What would be the likely result if you had an important legal issue and hired three separate lawyers? Assume the lawyers don’t know each other, don’t communicate with each other and don’t coordinate their strategy. I think we can all see the potential mess that this could create. The same could be said if you hired two or three different dentists, architects etc.
This is also true of having more than one financial advisor. Some people feel that having more than one advisor helps them to “diversify”. Two clients of mine help to show how this diversification can cost you a lot of money.
One client had approximately $300,000 in a passive investment account within his corporation with a different advisor. Upon analysis of this account we found that, due to the high taxable distributions and the inability to deduct fees, he was incurring approximately almost $3,567.10 in unnecessary corporate tax during 2018.
There was no discussion, or advice provided by the other advisor on this.
A second client held approximately one third of his entire portfolio with us and one third with two other advisors. He was 67 years old and we began a discussion about his eventual retirement and the difference between non-taxable cash flow vs. taxable retirement income generated from his non-registered assets. Implementing these strategies can significantly reduce the OAS claw back and the tax on retirement income. The great majority of his non-registered assets were held at other institutions making it difficult to coordinate and provide the best advice to the client.
These are only two of the many examples that I have seen where a client has incurred significantly higher taxes, and fees because their overall financial situation is uncoordinated and there are “too many chef’s in the kitchen”.
Unfortunately, it can be difficult for someone to comprehend how much this uncoordinated approach is costing them. The increased advisory fees will suppress the performance of their investment portfolio, but any tax savings will only be seen on their tax returns.
My report Is There Value in Paying for Financial Advice? outlines in specific numbers the potential huge cost that can result from not getting professional advice. This includes not just your portfolio, but also tax, estate, and retirement income planning. Each of these areas are integrated and should be coordinated and managed together.
My advice to anyone with more than one advisor is to determine which advisor provides you with the best quality advice and guidance in coordinating and planning. Hiring that person as your financial quarterback will help simplify your life and keep more cash in your pocket.