Financial review

It happens all the time. A client slides a manila folder across the table and the new financial advisor thumbs through the documents, asking questions, getting to know the client, excited to help them in life’s journey.

But there’s a moment of pause when the duo reaches the assets portion of the discussion.

The client has another financial advisor.

Maybe the other advisor helps with a 529 account for their kids’ college fund, maybe it’s an inherited account, maybe it’s an account through their business, or maybe it’s simply an IRA opened years ago with a family friend. While on the surface it may seem like no big deal, but using multiple financial advisors can create unneeded risk.

“Many investors think they’re diversifying by using multiple advisors,” says Paul West, managing partner of Carson Wealth in Omaha. “But in reality, they are creating more risk – and often spinning their wheels without getting any traction.”

West sees this problem often. In a recent example, a new client was unhappy with the two advisors he currently had. After plugging the client’s information into his firm’s technology, the reason for the distress quickly became apparent.

“One of the advisors was using an extremely conservative investment philosophy, and the other was extremely growth-driven,” West says. “So what you had was two competing portfolios that just equaled each other out.”

Another example, West says, is extremely common when trading equities. You may have one advisor buying a stock while the other is selling the same thing. That creates unneeded fees, conflicting investment strategies and unnecessary risk.

West says the easy solution is using one advisor who is focused on the investor’s best interests, utilizes the latest client technology, and has the necessary resources and tools to effectively manage a portfolio. It boils down to three core reasons.

1. Overlapping funds

Advisors may use different investment strategies, but many times the funds themselves are similar. A fund at one firm designed with large U.S. companies focused on growth might hold many of the same assets as a fund with similar goals at a completely different firm.

If an investor is using multiple advisors, their assets may be too heavily invested in highly correlated funds, which puts more risk on a portfolio.

To fix the problem, West says that Carson Wealth uses a Digital Allocation Tool, which starts by analyzing a client’s tolerance to investment risk then shows a client where all of their funds are arranged, where there may be correlation, and how risk can be mitigated.

2. Offsetting strategies

Financial advisors operate on different philosophies or may be helping a client accomplish various goals. That creates a situation where plans can offset each other.

West calls this the “yin and yang” problem – and it starts with advisors not communicating with each other or not understanding the purpose of all the client’s accounts.

“Your advisors are most likely working with multiple investment philosophies,” he says, “and those are likely counteracting each other. Meanwhile, you’re stuck on the hamster wheel and not going anywhere.”

3. Overextending schedules

Over half of the population claims to be too busy, West says, and when an individual has multiple advisors, they find themselves having the same conversations over and over.

When working with an advisor at Carson Wealth, for example, West says there is a clear process that a new client is taken through. It helps the advisor get to know the person beyond just their finances and allows them to spend time mapping out life goals. It’s what West calls a “true wealth” approach.

Using a single advisor, whether working with an advisor for the first time or consolidating your accounts, is a key step in making sure you’re ready for retirement, West says.

“You don’t have two CPAs. You don’t have two car insurance providers. You don’t have two estate planners. So why have two financial advisors?”

Paul West is managing principal of Carson Wealth in Omaha and host of "Wealth From Wisdom" on 1110 AM KFAB on Saturday mornings. In 2018, he was named to Barron's Top 100 Independent Advisors. Learn more about West and Carson Wealth here.

Be the first to know when news happens. Get the latest breaking headlines sent straight to your inbox.

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Commenting is limited to Omaha World-Herald subscribers. To sign up, click here.

If you're already a subscriber and need to activate your access or log in, click here.