YOUR ADVISOR AS FINANCIAL COORDINATOR

I recently met with a financially comfortable married couple that has investment accounts all over the world, and different managers looking after each separate account. At first glance, one would think that they were happy with their investments, but this is not the case. During the meeting, they told me that they both grew up very poor, and after working very hard to build up a family business, they sold it and made aliyah with Nefesh b’Nefesh. This couple is now afraid of the possibility of war in the Middle East and its consequences on the global economy and all their hard-earned money. For this reason, they are looking for a relatively non-aggressive portfolio and exposure to non-U.S. dollar currencies.

On reviewing all their different accounts, we found that they were 95% exposed to stocks, a proportion that is far too aggressive for what this couple was looking for. In addition, they had very little exposure to non-U.S. dollar investments.

You may think that their use of multiple money managers is excessive. Well actually it has become more and more common. While it used to be that investors chose to work with one advisor, or do it themselves, the recent economic crisis has changed that. According to Cerulli Associates, a Boston-based research firm, “Among the entire advice-seeking universe, 27% of households use multiple advisors. Narrow that range to households with $2 million to $5 million to invest and the percentage climbs to 35%. Among those with more than $5 million to invest, 58% use multiple advisors. In the last three years, the pace has accelerated, with the average number of advisor relationships per household climbing as investors who handled their own finances turned to advisors for the first time and those already using advisors added to their stable.”

How could this happen?

When I asked the couple when they had last spoken to any one of their many managers, they responded that it was a few years ago. Yet over this time, their needs had drastically changed. When they had first opened their accounts, they were still living in the United States, earning high salaries. In this situation, they didn’t need all of their money immediately, and they wanted it to grow.  However, having moved to Israel and changed their lifestyle, their investments are no longer appropriate to their needs. By failing to remain in contact with the portfolio managers, they have found that their investments no longer serve their new situation.

With more and more investors choosing to use multiple financial advisors to manage their money, it’s become important for investors to have one advisor that oversees everything that is going on to make sure that the investor is investing in an efficient manner.

Financial Advisor as CFO

The most effective solution to this problem is to use a local financial advisor. A financial advisor can be compared with a company’s Chief Financial Officer (CFO), who is responsible for the entire financial situation of the business. When a client has various accounts around the world, a financial advisor will have a broader view of the situation in general. He will not just focus on one account, like a local investment manager, but will assess everything and see how the entire financial situation fits his client’s goals and needs.

One of the main advantages of working with a person who is local is that he will understand your personal situation and long-term goals best because he is part of the local culture and speaks your language.

Make a Plan

Before you meet with an investment advisor, map out your financial goals. Going to the experts will help you decide how to invest your savings, but you should first have a firm grasp of your short- and long-term goals and needs. How much income will you need to meet fixed expenses apart from any pension, Bituach Leumi or Social Security income? Do you have children or grandchildren to educate? Are your elderly parents in need of care? How is your own health? You need to determine your own budget needs and your ability to tolerate risk first, and then ask your advisor what kinds of investments would best fulfill these goals.

There is nothing wrong with using multiple managers. Just make sure that you have a financial coordinator that will oversee all of your investments and help you become a successful investor.

 

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il