Why Do You Need More Than One Financial Advisor?
The common saying, “too many cooks spoil the broth”, may be true in certain areas of life, but investing may not necessarily be one of them. Depending on financial objectives, income, age, and risk, an average investor needs to invest money in different kinds of financial tools. These could be real estate, employer-sponsored retirement accounts like the 401(k), mutual funds, exchange-traded funds, stock market, gold, bonds, and more. Further, one has to ensure that all of these financial tools offer the desired returns, are passed onto future heirs with minimal costs, and do not increase the tax output. For this to happen, an investor needs to plan efficiently, strategize, and prepare for any downfalls or unexpected turns. All of these things can be worked upon with a financial advisor.
A financial advisor can help you plan your future expenses, be ready for retirement, save for medical emergencies, purchase assets like a house, lower your taxes, and pass on your estate to your next of kin. This is why you hear most financial experts recommending hiring an advisor as soon as you can. But while most people talk about when to get a financial advisor, not a lot talk about how many financial advisors you should hire to truly see a quantifiable difference in your investment returns.
Multiple financial advisors can, at first, seem like an added expense. But if you hire more than one financial advisor after a careful assessment of all your needs, you can create more wealth, safeguard your loved ones, and live a more abundant life.
Here are some things you should know about hiring multiple financial advisors:
Why should you hire multiple financial advisors?
Here are some scenarios when hiring several financial advisors can help you maximize your returns:
- When you have different financial goals:
- If you do not see returns on your investments:
- When your financial goals change over time:
- If you are a high net worth individual:
There are different types of financial goals like retirement planning, education planning, home planning, tax planning, and more. All of these goals would require a unique investment strategy and philosophy. For instance, retirement is a long-term goal for which you can invest in equities and build wealth over time. Since the investment period in the case of retirement is quite long, the volatility and risk of equities is balanced out. However, if you are looking for short-term growth or a steady flow of income, you can consider dividend paying funds and bonds to ensure more stability in the near future. You can find a financial advisor who specializes in each of these domains and accordingly invest your money in the right instruments.
Hiring different experts for each field can help you focus on what is important for attaining that particular goal. For instance, if your goal is capital appreciation and saving for a home purchase or a child’s college education expenses, hiring a financial advisor who can help you with future growth and inflation is important. In this case, an advisor who can guide you on the stock market and direct equity investment is important. Likewise, if your goal is tax-saving in the present, a tax planner can help you streamline your expenses, investments, and income and adopt the best possible strategy to reduce your tax output within the available rules and government guidelines.
If you are not seeing the level of financial growth that you expected or anticipated with your current financial advisor, it may be time to seek some extra help. Sometimes a financial advisor may lack certain qualities or the right foresight to achieve your goals. This may be true for several reasons. For instance, the financial advisor can be generally incompetent or lack the latest know-how to help you succeed. Sometimes, the financial advisor may not be well-versed in the area of expertise you are looking for. And in other cases, the financial advisor may simply not be able to deliver despite trying their best. At times, the chain of communication between two people is not ideal due to which ideas may get lost in between. This could also create a gap in understanding. In such cases, it may be recommended to hire another financial advisor. When you do so, make sure to share your goals, investment philosophies, wants, needs, as well as fears and inhibitions with the new advisor. Having an open and honest conversation with the professional will ensure that you do not make any mistakes in hiring again. Moreover, since your requirements will be laid out in front of the financial advisor from the very start, they will make fewer errors in judgment and focus better on fulfilling your needs from the very first day.
Different times in life reflect different needs, and working with multiple financial advisors can allow you to concentrate on all of them. Most people in their 20s have very few financial responsibilities other than their own. At this phase, your goal would likely be to clear any education loan that you may have and to create wealth for your future. 20s is also a time when you have little to no medical expenses. So, you can focus all of your attention on investing for the future. Since you have many years left to retire, adding some risk to your portfolio is also advised during these years. A financial advisor at this time would guide you on capital appreciation more than any other form of investment. You can choose a fee-based advisor as you would have fewer investments and can pay the professional by the hour or a fixed fee every month.
However, as you age and have children, your responsibilities will increase. At this time, you would need a financial advisor who can help you save for your child’s expenses, buy adequate insurance, prepare for retirement, plan a home purchase, be ready for financial emergencies, and more. Your investment pool is also likely to increase along with your income and responsibilities. So, you can use this time to hire another financial advisor for select purposes like education planning or retirement planning.
