Multiple Advisers Can Make Investment Decision-Making as Clear as Mud
One of the outcomes of my 2011 Wealth Assessment Survey is that investors, both private and professionals, find that with significant resources come multiple advisers. Furthermore, extracting maximum benefit from multiple advisers is very difficult to accomplish. This is particularly challenging for investors when they receive conflicting advice from their advisers or their advisers fail to produce a single, coherent plan.
From my 2011 Wealth Assessment Survey results I have developed six (6) recommendations to help investors manage multiple advisers. These recommendations will help you overcome the challenges inherent in employing multiple advisers and are outlined below.
- Investors often receive conflicting recommendations from their advisers.
The most frequent frustration that investors experience is receiving conflicting advice from multiple advisers. In my 2011 Wealth Assessment Survey, 78% of investors said that at least some of the time they received conflicting recommendations from multiple advisers. This is exacerbated by the fact that the conflicting advisers can both be right! In such cases, it is important to understand the different types and amounts of risk involved in each recommendation. For example, one recommendation might have a greater tax risk, while the other recommendation might have a greater economic risk. As an investor, you can only select the best advice for your wealth environment when you understand and effectively compare the proposals of all of your advisers.
- Investors cannot always identify the right adviser(s) for their particular circumstances.
Many financial and investment decisions are complex and require the expertise of several advisers. One fourth of investors in my survey said they were able to identify the right adviser to help them with a particular issue only some of the time. Sadly, 10% responded that they were never able to identify the right adviser to help with a particular problem. Should your attorney be the only adviser to assist you with estate planning, or should you also consult with your CPA, asset manager, private banker, insurance adviser, and/or financial planner? Should you communicate with all of your advisers or should they talk to each other? It may be essential to orchestrate a meeting with all advisers relevant to the issue at hand and to develop a single, cohesive proposal for your long-term plan. This requires knowing who all the relevant advisers are, developing a unified direction, and getting everyone moving in the same direction at the same time.
- Investors receive multiple recommendations and lack a coherent plan.
In order to extract value from multiple advisers you need to be able to sort through their recommendations and to develop a coherent plan. However, 51% of investors in my survey said they were unable to sort through multiple adviser recommendations and to develop a single, coherent plan all, most or some of the time. Sometimes this is because it is not clear which adviser (if any) is in charge of forging a consensus for your benefit. Other times it is because this chore is left to the asset owner who, while sophisticated and accomplished in many areas, is too emotionally involved or otherwise unqualified to make a decision outside their area of expertise and/or comfort. Vetting recommendations from multiple advisers and developing a single, coherent plan is best left to an expert who has intimate knowledge of the investor’s goals as well as hands-on expertise in the respective disciplines.
- Advisers do not communicate with each other regularly on the investor’s behalf.
Getting all of your advisers to communicate with each other on a regular basis would likely take an act of Congress (and these days it is hard to get Congress to act on much). I am only half joking here because my 2011 Wealth Assessment Survey revealed that over one third of investors said that their advisers never got together to coordinate recommendations and resolve conflicting opinions. Further, 26% said that this happened only some of the time. Some private clients find that an annual meeting with multiple advisers is sufficient to coordinate their financial and investment affairs. Others find a quarterly meeting useful. You might also consider appointing one of your advisers to serve as a “chairman of the board,” with responsibility for coordinating all of your advisers. Still other investors find it useful to engage a Private Investment Counselor to undertake the coordination challenges identified in my survey.
- Investors are uncertain how to involve the next generation in wealth management.
One of the most important and sensitive matters for every family of means is what, how and when to communicate investment matters with the next generation. If it is not appropriate for you handle this vital task, then another member of your family might undertake this responsibility. Failing that, at least one of your key advisers should be responsible for communicating your values and goals to the next generation. Often times it can be very helpful to facilitate that communication process with the assistance of a wealth counselor. Bear in mind that discussing intergenerational wealth is not a single birds-and-the-bees conversation. It can be a process that goes on over a long period of time. Over 25% of investors in my survey said that they were uncertain about how to involve the next generation in wealth management most of the time. When the next generation is engaged in a constructive manner it can be enormously gratifying for everyone involved. On the other hand, if the process goes poorly, it can put a severe strain on family relationships. Every family struggles with this issue. It is seldom easy and there is no one-size-fits-all solution. However, it is important that you get the assistance you need to craft your own solution in a thoughtful and deliberate way.
- Investors are not confident they are making the best decisions for managing their wealth.
It is unfortunate and ironic that, despite having multiple advisers investors are not always confident in their ability to make sound and effective decisions. My 2011 Wealth Assessment Survey revealed that 15% of investors felt that they were never confident that they were making the best decisions for managing their wealth. Further, 21% said that they were confident only some of the time. Building confidence is not easy, and it is based on a unique combination of trust and expertise. You should look to your advisers for assistance in developing your own unique combination of trust and expertise if you wish to build strong, successful relationships with them. If you do not feel confident in your advisers’ ability to help you achieve your financial and investment goals, then it is time to consider replacing members of your advisory team or supplementing your team with additional resources.