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Understanding the Implications of Working With Multiple Investment Advisors

By: Frances Cronlund, CIMA®, CExP™, CTFA, CFP®
4 Minute Read

We’ve all heard the phrase “don’t put all your eggs in one basket,” but how helpful is this sentiment when seeking guidance on investment strategy? Choosing to work with multiple investment advisors, known as “Advisor Diversification,” can sometimes be an effective way to receive multiple opinions on your investment strategy. However, it also introduces a wide range of obstacles for which investors will need to prepare.

Coordinating multiple investment relationships is no easy task, and in doing so, investors will need to take a hands-on approach. If you choose to spread your assets out among multiple firms or advisors, the first step is to acknowledge that you yourself will need to be the lead advisor. As your own “manager of advisors,” you must reconcile all the advisors’ differences in philosophy, outlook, and capabilities at all times.

At Curi Capital, we are committed to helping you effectively manage these complex relationships to maximize the growth of your investments. Our goal is to help you make the most of your savings through whatever means you decide, and we have identified the three most important moves you can make when choosing to work with multiple advisors.

  1. Create Your Asset Allocation Strategy

    As the manager of advisors, your strategic asset allocation policy will naturally reflect your feelings about local and global economies. It will also reflect your personal financial strengths and insecurities. However, it’s important to avoid being overly influenced by personal emotions and recent events when setting a short-term or long-term asset allocation policy. These influences may increase the odds that you “trail the market,” meaning your investment performance will lag behind the market benchmark index.

  2. Monitor and Maintain Your Asset Allocation Strategy

    When not monitored property, multiple advisors can work against each other, leaving investors with a negative or neutral outcome instead of a growth outcome. For example, one advisor may choose to increase exposure to international equities, while another decreases exposure by the same or similar amount. If these opposing strategies take place concurrently without you realizing it, they can negatively impact your investment outcome. The burden is on you, as the manager of advisors, to know about their tactical shifts ahead of time and reconcile any differences. In the event that you do discover opposing strategies, it may be too late to counter their actions. Ultimately it’s your job to structure an overall investment philosophy and monitor its implementation over time.

  3. Properly Screen Advisors for Optimal Correlations

    When managing multiple advisors, screen each of their funds or investments for having an outstanding track record relative to peers. Every fund must stand on its own as “best in class,” and it’s important to understand that this distinction may wax and wane over time. In addition, each fund or investment must correlate with each other through complementary investment strategies.

If managing multiple advisors seems like too daunting of a task, you may benefit from investment simplification, in which all assets are controlled by a single advisor. The benefits of investment simplification go beyond optimal performance and include:

  • Estate Plan Coordination
    If you plan to pass assets on to your heirs, then consolidating your assets to one firm or advisor can facilitate that eventual transition. Any planner will tell you: Every asset must be coordinated to achieve your estate planning objectives. For example, if estate assets are intended to be settled evenly between two parties, all assets’ titling and beneficiary designations must be coordinated. However, if accounts are housed with multiple advisors, it becomes increasingly challenging to confirm that the estate will settle 50/50 overall, as intended.
  • Lower Advisory Fees
    Investment simplification may result in lower advisory fees. Diversifying your relationships with multiple advisors can often lead to higher costs, given that each institution has a separate fee structure. Oftentimes, high costs for financial advisory products and services during initial investment may be reduced when assets are added later. As a point of comparison, Curi Capital’s affiliation with Curi, a mutual company, means that its members share in operational efficiencies. Curi Capital’s advisory fees are sensitive to cost, making it easier to provide services at a highly competitive price.
  • Lifetime Income Strategies
    When investment accounts are housed at a variety of firms, the process of creating a cascading income stream from the highest- to the lowest-risk accounts becomes complex. This includes both taxable accounts as well as retirement accounts, which come with required minimum distributions (RMDs). Most retirees look to one advisor to set up a plan to create lifetime income. However, when not properly executed, a 50% excise tax is applied to any overlooked RMDs, which is a steep penalty.

    Another detail is determining which RMD table to use when calculating retirement income. That choice depends on who the original retirement plan owner was and the current ages of the beneficiaries. If multiple investments are domiciled with multiple advisors, it’s very difficult to execute on the optimal lifetime income strategy.

  • Simplified Recordkeeping
    Managing the statements and notices from multiple firms can be complex and time consuming. One practical advantage of investment simplification is the ease of using consistent, simplified formats and portals. In addition, tracking the capital losses taken at one firm can easily be negated if the same or similar securities are purchased at another firm within 30 days. This triggers what is known as the wash-sale rule, a tax rule that cannot be easily monitored between multiple advisors.

Our wealth management team at Curi Capital can help build simplified investment strategies that will eliminate many obstacles associated with advisor diversification. However, for those who wish to maintain relationships with multiple advisors, our team can help look at your investment accounts and statements from multiple firms to help you implement an effective strategy for monitoring and maintaining investment advisor relationships. We help screen for redundancies and conflicts as they relate to investment fees, estate planning objectives, retirement income optimization, and asset allocation risk.

If you have questions about simplifying your investment advisement strategy, or if you would like to review your current plan, please reach out to Curi Capital’s Wealth Management team at 984-202-2800.

Please note: This is for educational and general information only and is not intended to provide specific investment advice or recommendations for any individual. You should consult your financial advisor, attorney, or tax advisor with regard to your individual situation.

 

 

Frances Cronlund, CIMA®, CExP™, CTFA, CFP®
Frances Cronlund is Curi Capital’s Senior Director of Wealth Planning, based in Raleigh, NC.
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