Right before you retire, you would need to make changes to your portfolio and reduce risk. At this time, you can hire a professional who specializes in retirement and can help you plan your Required Minimum Distributions (RMDs), Social Security withdrawals, estate distribution, and more.
High net worth individuals require more financial assistance and guidance than others. As a high net worth client, you have more assets, investments, and possibly a business that will require a high degree of planning, assessment, and attention. Hiring more than 1 financial advisor, like an investment advisor, money manager, estate planner, etc., can help you streamline your finances better. An investment advisor will not only help you grow your estate but also preserve your wealth. Similarly, you may need to work with money managers to optimally spend your money and manage your existing savings. In addition to this, large estates are also likely to attract more taxes. Hiring tax planners other than an investment advisor can prove to be vital here to lower inheritance and estate taxes. A tax planner can also help you adopt strategies like using gifts and charities to pass on your estate to your chosen heirs without burdening them with the liability of paying tax.
What are the pros and cons of using a financial advisor for every unique need?
Hiring multiple financial advisors can have certain pros and cons. It is important to evaluate them first and then take a call:Pros of hiring multiple financial advisors
- You can concentrate on individual tasks at once. This saves time and effort and ensures better returns.
- You can secure your present and future at the same time. This way, you do not neglect one aspect over another.
- Every person has particular strengths that others may not possess. You can take advantage of every financial advisor’s merits. Likewise, the shortcomings of one professional can be overcome by another.
- There is no fixed formula for financial or investment success, and it is usually a combination of different strategies and ideas that work in unison to benefit you. For instance, an experienced financial advisor can offer you wisdom learned from years and years of working. On the other hand, a young financial advisor can offer a new perspective. A permutation of both can be the perfect way to move forward.
- The costs of so many financial advisors can be hard to cover, especially if you are just starting your career, have other unavoidable expenses, or are nearing retirement. In this case, it may be advised to prioritize essential costs and hire an additional financial advisor only if you have the means to do so.
- You may not always find strength in numbers. Sometimes even a team of financial advisors may not be able to deliver as per your objectives and may end up stepping on each other’s toes for their vested interests.
- It can be hard to deal with multiple people at once. The advice of one person may contradict the other’s and lead to confusion. In such a case, you may find it difficult to differentiate unnecessary noise from valuable advice.
What should you keep in mind when hiring more than 1 financial advisor?
While hiring several professionals, the following things should always be noted:
- Do not ignore the costs:
- Hire people who can work together as a team:
- Hire as per your financial goals:
- Revisit your decisions and make changes accordingly:
Even though hiring multiple financial advisors is a good thing, it can go against you if you end up spending more than you earn. It is important to estimate all the involved costs and then engage with different professionals. You can try different combinations like hiring fee-based and commission-based advisors to lower costs. You can also hire some professionals for a short duration and opt out if other pressing needs surface. The ultimate key is to find a balance that works for you.
When you select a person, see how the professional fits into your existing team of financial advisors. Can the person be a part of a team, or can they add more value as an individual contributor? Remember the goal at the end is to achieve all your objectives cumulatively.
Write down all your goals and then hire advisors based on your financial objectives. The primary motive of hiring multiple professionals is to be able to emphasize every need with equal attention and precision. Do not hire someone based on what your peers are doing. Instead, evaluate your concerns and work with people who can address them.
You may need multiple financial advisors at specific times in your life. For instance, think of a scenario where you are planning to set up a new business. A few years down the line, your children are going to college, and you have to save enough to make a down payment for your home around the same time. Considering this is a juncture where you have distinct financial needs cropping up one after the other, hiring multiple financial advisors can help you plan and organize your finances better.
Hence, if you find yourself in such a situation, look at the bigger picture and how different professionals and the required expertise can benefit you in the long run. Once you have surpassed this time, you can remove some financial advisors from your team or add others based on your requirement then. The most important takeaway here is to periodically evaluate your necessities and hire a team accordingly.
Multiple financial advisors add value to your life in several ways. But there is no hard and fast rule about the appropriate number of advisors you need to succeed in your investment journey. Ultimately, you have to closely look at what works for you and what does not. So, consider factors like your age, income, and expenses and then hire people who can help you with your concerns. Once you are ready to hire, you can browse through different financial advisors in your area and pick the ones you like.