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Should Advisors Manage Their Own Wealth?

By Chris Latham May 12, 2014

When they decided to move into a larger home, advisors Karen and Lew Altfest asked the senior planner in their firm to assess the impact on their personal finances. Five years later, they remain happy with the move and the counsel. The couple relies on another member of their team for ongoing investment oversight and portfolio rebalancing.

“We wanted someone to tell us the truth — good, bad or otherwise,” says Karen Altfest, whose firm, Altfest Personal Wealth Management oversees $1 billion in New York, speaking about the home purchase.

The question of whether advisors should manage their own wealth or delegate that duty to a peer depends on how they think clients would view the decision, experts say. Advocates of hiring a fellow advisor insist it’s nearly impossible to maintain objectivity about one’s own money. They also suggest clients are more likely to believe that everyone can benefit from professional financial advice if the practitioner making the claim sets an example. Besides, such work is often done pro bono or quid pro quo. Do-it-yourselfers, on the other hand, believe that real professionals should “eat their own cooking” by using the same strategies they recommend to clients. Moreover, they say, a client whose advisor relies on someone else for wealth management may wonder why the advisor doesn’t do it herself.

Karen Altfest

Richard Colarossi wonders the same thing. Half of the Colarossi & Williams Financial Advisory Group, which manages $150 million in Islandia, N.Y., he believes advisors’ interests are fully aligned with clients’ only if they’re invested the same way. If an advisor consults an outside professional, Colarossi thinks it’s only fair for the advisor’s clients to have access to those strategies, too.

Conversely, he says, advisors who choose suitable funds for clients after performing due diligence should naturally want to put their own money there. “I don’t know how you can possibly have an investment offering for clients and a separate investment offering for yourself,” says Colarossi, whose firm is part of the Commonwealth Financial Network. “Maybe the asset allocation can be different, but the offering should be the same.”

Of course, an advisor who works in a firm with at least one colleague can fulfill that requirement while consulting another professional. Things get trickier for solo advisors, says consultant Eric Sheikowitz, cofounder of Focus Partners in Paramus, N.J. “Single proprietors a lot of times are doing their own plans,” he says. “If there’s another independent they trust in town, maybe they could get a second opinion. But they probably are keeping that decision quiet, because of credibility to clients.” Sheikowitz says advisors who manage their own wealth have a selling point with prospects.

“Emotional Issues”

But big talk about managing one’s own money smells a lot like a big ego to Alan Goldfarb. The former chair of the CFP Board is now managing director of the Financial Strategies Group in Dallas, which manages $40 million. Surgeons don’t operate on themselves, he points out, and there’s that timeworn adage about the man who represents himself in court having a fool for a client.

To avoid consulting another advisor would be borderline hypocritical, according to Goldfarb. By way of professional analogy, he says, many schools of psychiatry and psychotherapy require trainees to undergo therapy themselves before they graduate. Goldfarb has a colleague in his firm review his personal accounts, and has sought similar counsel at previous firms with other coworkers. He thinks even advisors who write up their own comprehensive financial plans should periodically have them reviewed by another pair of eyes, to help keep them on track.

“It’s not the technical knowledge the advisor needs help with,” he says. “It’s the emotional issues we all have in pulling the trigger or not fully thinking out our situation.”