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  • Spreading money across multiple managers – THIS IS WHAT YOU NEED TO KNOW!
  • Spreading money across multiple managers – THIS IS WHAT YOU NEED TO KNOW!

Spreading money across multiple managers – THIS IS WHAT YOU NEED TO KNOW!

Spreading risk through multiple asset managers

Would you like to have your assets managed by an external party (asset manager)? Then you can choose to divide your money over multiple asset managers , so that you spread more risk.

But is this a smart decision, and what are the pros and cons of this choice?

Imagine: you have created a considerable amount of wealth during your life, or you will soon receive a considerable amount of extra money in your account, for example through a donation or gift from a family member. It may also happen that you no longer want to let your money gather dust in the bank. In these cases, it may be smart to engage an asset manager. The next question that arises is whether it can be useful to place your wealth with different organizations. Because, what exactly are the advantages and disadvantages of placing your money with one or more asset managers ?

Diversification of investments

On the internet you can find a lot of information about investing and spreading. This is often related to reducing risks, also known as concentration risk . It often concerns spreading money in various types of shares. This often seems like a smart choice, but that often also depends on your financial situation. Below you can read more about the pros and cons of spreading investments with various organizations.

Risk and profit

Saving is considered by many people to be on an equal footing with risk-free investing. Now it is often the case that a higher risk is rewarded. So, if you choose a higher risk, you can also expect the possible return to increase. So you should make more profit at the end, especially over a longer period of time.

The phenomenon of diversification involves spreading investments over various asset classes (such as shares or official bonds), areas (Europe or another continent), and other relevant factors. In this way, your risk is limited as much as possible. Harry Markowitz came up with this theory and has won several prizes for it. An advantage of this diversification theory is the concept of ‘free lunch’.

However, is it smart to choose different financial advisors or asset managers as an investor, especially if diversification already significantly reduces the risk? It can indeed be a smart choice to spread your assets across multiple managers. But, this does not only have advantages, unfortunately there are also disadvantages. Before we discuss this, we will first delve deeper into the phenomenon of spreading.

The Basics: Why Diversify?

There are many different types of asset managers. There are small and large parties, managers who mainly have knowledge of active investing , while other managers use a passive investment policy. There are many specialists with a great deal of knowledge of a specific area. Asset managers can have a completely different strategy. It is therefore important that you take your time to consider which manager suits you best. Below we will highlight a few points of attention that you should pay close attention to when making this choice. This way you will make fewer wrong choices in the future, something that benefits everyone!

Spreading across multiple asset managers: points for attention

Choose reliable and high-quality administrators

First of all, this is a vital point, it is important to choose an asset manager that delivers good quality products.

Please check the minimum deposit carefully

A second focus point is the size of your assets. Some managers are mainly specialized in large assets, while other managers prefer a small asset. With some managers, you therefore pay less money for a higher asset. In this way, they prevent the spreading of assets, because that is less interesting for them. Do not forget that your assets are largely invested by your manager and that this party has power over a large part.

Ensure that asset managers are complementary

Another important topic is complementarity. The managers should not work against each other by being too similar. It is not at all safe to place your assets with companies that belong to the same sector, while this may seem so at first glance. This is called false security.

For example: sometimes people choose to have two banks invest their assets. Many banks have the same policy regarding the ownership of assets, so this makes little sense. In this way, you are not spreading your risk at all, while you think you are. It can even lead to extra risk in extreme cases. Another example is that some managers still choose to use an investment fund when managing your assets, because this would lead to optimal risk spreading. The asset manager therefore uses an investment fund, as a kind of bridge. This will not be beneficial for you at all, because in the end it does not lead to diversification, but rather to extra risk.

If managers therefore apply a policy that is too similar (in terms of investment portfolio), there is a chance that your pleasant feeling of risk diversification is unjustified. Your assets are then not in balance because they are not evenly spread across managers. It is therefore wise to always remain critical and to ask: what exactly is the manager going to do with your assets? It is therefore wise to focus on a small area, in which the manager is specialized. In this way, the chance of overlap is the smallest.

Extra time

A final side note is the time it will take. You will also have to work hard, because following the developments of your assets is more difficult if your assets are placed with multiple institutions. But, it is all worth it.

Benefits of diversifying across asset managers

There are a number of cases in which it is smart to choose risk spreading. Below are a number of situations:

  • Performance: a primary reason to choose risk diversification is that you are not putting all your eggs in one basket. If this company is doing badly, you are not running too much risk. The performance of that one party does not matter much to you, because you are dependent on multiple companies including their performance. You can also compare the performance of the parties with each other and in this way estimate which parties will yield the most return for you.
  • Approach: A second reason to choose diversification is to increase your knowledge of different approaches. Each manager probably has a different strategy, and this way you can brush up on your knowledge of risk diversification. Some strategies will work, others will probably do less well on the stock market. By choosing diversification, you reduce the risk of losing capital.

Disadvantages of spreading across asset managers

A disadvantage of risk spreading can be the additional costs involved. After all, you are doing business with multiple parties. If you have a higher capital invested with one manager, you are often offered a more attractive rate.

Spreading money can also result in you unfortunately not being able to do business with a specific party, because you cannot invest enough money. Limits such as 25,000 euros or 100,000 euros are often used as standard and are hardly or not at all deviated from. It will also take some getting used to for you, because you will also spend a lot more time monitoring your assets. If there are multiple parties involved, it will of course take more time. Not everyone is looking forward to that.

How exactly does spreading work?

If you have decided to choose risk diversification with several institutions, it is wise to agree on a budget with yourself in advance that you want to  invest . Then you decide how many parties you want to do business with. Most people choose two or three institutions. It often works best to invest the same amount with each institution. This way you can compare the institutions well with each other. If you have chosen diversification for strategic reasons, you should contact specialists to have part of your assets invested by them. You should take into account various categories, such as  shares , real estate and bonds.

Final verdict

It is impossible to give one-sided advice on whether or not to spread risk with regard to your assets. If you still want to go for risk spreading, keep the above points in mind. Choose managers who differ greatly from each other, in terms of approach and design. If you are well informed about the basic procedures of risk spreading, then it can certainly work to your advantage. Do you dare?

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