Diversification of Investments, Not Financial Advisors

June 27, 2023by Wes McNeillie0

Over the last few years, I have met many people who use multiple financial advisors, rather than just one. As I ponder this, like I do most things, I think about the pros and cons of one decision versus another. Diversification is a term heard a lot in the investment world. Having a portfolio that is well-diversified is one of the fundamental principles of investment management. A portfolio with a wide range of asset classes, diversifying across market capitalization, geography and style are at the core of prudent portfolio construction. Stocks, bonds, commodities, real estate, cash etc, based on a client’s investment objective, can all be included in a portfolio to help mitigate risk.

Diversification, as it relates to financial advisors, is not a new concept. However, unlike diversifying investments, it is harder to make the argument for using multiple advisors, in my opinion.

Again, I like to see both sides of every decision. A couple of valid reasons that might support using multiple advisors include:

  1. There may be different perceptions on how you view your multiple advisors (i.e. one advisor is for “conservative money,” while another advisor is for “aggressive money”/different areas of expertise)
  2. The chance that your advisor could go out of business (i.e. mismanagement of client assets/nefarious activities)

The above is not all inclusive, but the reasons for using one financial advisor (and against using multiple) are numerous and include the following:

  1. Enhanced/seamless communication – it can be challenging enough amongst one firm – let alone multiple
  2. Along the same vein, one advisor not working in conjunction with the other advisor (i.e. unintended concentration in certain asset classes, tax related problems – avoidable capital gains)
  3. Higher potential fees due to inability to reach certain fee breakpoints when using multiple advisors.
  4. Making sure everything is progressing the way you want; more wealth equals more complexity; fewer people needing to be on the same page increases the likelihood of your goals being met.
  5. Administratively – points of contact, statements, etc.

Ultimately, the most important thing to consider when determining to work with any financial advisor is trust. Can you trust him/her? Will he/she be there when needed? If the answer to either of these questions is no, the relationship should not exist.

If you are in the market for a financial advisor and want to learn more about LeConte Wealth Management and our process, spend some time navigating our website and give us a call at 865-379-8200.

Wes McNeillie

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