Diversification is a good thing. No, it’s a great thing.
Proper diversification, and asset allocation in a finer sense, serve to reduce overall portfolio risk by holding complementary non-correlating assets.
Non correlating means that when some investments are rising, other complementary investments may be on the decline. In other words, not all investments move in the same direction at the same time.
As good as diversification is, it’s an absolutely horrible idea when it comes to having multiple advisors.
Proper diversification, proper asset allocation, and proper portfolio management in all respects depends on having one person, or one unified team, all working for the sole purpose of managing risk, achieving positive returns in your portfolio and attaining your investing goals and objectives.
This cannot be achieved by multiple individuals, or teams, all rowing in different directions. In this case, you are better off having no advisor at all.
It’s a question of, “Who’s minding the store?”
Think about it. Different advisors at different brokerage or advisory firms do not work together. They don’t want to, and each one will try to outperform the other, your best interests be damned.
By having multiple people working at odds, each having divergent goals and practices will spell disaster for your bottom line.
Diversification as a portfolio management theory does not crossover to having multiple investors.
And if you throw each advisor “a piece,” turning the management of your money into a horse race, you will deserve the financial thrashing you will most definitely receive. Don’t split up your money. Don’t have a horse race. It will promote some of the worst possible advisory practices, and you will regret it.
You hire advisors so you don’t have to manage your own money. Do you really want to be in the position to have to manage multiple advisors? There can only be one captain, and you don’t want to be the captain, making all the daily decisions, managing the multiple “teams,” and generally putting in more time and aggravation than if you just do it yourself.
And the problems don’t end there.
What if every team is putting you into the same investments? You will find your portfolio in a highly concentrated position, the antithesis of proper diversification.
What if the combined buying and selling activities of your multiple advisors inadvertently create tax problems for you, inadvertently causing wash sales?
What if you are buying mutual funds at different firms and in doing so you miss the volume discounts called breakpoints?
Those are just a few examples. The problems are literally endless when you have multiple advisors.
Hire one advisor you trust, or do it yourself. Period!