Should You Have Multiple Financial Advisors?

Is it beneficial to have more than one financial advisor? In this week's episode, Josh & Austin break down the pros and cons of seeking money advice from multiple sources, exploring how it can potentially lead to diverse perspectives and strategies. They also discuss the potential drawbacks, such as conflicting advice and increased complexity. Join The Invested Dads as they navigate the world of financial guidance and help you make an informed decision about whether multiple financial advisors are right for you.

For the full transcript, links, and show notes, visit theinvesteddads.com/191

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Transcript

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I'm Austin Wilson, Co-Portfolio Manager at Hixon Zuercher Capital Management.

Josh Robb:

And I'm Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

We would love it if you'd subscribe if you're not subscribed already with that plus or follow button on your podcast player as well as go to our website and sign up for our weekly newsletter. Then you get an email every Thursday when we drop a new episode with show notes and some nice links and it's a pretty great deal. So go check that out. But today we are going to be discussing whether or not to have multiple financial advisors. So really, we're going to answer the question should you put all your eggs in one basket?

Josh Robb:

That's right. And we're talking about financial advisors, the ones that advise you and give you advice separate from money managers. So for instance, if you have three mutual funds, you have multiple money managers.

Austin Wilson:

Correct.

Josh Robb:

We're not talking about that. We actually think diversification in that sense is a good thing and more often than not when you own different funds, you're going to get different managers. But we're talking about the actual people you're working with, the advisors giving you advice.

Austin Wilson:

Correct. So Josh, let's dig into the upside from having multiple advisors.

Josh Robb:

So there are some pros to having multiple advisors.

Austin Wilson:

These guys are professionals. They're our pros.

[1:30] - Pros to Multiple Advisors: Diversifying Expertise 

Josh Robb:

Yes. They are pros for the pros. The first one is diversification of expertise. And so the idea there is that you may be able to find different financial advisors who specialize or who are experts in certain areas of financial planning, and then you build a team around all those experts and let them do what they're good at.

So you have an advisor who's great at maybe tax planning, then you have another advisor who maybe specializes in insurance, and then you'd have an advisor who's a good asset allocator and wealth manager. So you could build a team around something and you have each of them do what they're good at. So that's an idea.

[2:15] - Pros to Multiple Advisors: Risk Mitigation 

Josh Robb:

The next one is risk mitigation. So the idea is that if I have multiple advisors like diversification, I'm spreading my risk out among different places. And so one manager, maybe their investment philosophy underperforms or doesn't do well, I've spread my risk out. Or if they make a bad investment decision, not all of my eggs are in that one basket. So the thought process there, so you're spreading out the expertise or you're spreading the risks, those first two.

[2:43] - Pros to Multiple Advisors: Enhanced Decision Making 

Austin Wilson:

With those first two. I also see the other side of things where, while you're diversifying and mitigating risk, you could also be, if things are good with one, you could be diluting as well. So it works both ways.

Josh Robb:

Yep. Diversification is great at spreading risk, but diversification also eliminates the ability that if you get it right, you have more percentage allocated to that good thing. Another one is you have enhanced decision-making, and this is just a concept of more heads are better than one. If you have multiple people thinking through a problem, then you probably come up with a better solution.

Austin Wilson:

As long as they're communicating.

Josh Robb:

Yeah, that's it. They have to be helping make decisions together. We'll hit on some of those in the cons. But the idea is that you get a broader outlook. They come from different experiences, different backgrounds, they have different thoughts, maybe they have different training, so it just improves your decision-making because they approach it from different angles, which is good.

Austin Wilson:

Absolutely.

[3:40] - Pros to Multiple Advisors: Accountability 

Josh Robb:

And the fourth is accountability. And so diversification of spreading out your risk, you also have the advisors holding each other accountable in that if each advisor knows other advisors are looking at it, they feel the sense, "Okay, I got to make sure I'm doing everything on the up and up." From the pro standpoint, you get diversification of experience and expertise. You get diversification or mitigating risk by spreading it out. You get higher decision-making, because you have multiple people from different backgrounds and education thinking it through. And then checks and balances between them.

So those are good pros and I don't have any arguments against those, and so we're going to then flip-flop and look at the cons. But I want a dad joke before we go to the negative side of the world.

[4:28] - Dad Joke of the Week 

Austin Wilson:

Let's get happy before we get sad. So Josh, after an unsuccessful harvest, why did the farmer decide to try a career in music?

Josh Robb:

Oh, music. I don't know.

Austin Wilson:

Because he had a ton of sick beets.

Josh Robb:

Sick beets.

Austin Wilson:

Get it? That's pretty good.

Josh Robb:

I don't like beets.

Austin Wilson:

Or, I only seem to get sick on weekdays. I must have a weekend immune system.

Josh Robb:

Oh, a weekend immune system. I like it.

