Working with ONE money professional

Many people work with a money professional. Actually, many people have their financial lives scattered in different areas and therefore work with several different professionals.

A pension may be administered by an employer, a TFSA administered by the young fellow at the bank.  Life insurance may be purchased from an insurance representative and stocks bought and held with an investment advisor. There may also be a mortgage with bank XYZ because they offered the best rate. Even though all the rest of their banking is done through ABC bank.

The money professionals in our lives can add up quickly, be very costly and often times prevent us from making the progress we are looking for when it comes to our money.

I often wonder if people understand that no one is looking at their entire financial picture. Do they work with anyone who has a clear idea of what they want to accomplish with their money or do they just assume all the little pieces will come together? Do they understand the full picture themselves or are they just checking off financial to-dos not realizing that one can impact the other.

Diversification is a great rule to follow when it comes to allocating your money. Unfortunately, people often have the wrong idea when it comes to diversification and spread their money across many different professionals, when really success in diversification applies to your holdings, not your helpers.

Let’s look at a real example of how this could hurt someone.

You’ve just inherited $500,000. You’d like to invest this money, but haven’t any idea where to start. Someone suggests you search for investment advisors in the area and meet with a few to get an idea of the services they offer, the fees they charge and the way they operate.

After a few weeks you’ve met with 5 different advisors. You really hit it off with one. The advice they gave you sounded great and you really felt they were there to serve you and not themselves. They even offered comprehensive planning services and a free tax return each year! However, the fee was a little high. Two others you met with you’d classify as good but not great. You could see yourself working with them but compared with the other advisor they seemed average. Finally the last two you met were not good fits.

You’d like to give all of your business to the first advisor, but you’ve heard somewhere that fees are bad and you should always keep them as low as possible. Instead you opt to spread your business around. You’ll give $100,000 to the first advisor to keep him in your life, and $200,000 to each of the other two who weren’t as great but had a lower fee.

You get the paperwork signed, they each propose a portfolio to you that sounds like gibberish, and you’ve got all your money invested now. Time to relax! Except here is where the problems start. Each advisor liked the latest tech company Coolputers, and because they know you have plenty of money elsewhere, they opt for significant holdings in the position (figuring you’ll be diversified with your other money). Now all of a sudden you have $100,000 (or 20% of your portfolio) in only one company and you don’t even realize it!

That’s not all. Two weeks later you get a call from your favourite new advisor – the one with the high fees. He’d like to buy you some shares in Big Bank. You’d like to give your approval but didn’t one of those other advisors say they really don’t like Big Bank? So you politely decline.

Not a problem he says, but there’s more. He’s been working on your comprehensive financial plan. He was hoping to have a rough draft in place by now but is having a lot of trouble because you have so many different assets scattered around. He’s afraid that with the way you have everything structured it will take at least triple the time to complete and likely end up being pretty useless unless your other advisors buy in as well.

Yikes! What a headache!

Could you imagine going to three different drive-thrus to piece together your meal? Or working with several mechanics to service your car? You wouldn’t do it because it doesn’t make sense. Yet people take this approach with their money all the time and come out much worse for it.

Working with one certified professional in the situation above would have saved a lot of time, effort and money. Choosing the right person to work with who can analyze your current situation, clearly discern your dreams and objectives, and put it all together in one comprehensive service, is paramount to succeeding with your money.

Committing to a single professional allows you to properly invest all of your money so that it works optimally toward accomplishing your objectives. The professional can make recommendations knowing that they have all the facts.

If you’re looking to do better with your money, you might start by finding one person that you can trust to help you. Make a commitment and you’ll be surprised how big a difference a little change to the application of the rule of diversification can make.

Wade Bedard, CIM®

HollisWealth, a Division of Scotia Capital Inc.

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