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Multiple Leaves, Separate Piles for Each Leaf

Posted: Jonathan Chapman

Over the years I have run into people that have multiple leaves but separate piles for each leaf.

In other words, they have multiple advisors to help them manage their assets. The reasoning they explain in having multiple advisors is that they are trying to “diversify” their risk. For some, that risk is the potential “bad egg” advisors that are out there (Madoff’s a prime example of why people have that fear). This is certainly a reasonable fear but one that can be alleviated if you understand how assets are held, where they are held (“custodied” in investment speak), etc. For others though, and probably the majority of the ones who encountered this, their intent to diversify advisors comes from a misconception to diversify their overall portfolio. Unfortunately, I believe that having multiple advisors is counterproductive to someone trying to achieve their goals and objectives. I would argue that effective diversification comes about when the left arm knows what the right arm is doing. Using multiple advisors to essentially build separate “diversified” portfolios is like trying to play the game of Spades.

You and your partner are trying to achieve the same goal and objective: Winning! However, not knowing what cards your partner is holding makes it challenging to maximize your hand. It becomes a guessing game. And often, you or your partner may lay down a “good” card that might also be counterproductive to winning other “tricks” (as they’re called in Spades) in the future. That “good” card might take away the benefit of your partner having a “good” card as well since it might force them to play it early if it is the same suit. You will win some, you will lose some. In the end, you will likely win less than you would have had you known all the cards your team was holding beforehand. My point being, once you find an advisor that you know and trust, use one advisor. It will be better for you in the long-run.

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