[4:53] - Downsides to Multiple Advisors: Higher Costs & Fees 

Austin Wilson:

All right, so we talked about the pros. I made you laugh. Now we're going to get into the downsides to having multiple financial advisors. So start with number one, Josh.

Josh Robb:

More often than not, if you bring on multiple advisors, you're going to experience higher costs. They all have different fee schedules and how they approach it, but more often than not, most advisors, especially if they're fee only, have probably some sort of reduction of their fees the more they manage. And so if you're spreading it out, you may not get those break points or the reduction in your fees by having all your assets at one place.

Austin Wilson:

Yeah, that's what came to mind when I was thinking of, say that you have a break point of your fees get better at half a million or a million dollars for that incremental amount. Well, if you have $2 million and you don't hit the break point on anyone because you have it spread between four advisors, then you're paying a higher effective rate. Effective rate's the key thing.

Josh Robb:

Yes. And also let's say maybe you don't hire the advisor ongoing, but they're one-off expenses. If you're paying multiple of those, they may charge you a set dollar amount to say, "Hey, I'll do a review of your financial situation for X dollars." Well, if you have three people do it, you're just tripling your cost for that analysis. So yeah, there are higher costs associated with that. Also, when it comes to the underlying investments, whatever you're using, commissions, if there's multiple people trading, they may own the same investment, you could have bought it all in one group, but they're spread out.

Austin Wilson:

And got paid less commission, right.

[6:17] - Downsides to Multiple Advisors: Conflicting Advice 

Josh Robb:

Yeah, there's just costs associated with that. Conflicting advice. So we mentioned a pro was that you get enhanced decision-making by having multiple opinions, but when you have multiple opinions, you could potentially get conflict. Which of these two do I decide? One's telling me to do this, the other one's telling me to do the opposite, and you have to make that decision.

Austin Wilson:

Like one's telling you, "You need to start claiming social security this year," but the other one's saying, "Let's wait a couple more years." And everyone's math works out for the way that they think it should work out, right?

Josh Robb:

Or even just as simple of say, "Okay, here's your allocation, X amount of stocks and bonds," and then another advisor says a different X amount in stocks and bonds, you have to decide. And you're hiring an expert to get their opinion, but now you have two different expert opinions and you have to pick and choose where it is.

[7:02] - Downsides to Multiple Advisors: Complexity in Coordinating

 Josh Robb:

Now again, accountability, checks and balances. Important. That was a pro. There's coordination and complexity when you have multiple advisors in that they're each doing their thing and they probably have their way of doing it, their way of showing it to you and sometimes looking at apples to apples, comparing those is hard to do. And trying to coordinate that you have, again, not a recommendation on anything, I'm just going to use a couple stocks as an example. So not a recommendation, but let's say you have Apple stock and you like Apple. And advisor A says, "We should have 2% of Apple stock in your portfolio." And you're like, "Great." And then advisor B says, "I like Apple and I think you should have 2% in your portfolio." Great. If they don't coordinate and you don't communicate, you may have 4% Apple in your portfolio because they're each doing what they think is best for you without knowing what the other advisor's doing. So complexity of how things are working together, but also coordination between which advisor does what.

Austin Wilson:

Another thing that I think kind of goes into this bucket as opposed to the other couple on here is if you have multiple advisors and you're a very returns-oriented individual, then you could constantly be comparing returns, which are great, returns are needed, returns are absolutely wonderful to look at and important for the plan, but you could be comparing returns and talking to your other advisor about how your other advisor gave you better returns. And then that advisor's going to say, "Okay, you want more returns? I'll give it to you," probably by increasing your risk. And then maybe they do that and increase those returns and then the other advisor does it again and you could get this out of control spiral where each advisor feels like they're in competition with each other and they're taking on more and more risk and eventually you run out of working within your risk tolerance and risk profile, and that's a dangerous thing.

Josh Robb:

Yes, you're right. And, again, we'll talk about this when we kind of look at our thoughts on the overall situation, but somebody needs to kind of be the point person. And if you're having multiple advisors, you either have to tell them all that or you yourself have to do that. And making sure that there is that coordination between all of them and when you are comparing, that you are comparing, in a sense, on equal footing. And I have an example when we're done that I'm going to talk through about a situation like that.

[4:53] - Downsides to Multiple Advisors: Overlapping Services 

Josh Robb:

The fourth one, so I had four pros and I have four cons because Austin knows I like things to be equal.

Austin Wilson:

Couldn't have done five and five?

Josh Robb:

Well, I got eight and then you and I each have our own opinion, so that's 10.

Austin Wilson:

There you go.

Josh Robb:

So it's already thought through, don't worry.

Austin Wilson:

Okay, don't worry about it.

