Convenience has become one of the biggest selling points in financial services.
Your accountant handles your taxes. Then the firm adds wealth management. Perhaps it also offers insurance, estate planning, or retirement-income solutions. Suddenly, instead of coordinating several professionals, you can have nearly everything handled under one roof.
That can feel useful, but there is another question worth asking:
What does that convenience cost when the same organization identifying your financial problems is also selling the solutions?
Consider a hypothetical couple, Tom and Susan.
Tom is 64 and preparing to retire. Susan is 62. Together, they have $1.2 million in Tom’s 401(k), $300,000 in taxable investments, $100,000 in cash, and Social Security benefits they expect to claim later.
They have also worked with the same CPA for 15 years.
Recently, the CPA’s firm expanded into wealth management. The pitch is appealing: the firm already knows their tax situation, already has their records, and can now help coordinate the transition into retirement.
The firm recommends rolling Tom’s $1.2 million 401(k) into an IRA and using a large portion of it to purchase an annuity. That recommendation is not automatically bad.
An annuity can provide valuable guarantees, including predictable lifetime income. For the right retiree, those guarantees may be worth paying for.
But now the value of an independent second opinion becomes clear.
The CPA may naturally focus on tax efficiency. An annuity offers tax-deferred growth, but Tom’s retirement account is already tax-deferred. So the recommendation must ultimately be justified by the annuity’s other benefits, not simply its tax treatment.
The affiliated advisor may also work primarily with insurance-based retirement solutions. Again, that does not make the recommendation inappropriate, but the solutions available within a firm inevitably help shape the solutions clients are shown. Few firms are likely to employ the very best investment advisor, accountant, and estate attorney under the same roof.
Compensation can introduce another layer. Different financial products can create very different economics for the professionals and firms selling them, which is why investors should understand not only what they are buying, but how everyone involved is compensated.
None of this requires anyone to be acting dishonestly.
The problem is structural.
Suppose the proposed retirement solution costs 2.15% annually after combining product, investment, rider, and advisory expenses, while an alternative portfolio-and-planning approach costs 0.95%.
That is a difference of just 1.20 percentage points.
On $1.2 million, however, small percentages can create large differences over time. Assuming the same hypothetical 7% gross investment return, the lower-cost strategy would net approximately 5.85%, while the higher-cost strategy would net approximately 4.65%.
After 20 years, with no withdrawals simply to isolate the effect of costs, the difference would be roughly $760,000.
That does not mean the annuity “costs” Tom and Susan $760,000. If its guarantees provide meaningful value, they are receiving something in exchange for those expenses.
The better question is:
Are the additional benefits worth potentially hundreds of thousands of dollars in long-term wealth?
Now imagine an independent advisor reviews the same situation.
Tom and Susan’s Social Security benefits, combined with a small pension, may already cover most of their essential expenses. Their larger opportunity may be managing the retirement account strategically—coordinating withdrawals, investing for long-term growth, maintaining liquidity, and evaluating Roth conversions before required minimum distributions begin.
Suddenly the problem looks different.
An accountant may see a tax problem. An insurance professional may see an income problem. An investment manager may see a portfolio problem. An estate attorney may see a legacy problem.
Each perspective can be valuable.
The danger comes when one perspective becomes the entire plan.
That is why coordination does not have to mean consolidation.
At Hanover, we believe one advisor should understand the entirety of your financial life. But that does not mean one company needs to provide—or sell—you every part of it.
If you have a great CPA, keep them. If you trust your estate attorney, keep them. If another specialist is particularly well suited to your needs, they should have a seat at the table.
Our role is to help coordinate those professionals, evaluate how their recommendations fit together, and provide the checks and balances that can disappear when every answer comes from the same organization.
One advisor should understand everything. One firm does not have to be everything.