Should You Be Using More Than One Financial Advisor?

September 6, 2022

After the Bernie Madoff scandal in 2008, more investors began spreading their money across multiple advisors, hoping it would reduce risk. But is that really the best approach?

In this post, we’ll explore why using more than one financial advisor might do more harm than good, especially when it comes to fees, coordination, and tax planning.

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The Fear of Losing Everything

The idea of using multiple advisors often stems from fear, specifically, the fear of fraud or mismanagement. But most Ponzi schemes, like Bernie Madoff’s, involved the advisor also holding client assets and issuing statements without oversight.

That risk can be addressed more effectively by working with an advisor who uses a third-party custodian. For example:

If your advisor uses a large Canadian bank to hold your investments and issue statements, they don’t have direct access to your funds.
Even if the advisor’s firm goes out of business, your assets are still secure with the custodian.

This setup provides transparency and protection, without the downsides of juggling multiple advisors.

The Diversification Myth

Another reason people use multiple advisors is to “diversify” investment strategies. In theory, that sounds smart. In reality, it often leads to duplication.

For example:

Advisor A buys you a Canadian ETF that tracks the TSX.
Advisor B buys you another Canadian ETF that… also tracks the TSX.

Different name, same holdings.

Rather than improving diversification, this just increases complexity without any real benefit.

Higher Fees, Lower Value

Most advisors charge fees based on the amount you invest with them, and those fees usually get lower as your portfolio grows.

When you split your assets between two or more advisors:

You might lose out on discounted pricing.
You could end up paying more in total fees.

It’s like choosing to shop at two corner stores instead of getting a better deal at one supermarket.

The Tax Efficiency Problem

Tax planning in retirement requires coordination. Even a small misstep can lead to:

Unwanted tax bills
Clawbacks on Old Age Security
Missed income-splitting opportunities

If your advisors aren’t communicating, you’re left in the middle.

For example:

Advisor A plans your withdrawals to keep your income under $80,000.
Advisor B makes a withdrawal from your RRIF and sells investments in a non-registered account.
Your income jumps to $110,000, triggering OAS clawbacks and extra taxes.

This isn’t just inefficient. It’s stressful. And it defeats the purpose of hiring professional help.