Josh Robb:

But four and four is how I started with these. The last one is overlapping services. So a lot of times, again, when I talked about diversification and expertise, if every single advisor you hire does one specific thing, you may not have this, but more often than not, most financial advisors do multiple things. And so you may have, let's say you hired two advisors, to keep it simple, and they're both financial advisors and they're comprehensive, they do everything. You are paying for the same service for both of them. And let's say social security analysis. Do you need double social security analysis? Or if you have a good advisor who's smart and knows what they're doing, you're probably going to get the same result from both of them. You just paid double for that same analysis. So you kind of get an overlap between two advisors that if they're both good and doing what they're supposed to be doing, you'll probably get redundancy in the services.

[10:23] - Final Opinions on Whether to Have Multiple Financial Advisors 

Austin Wilson:

And I think that that is the key as we're transitioning to our final thoughts, I'm going to start with mine. If you find an advisor that you like how they operate, I think that the pros outweigh the cons of sticking with one. Because you only see data one way. You see reports one way. You don't run into this return and risk-chasing scenario, and you really just find someone that you can trust, and I think that that's the key.

And I think that how I manage my own finances. Now obviously I work in the industry, I understand that and I'm a little bit biased towards that, but I try and keep things in one place as much as possible. So if I can have all of my accounts in one place and then I have one login and I can see everything at once, it's super beneficial to me than having to have three different apps and three different logins and then trying to share those with my wife and all this other stuff.

So I really find a lot of value in simplicity. Even if you give up a 10th of a percent of return or whatever because of X, Y, Z, I don't know. But the simplicity is worth a penny here or there. And I think that that's super important. And the fees is probably also one of the biggest things of, I don't think a lot of people take into consideration the impact that fee structures can have when you don't have as good of clean breaks as you spread your money across multiple advisors. And I think that that could actually be detrimental towards financial plans because that can add up to a percent or two off the top that you would not have to pay if you didn't split it. So that's kind of where I'm at generally speaking. Not always. I think generally speaking, except for a couple circumstances I know you're going to talk about, I think most people would be better off sticking with one person they know and trust well for the long term.

Josh Robb:

Yeah. And I'm in that same boat. I think for the majority of people, a single advisor who is competent and does a comprehensive job is all you're going to need. That being said, for certain situations and nuances, having a second opinion or an expert come in to handle a situation can make sense. And I will talk about some situations where I've seen it and have been involved in it myself as an advisor. But overall, like you said, I agree with is, if you can have someone, and again, this is very important, someone you trust, someone you know has the experience and expertise to help you with that advice, then it just makes a lot of sense to work with that one person. They will know you better than spreading out and everybody has different ideas and conversations and they'll be able to work out a plan together that you're both on the same page with.

So I think we're on the same page there. Most situations, one advisor makes a lot of sense. Where I've seen it work, there's a couple of situations. If there's a specific expertise you need, and so let's say you have a good advisor, they're doing great, they have a nice plan for you, all that, but a nuance comes up in your situation where maybe they don't have as much experience or haven't had those situations. Consulting with someone who is an expert in that field may make sense.

And in our industry, you have what you call a limited engagement, which means that you're saying, "Hey, this is really all I want you to focus on."

Austin Wilson:

It's scope, yeah.

Josh Robb:

It protects both parties so that you're both on the same page. You're saying, "Hey, I want you to work with me, but this is really all I want you to focus on." And for the advisor being hired in this limited engagement, it's to cover them to say, "If I'm giving you advice, this is the only kind of viewpoint I'm coming from."

And a great example of this is, let's say you have benefits that are unique or specific to your situation. For instance, if you're in government or military, there are certain benefits that qualify for you that are not available in other situations. And if an advisor doesn't spend a lot of time with those type of clients, they may encourage you or want to bring in or maybe even they bring in an expert to help with that situation.

But what you do is you have a limited engagement to say, "Hey, we just need advice on these benefits and we understand that we'll give you as much information as you need, but we're not going to hold you accountable if the advice you give doesn't match everything else because you won't know everything else."

Austin Wilson:

Absolutely.

Josh Robb:

So it covers that advisor to say, "Okay, this is what you want from me? I can give you that advice. I'm going to get as much information as I need to give you that advice, but I'm not looking at everything or I don't need to." For instance, if it's a benefit thing, they may not care what your asset allocation is. They just need to know how do you claim what claim of the benefits.

Another situation is, maybe they're just good at something, maybe they're just really good at something. I knew someone who had a specific advisor and that advisor specialized in one asset class. They were just very good at research on one asset class.

Austin Wilson:

Maybe they were the small cap people of the world, yep.

Josh Robb:

And so for this person, they said, okay, that advisor opened up some accounts, the right type of accounts, taxable or tax-exempt depending on what the strategy was, and their only job is to do that. So at that point, I would actually say they're no longer an advisor, they're more of a broker.

Austin Wilson:

An asset manager.

