There are those investors who want to use multiple investment advisors. This isn’t a wide move, and the following are the reasons for that.
Having more than one investment advisor is often more expensive than when you are working with just one. Most advisors charge a fee based on a percentage of the assets as they manage. Smaller account sizes mean larger percentage fees.
Fees will definitely vary for each firm, but having more assets at one firm is less expensive than the same amount divided between multiple firms.
When you work with multiple advisors, you consume more time. As you get older, the less time you have and obviously you want to be as efficient with your time as possible.
When you have accounts at various firms, you have to fill out more forms, read more disclosure forms, review more ADV forms annually, monitor investment statements, and talk to or meet with more advisors.
In terms of taxes, you may have to file more 1099 forms, which could lead to higher tax return preparation fees.
Unified Investment Approach
When you build a portfolio, you should aim to have the correct control of risk levels, maximize the highest returns for your risk level, be tax efficient, incur lower costs, and make the portfolio reflective of your overall investing approach.
To build a great portfolio, you should know all the parts of the portfolio. You cannot accomplish good portfolio design and management when you are using multiple advisors, since there is usually little communication between investment advisors.
Most investment advisors go for diversification in a portfolio, including some US stocks, foreign stocks, emerging market stocks, real estate investment trust (REIT), cash, and fixed-income investments.
If you are thinking of using multiple advisors, you may suffer with more investments in the same asset class than you would with one advisor and without any greater diversification.
Managing all of these investments requires you to view more investment prospectuses, sign more proxies, but there would be no improvement in the performance of your portfolio diversification or investment performance.
There is always some amount of cash in all managed accounts, enabling the management fees to be deducted and serves as a cash reserve more any needed near-term distributions. If you have multiple accounts, there would be more cash sitting than if you were only using one firm.
Keep in mind that cash sitting in an account means that the management fee can usually be charged against it. In other words, you are actually losing money holding cash in a managed account when the management fee based on a percentage is applied to the account. You ought not to let your cash just sit.
Fee-only advisors are not selling you high commissioned products. Investment advisors work for a Registered Investment Advisor (RIA) firm and they are required to work as a fiduciary, which basically means they have to prioritize what’s in your best interest.
However, 95 percent RIA-certified advisors are also registered as broker-dealer representatives, meaning they sell insurance. And when they are selling products, advisors do not need to keep your best interest in mind. They even have a legal obligation to the firm in which they are licensed to sell the product.