One Versus Many: 10 Reasons you should prefer a Single Investment Advisor to manage your money over two or more Advisors

Common wisdom suggests ‘Two heads are better than one,’ but when it comes to selecting investment advisors, this adage may not apply. Many individuals choose to split their assets between two advisors for diversification purposes. In this article, we’ll delve into the reasons why this approach is generally not beneficial.

1. FEES: Fees are a crucial factor to consider when choosing an advisor. Many advisory firms follow a tiered fee structure, where your fee percentage decreases as the assets under management increase. For instance, if Firm A charges 1.25% on the first million and 0.85% on the second million, and you have a total of two million to invest and split it between Firm A and another Firm B, you could potentially overpay by 0.2% annually ((1.25% + 0.85%) / 2 = 1.05%). Over 30 years, this could lead to an extra $123,641 in fees compared to having a single advisor and benefiting from the graduated fee scale.
2. CUSTODY: Custody is a critical aspect of investment management. Registered Investment Advisors in the U.S. and Canadian Investment Managers in Canada typically do not directly handle your funds. Instead, you grant them limited power of attorney for trading, fee deductions, and fund transfers to your designated bank account. Your money is held by custodians, such as Fidelity, Charles Schwab, Fidelity Clearing Canada, and National Bank Independent Network, who ensure the security and integrity of your assets. These institutional custodians are known for their safety and reliability, minimizing the risk of losing your money due to custodian insolvency. Since custodians do not engage in traditional banking and do not hold cash, they are not vulnerable to a “run on the bank” scenario. Most custodians offer similar services, with minor differences in fees, primarily focusing on facilitating trades and safeguarding your assets. If two advisors use the same custodian, splitting your investments between them doesn’t inherently provide additional diversification. While having two advisors might mean different investment strategies, it’s essential to consider whether this is a beneficial approach, as we will discuss.
3. QUALIFICATIONS: One advisor may be better suited to meet your needs. In the context of individuals with a cross-border lifestyle, this often arises when someone relocates across borders while leaving their retirement accounts (such as RRSP, RRIF, 401(k), IRA, Roth IRA, etc.) with their previous advisor in their home country. This situation should ideally be avoided because investment managers are subject to regulations based on the location of their clients. For instance, if an advisor in Toronto has a client who moves to Miami, that advisor must be licensed and registered in both Ontario and Florida to continue providing advice to that client. Additionally, the advisor may no longer be adequately qualified to provide advice. The advisor is likely unfamiliar with the tax laws and investment regulations of the client’s new home country. Moreover, custodians may not produce the necessary tax documents for the client’s new home country, and these documents may be in the wrong currency or have an incorrect tax cost basis. For instance, U.S. citizens living in Canada are required to report capital gains on their tax returns in both countries. Taxable accounts receive a step-up on the tax cost basis on the “Deemed Acquisition Day,” which is the day the client entered Canada. This means that their Canadian basis is determined by the fair market value on the day they moved to Canada, which differs from the original U.S. basis reported to the IRS. Advisors who focus solely on domestic clients may not be adequately prepared to help you accurately report your taxes in both countries.
4. REPETITION: If you have two advisors, they might be investing your money in a very similar way, possibly buying and holding the same or similar securities across your accounts. From a holistic portfolio perspective, this doesn’t enhance diversification; instead, it primarily raises your transaction costs.
5. STRATEGIES: It’s generally more advantageous to follow a single cohesive strategy. When two advisors manage your finances differently or offer conflicting financial advice, you end up pursuing a strategy of your own, rather than the strategy of either advisor. If you prefer to be that hands-on with your portfolio management, perhaps managing your assets yourself might be the best choice. However, if your goal is to delegate investment management, it’s advisable to “pick a horse,” as they say, and choose one advisor to streamline your approach.
6. SIMPLIFICATION: Working with a single advisor simplifies your life in various ways. You’ll receive fewer statements, trade notifications, tax forms, and other documents. You’ll only need to meet with one advisor, giving you more time to focus on the activities you enjoy.
7. CONSOLIDATION: Having multiple advisors often results in more accounts than necessary, which can complicate the administration of your estate for your heirs. It’s beneficial for your loved ones if you consolidate your assets while you’re alive. Furthermore, it’s a good idea to provide your estate planners with your advisor’s contact information, so they can efficiently manage your estate and beneficiary distributions.
8. FAIRNESS: If one advisor offers comprehensive financial advice while the other does not, it’s fair to reward the advisor providing better service and a deeper understanding of your overall financial situation. The advisor offering comprehensive advice is essentially advising on all your accounts and should be compensated accordingly.
9. RISK MANAGEMENT: Avoid having advisors compete to outperform each other, as this can lead to an overly aggressive investment approach that may not align with your risk tolerance.
10. TAX TIES: Leaving investments in a jurisdiction where you no longer reside can create tax obligations. For example, maintaining investments with an advisor in a previous location may trigger tax filing requirements in that jurisdiction. It’s essential to manage your investments in a tax-efficient manner after a move to avoid unintended tax ties.

Regarding diversifying the management of your assets, working with a financial planning firm that has a well-qualified staff with diverse specialties can be helpful. Advisors from different firms may not collaborate effectively to serve your best interests. iA Private Wealth and iA Private Wealth USA, is a Canada-US cross-border wealth management firm, with a team of portfolio managers / private wealth managers, who collaborate to provide the specialized knowledge and experience needed to serve our clients. Our focus is on helping clients achieve their financial goals with an unbiased and transparent approach as fiduciaries.

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We’ve assisted our clients through every stage of life. Even when you’re not aware that something might impact your financial future, it likely will to some extent. Engaging in a conversation with your investment advisor about any financial changes is an excellent approach to keeping your financial goals in focus.

For more information or to connect with me, you can reach out via email at macekadmin@iaprivatewealth.ca or get to know me better by exploring my engaging video content on YouTube https://www.youtube.com/@joemacek.

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Don’t hesitate to reach out today at 1–888–324–4259 to discover more about how we can help you achieve your investment milestones.

Joe A. Macek, FMA, CIM, DMS, FCSI

Investment Advisor, Portfolio Manager

iA Private Wealth | iA Private Wealth USA

Toll Free North America: 1–888–324–4259

Email: macekadmin@iaprivatewealth.ca

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