they choose from among multiple advisors is using portfolio performance as their guide. The problem with this approach is that past performance does not ensure future performance.
So if one advisor is outperforming another over a period of time, it might be because he or she was taking more risk than the other advisor was. I have seen clients consolidate accounts with one advisor because of performance, only to realize that those great returns were fleeting and temporary.
One of the most important rules of investing is that it’s impossible for anyone to time the markets or to achieve consistently high performance. The markets will always fluctuate. What’s more important is finding an advisory team who are fiduciaries, acting with your best interests in mind at all times — advisors who take the time to find out what your situation is and what your short- and long-term goals are. Investing is a long game, and your advisory team will serve as your accountability partner, your encourager, your financial guide and your planning partner for the long term.
Work with a firm that has a variety of specialists on its team
Working with a single financial advisor whom you trust is great; however, this approach can limit your opportunity to take advantage of a wide array of expertise, knowledge, experience and perspectives. For this reason, we think it’s beneficial to work with a financial services firm that has different specialists available to guide clients in different areas of financial well-being. Here at FORM Wealth, we specialize in many different areas of financial management, including retirement planning, investment management, estate planning, tax planning and lifestyle planning.
And when you work with a team, you will probably have the benefit of working with advisors who have different specialties. Personally, I hold three designations:
- Certified Financial Professional® (CFP®) — This certification is the standard for financial planning. CFP® professionals meet rigorous education, training and ethical standards and are committed to serving our clients’ best interests today to prepare them for a more secure tomorrow. CFPs commit to a professional requirement to act as fiduciaries, meaning our financial advice must always put our customers’ best interests first.
- Certified Exit Planner (CExP) — Having this designation qualifies me to guide clients in the area of exit planning — determining how business owners will sell or otherwise leave their businesses.
- Certified Investment Management Analyst® (CIMA®) — This designation enables me to work with both individuals and corporations in the areas of retirement or college savings funds, wealth management, endowments, corporate investments or any other relevant consulting.
My co-founding partner, Luke Kuchenberg, also has the CFP® designation, as well as the Certified Private Wealth Advisor® (CPWA®) certification. This is an advanced credential created specifically for wealth managers who work with high-net-worth clients.
________
We strongly recommend that you work with just one fiduciary advisory team that has your best interests in mind, knows you well and cares about guiding you toward living your best life possible for the long term. Consolidating all your finances with one team will help ensure that you minimize the fees you pay, optimize your opportunities and avoid taking unnecessary risks.
Please contact us if you would like to find out how you could benefit from consolidating your finances.
