While the majority of financial advisors manage their own stock and retirement portfolios, others seek the guidance of investment managers to buy and sell assets such as commodities or options.
The advantage of delegating a portion of their funds to another advisor means increasing their viewpoint to the markets, especially for alternative investments, said C.J. Brott, founder of Capital Ideas, a registered investment advisor in Dallas who manages his own portfolio, but has hired other financial advisors in the past.
"This helps an advisor broaden their viewpoint, especially if they hire someone who has expertise in bonds, commodities or private equity," he said. "Bond or private equity guys look at the markets in a different way."
The key is determining if the advisor only has a portion of his portfolio managed by another manager and wants the advantage of statistical analysis for a specific market such as real estate or municipal bonds, Brott said. If an advisor had 100 clients and all of them wanted to buy or sell their holdings in reaction to a market event or movement, it is easy for him to be more influenced by their own holdings.
"It helps shield the advisor from the extreme mental pressure of a panicky client base to either buy or sell his/her own or other clients holdings at the wrong times, typically at market extremes," he said. "You know that he's not under pressure to give advice against what his true beliefs are."
The reason some financial advisors seek outside investment manager for guidance on handling their own money is that they can provide a more objective viewpoint, especially when the market is volatile, said David Twibell, president of Custom Portfolio Group, an Englewood, Colo.-based financial planning firm.