results from out Social Values Monitor show that almost a quarter of investors report working with more than one advisor

Insights

These days, when it comes to investing, there are more options then ever. Unfortunately, all those options amount to even more investing pitfalls that, without the right expertise, can be difficult to avoid. It’s no wonder that our survey research consistently shows that upwards of 80% of investors work with a financial advisor, and the majority of these report high levels of satisfaction (typically 75-85% report being somewhat to very satisfied). Interestingly, though, after dozens of focus groups with financial advisors and investors, a recurring theme emerged: numerous investors are choosing to work with multiple advisors. In fact, results from out Social Values Monitor show that almost a quarter of investors report working with more than one advisor.

 

The problem here is that, in many ways, by working with more than one advisor, investors are limiting their investment possibilities, as well as limiting their advisor’s understanding of their full financial picture. Why then is it that so many choose to work with multiple advisors? Our research points to four situations that can lead to this decision:

 

1. Group Savings vs. Personal Savings

One of the more common situations is that an investor, having worked with one advisor for a few years, changes their job to one that includes a group savings and retirement plan, and begins working with a second advisor, assigned through their new group plan. These investors now see their work group plan as a separate entity from their personal savings, which prevents them from realizing that they could or should consolidate.

 

2. Different Savings Vehicles, Different Advisors

A variation on the first theme, this situation involves investors placing their RRSP investments with one advisor, but their children’s RESPs or their own TFSAs with another. Given that the latter are typically newer, smaller or shorter-term holdings, these investors are more likely to see them as smaller investments that do not warrant involving their advisors.

 

3. His and Hers Advisors: Which will do Better?

As the age of first marriage continues to rise, an increasing number of partners are already employed, saving and working with different advisors by the time they get married. With Canadians increasingly encouraged to maintain separate and joint bank accounts and credit cards to build their own credit ratings and histories, many assume they should also keep their own advisors.
As time goes by, what began as inertia, or as a desire to maintain independence, evolves into a game of “which advisor can do better”? When pressed on this, these investors usually admit that, although sometimes one is up and one is down, in the long run, they typically build portfolios that perform similarly.

 

4. Fear of Putting All their Eggs in One Basket

In every focus group we run, when this subject comes up, at least a few participants will say that they work with multiple advisors out of fear of “putting all their financial eggs in one basket.” These investors generally fear the risk of unscrupulous advisors or advisors who make errors in judgment. Our research shows that these concerns are more likely to be experienced by more affluent investors, and are generally fuelled by periodic media coverage of advisor fraud.

 

What can be done?

Ultimately, it is up to the investor to choose who will manage the various elements of his or her investments, but advisors can help mitigate this pattern by highlighting the advantages of householding assets. Investors need to understand that having a full picture of a household’s financial situation will allow an advisor to build a portfolio that can provide better diversification and avoid any unnecessary duplication of asset classes. Affluent clients should be made aware that pooled assets are more likely to place them into higher tiers of eligibility for fee discounts. In terms of combatting the fear of fraud, advisors can point to professional designations and ethical obligations, as well as underscoring their membership to the IIROC and MFDA.

 

It is not a simple challenge for advisors to take on, but in the end, the solution will be about educating investors, and showing them that a single advisor is in a better position to improve their financial situation than a multiple advisor scenario.

Find out how we can help your organization