Each individual investor has multiple financial advisors. This brings forth multiple challenges. How to overcome such a situation?
Many of us invest through varied sources: from our network of friends, family, and official acquaintances. This automatically translates into being in discussion with multiple financial professionals who are either certified to be financial advisors or double up as one. The purview of this article is to discuss this scenario where each individual investor has multiple financial advisors, and the challenges such a situation brings forth.
Different styles of advising: Every financial advisor is different and carries with them a different way of advising people on investing. This is because every individual perceives information differently and processes it in a manner unique to only them. However, this could end up being confusing for the individual investor who happens to engage with multiple financial advisors, as each would be speaking a different language when it comes to investing. Whereas, the investor would be at sea even trying to internalize what each of these multiple advisors is trying to communicate.
Differences in customer profile analysis: Typically when one engages with multiple financial advisors, each financial advisor would be hailing from a different financial industry i.e. insurance, mutual funds, stock trading, banking et al. So when each of these financial advisors analyses the customer’s investment profile and risk profile, they will be doing so based on the thumb rules of their respective industries. Therefore, there will be huge variations in the risk analysis and customer investment profile analysis done by each of these advisors. Consequently, the investment strategies devised and advice given would also be diverse (may be even extreme diversities can be encountered).
For example, a financial advisor from the insurance industry might not consider ULIP retirement plans to be too risky, whereas an advisor from the banking industry might think otherwise and advise on investing in pure money back or endowment plans. This would of course result in financial strategies which might confuse the individual investor.
Differences in reporting formats: As with different advisory styles, the investment metrics and growth reports will also differ from advisor to advisor. The individual investor has to read every report carefully, and understand the terms and jargons used. This could lead to a loss of time and even patience!
Data duplication: Many a time, even when the investment strategies and portfolio analysis might be varied when done by multiple advisors, certain investment advice will end up being the same. For example, when an individual investor wants to invest in high return stocks, immaterial of who collects the data, the list of such stocks will end up being the same. This will result in data duplication. This also means that the individual investor is paying multiple people to get the same work done. Not a smart move!
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The hassle of coordination with many advisors: Multiple investment advisors automatically mean multiple people to coordinate with. This requires a humongous effort from the part of the individual investor as they might have only a limited time frame to work within. Coordinating between the availabilities of many individuals is a big hassle, and definitely not something any one looks forward to!
So, what can people with multiple financial advisors do?
Great question! For starters, any individual investor who has multiple financial advisors should begin reducing the numbers. It may not be easy initially. However, the investor can ask themselves the following questions to evaluate every financial advisor they work with:
How comfortable am I with the financial advice being provided by the advisor?
Is the advisory yielding me the benefits that we anticipated? If not, are the reasons due to overall bad markets or wrong choices of investments?
Are the reports being provided by the advisor easy to follow or are they ambiguous?
Is the financial advisor friendly and easy to reach out to? Do they explain and discuss in a manner which is comfortable?
Does the financial advisor listen to you?
Does the financial advisor regularly track your investments? Can you feel them take ownership of the investments being made?
Does the financial advisor acknowledge errors in investments and quickly pivot to other options?
Is the financial advisor aligned to your goals? Do you feel that the strategy devised is taking you towards the same?
Whichever advisor gets the least “Yes” can be easily removed from your ecosystem of financial advisors. Retain and engage with the one or two for whom you have given maximum “Yes” as answers. Most importantly, if you are not able to just have one financial advisor then choose two with complementary skills.
Remember that it is neither easy nor necessary to have multiple financial advisors. In case you feel just engaging with one might be risky, then at most have two.
By ANIL REGO, CEO & FOUNDER, RIGHT HORIZONS
Source: Money Control