5 Reasons Why Hiring Two Advisors Might Backfire
Some investors believe hiring two advisors and “letting them compete” is a smart way to maximize returns from investment advisors.
In practice, it often does the opposite. This video explains why hiring two advisors against each other encourages unnecessary risk, short-term thinking, higher fees, and fragmented decision-making.
We break down why fiduciary financial advice should never be a competition.
And why we “lead with planning” as a path to building a comprehensive financial plan.
Here are some Key Takeaways:
1. Competing advisors may often “feel” incentivized to take excess risk.
2. Short-term performance becomes more important than long-term outcomes.
3. Diversification and balance are harder to evaluate across multiple advisors.
4. Clients might pay more in fees without realizing it
5. Fiduciary advice could potentially be more effective when planning leads investment decisions.
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5 Reasons Why Hiring Two Advisors Might Backfire- Transcript
Transcript of “Hiring Two Advisors”
Every now and then a prospective client will meet with us and they’ll announce: “I’m looking to hire two advisors. Um, so we’ll give them money for a year, each of them, and see how they do, and then maybe we’ll consolidate.”
We’re not going to play that game. And no advisor should be playing that game because that’s what it is… it is, a game.
What’s happening in this scenario is the first advisor is being measured against the second advisor. Both advisors are probably going to take more risk than they ought to, or should… in an effort to “win the business” or “win the match,” and hopefully wind up getting more business in the future.
I personally, I thought this was a fluke that used to happen in the eighties and nineties when I was, a young pup in the business.
But this happened last week here in the office!
So it turns out, someone in town sold a very large parcel of land. I mean, this was a big story. It was in the papers a year ago. This person went out and immediately hired two advisors. He instructed both advisors to put the money into bonds so he could generate some income, from both advisors.
So a year goes by and remarkably, I say that remarkably, uh, it turns out the client was not watching. As he explained to us, he “just discovered” — after a year, that the first advisor… did what the guy asked. He put the money into bonds for income. The second advisor did something completely different with the money.
Which I find astonishing.
The second advisor didn’t buy bonds at all. He invested the money into other places. Uh, he told the client — and tell me if you’ve heard this before — he wanted to generate bigger returns and hopefully win all the business. Eventually.
That advisor was fired on the spot by the client. As he should be.
But this guy, this prospective client, then turns to us saying he’s looking for a new second advisor.
We turned down the opportunity to be the second fiddle.
As a fiduciary. It’s hard to justify having multiple advisors.
Now, before I get into the reasons why that doesn’t really make a lot of sense, I want to say that if a client wants to have a small side account to do some speculative trading, some day trading, or they have some pet stocks that they want to buy and sell every now and then, … that is completely different.
If we’re talking about pitting one advisor against another advisor, there’s a few reasons why that shouldn’t happen.
The first is both advisors are not going to know what’s happening in the other guy’s backyard. We don’t know how much risk they’re actually taking.
The second point, and I think I made this clear in the example; is that it puts an emphasis on short-term performance.
Advisors, and to a certain extent clients, want advisors to be taking more risk — in that scenario — to show better short-term returns.
I can tell you with 40 years in the industry, this approach rarely works out.
The third point I want to make is more questions.
How diversified are you? Hard to tell.
The second question is, how balanced are you?
Again, hard to tell when everything is in multiple buckets.
The next point that we would want to make on this topic is you’re ~~ probably ~~ paying more in fees than you ought to be.
The fifth point that I want to make is probably the most important, in the sense that a good advisor is going to lead with planning.
If you’ve met with us in the office, you’ve heard that phrase come from us. We lead with planning, meaning we need to know everything.
We need to know what’s happening with a client and develop a cohesive plan where the investments actually fit – what the goals are for the client, what the client is trying to achieve.
Simply “gunning for the best return” is a game most advisors don’t want and they shouldn’t want to play.
Leading with planning though, I think, makes the most sense.
And yeah, we’ve lost some business over the years because we don’t want to play the game that potential clients want us to play.
It’s not the right thing to do.
We have to act on a fiduciary basis at all times.
And so we need transparency between clients and advisors. That allows the game plan to fall into place. We’re not fans of seeing two advisors getting hired by clients.
It rarely works out.
Thanks for watching 5 Reasons Why Hiring Two Advisors Might Backfire