Josh Robb:

Yeah, they're an asset manager/broker, they're making the trades, but they're limited. Their job is that. Makes sense. So then you got to communicate to the other advisor and say, "Hey, I don't need that in my portfolio." Taken care of. And hopefully, you're sharing statements so that they understand your overall picture, but I've seen it happen a couple times where it worked out for their situation.

And then where has it not worked out? I've seen it where if a client's coming to us, maybe we're giving them a second opinion and they have a couple advisors already, or maybe even not a couple advisors, but they just have their money in multiple places and they've never really thought about consolidating, because that's more often what you see. You end up with a broker here, maybe a financial advisor there, and you just never [inaudible 00:15:54] everything together.

Austin Wilson:

Or it's a leftover 401(k) left at an old employer, you don't, yeah. It's not necessarily that you chose to have a second advisor, you just haven't moved your money.

[16:03] - Final Opinions: The Biggest Concern & How to Overcome It 

Josh Robb:

And a lot of them, it's maybe self-managed for those, and that's a whole different topic about self-managed stuff where you're doing it yourself. But if you have two advisors, the concept I've always seen is they do not know what the other person is doing and you get too much exposure. We talked about this. Too much exposure to maybe one asset class or something like that and no one knows that, and that could be a big problem and no one is aware of that problem.

And that's always my biggest concern is if you're going to have multiple advisors, they all need to know who's the point person, whether it's you or one of the advisors assigned to say, "Hey, they're coordinating everything," and then here's the roles for everybody else. And then there's got to be open communication. You've got to give permission for them all to speak to each other, exchange data as needed so that your full picture is being taken care of.

Austin Wilson:

Absolutely.

Josh Robb:

I will say this. Part of this concept came from those fun tips that you see online that are just some of the worst investment advice out there like TikTok and Instagram and all those things.

Austin Wilson:

TikTok. Don't go to those places for financial advice.

Josh Robb:

And what I saw was, and this is kind of what drove it, was spreading out your money between multiple places to compound your returns. So this kind of is a offshoot of that. But the concept was if you could get 2% in these savings accounts, just as an example, and you have one, but if you open it up at another bank getting 2%, now you got 4%, because they're both compounding. Now if you open it up at four banks, you got 8% because they're all compounding.

Austin Wilson:

It's really dumb math.

Josh Robb:

I mean, it hurt my head.

Austin Wilson:

It's really dumb math.

Josh Robb:

And you don't add on top of it your percentages. So let me break this down real quick. This is a side shoot, but it applies to this because we talked about with the fees. If I have $1,000 and I'm getting 2%. So $1,000, 2%, that's $20. If I have $500 at two banks and I'm getting 2%.

Austin Wilson:

$10.

Josh Robb:

Each bank, I'm getting $10. What's my total return?

Austin Wilson:

The same.

Josh Robb:

$20 either way. When it compounds, does it ever grow faster one way or another?

Austin Wilson:

Negative.

Josh Robb:

It does not. All right, so the same is true with your fees. If you have the same fee both places, having multiple majors actually doesn't hurt you. If they both charge a 1% AUM fee and there's no breaks or anything, how much fee did you pay?

Austin Wilson:

1%.

Josh Robb:

Exact same, doesn't matter. The difference is, and this is what we talked about, most places have break points or adjustments.

Austin Wilson:

A tiered fee structure.

Josh Robb:

That's based on managing more money, and that's where you get the difference.

Austin Wilson:

It's like a reverse tax schedule.

Josh Robb:

Yes. Or even just, banks do this too. "Hey, if we have X amount of your dollars, we'll give you these services or we'll not charge you for checking," or whatever they do. It's the same way as there is savings in more money in one location. And so that is something, and I just wanted to point that out because I saw that and it really just frustrated me that someone didn't comprehend percentages the way I thought they would.

Austin Wilson:

And someone listened to that terrible advice.

Josh Robb:

And maybe I'm wrong, maybe this is like a spur of the moment thing they made on Twitter or TikTok or wherever I saw it at, but you think they'd actually do the math to make sure it was right. They didn't. It was just bad.

Austin Wilson:

Just bad math.

Josh Robb:

Yeah. Horrible.

Austin Wilson:

All right. Well, that is certainly a good discussion on something that we hear about a lot in our industry. Hopefully you found some value in understanding both sides to this. But please remember, if you have any questions, you can always email us, hello@theinvesteddads.com. We'd be happy to help out there. Or if you find us on social media, which we're on Twitter, Instagram, Facebook, send us a message. Otherwise, remember, if you had someone asking about this particular question, share this episode with them. We'd love it if you'd do that. As a reminder, subscribe and leave us a review on Apple Podcasts and Spotify. And until next week, thank you for listening and have a great week.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn't have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today's show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don't miss the next episode.

Josh Robb and Austin Wilson Work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions.

Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.