I Found Out My Dad’s Wealth Manager Only Invested My $50K in One Fund—Should I Diversify Now?

Financial advisors and wealth planners are like a coach standing in your corner, ready to give you pointers and help you recover when you’re between rounds. But just as every coach has a different “style,” financial advisors may have differing opinions regarding various aspects of personal finance. Some may err on the side of caution, while others may be a tad more aggressive, perhaps too aggressive for any given client such that the level of diversification isn’t in the right spot. In any case, I firmly believe that the advice of personal finance pros, while valuable, shouldn’t be taken as gospel.

At the end of the day, you should have a back-and-forth with your advisor so that they can better understand who you are as an investor. And, if ever you doubt the stance of a personal finance pro, don’t be afraid to seek out a second opinion, either from another advisor or someone financially savvy that you can trust. Just as you’d seek out second opinions for medical ailments, you should seek them out for your retirement fund to ensure nothing has been missed.

In this piece, we’ll look at a specific case involving a Reddit user whose father’s wealth manager is investing a great deal ($50,000) in a single security — a mutual fund named the Janus Henderson Balanced Fund Class C (NASDAQ:JABCX). The Reddit user seems to view the concentrated bet in the security as a yellow flag. Indeed, diversification is absolutely vital for someone who’s nearing retirement age, so it can be quite alarming to learn that many of one’s eggs may be in a single basket.

Is this wealth planner not diversifying properly?

Though having a five-figure sum in one security may ring alarm bells in the ears of beginners, I don’t find the wealth planner to be guilty of not diversifying enough. It is possible to have all the diversification you’ll need from a single mutual fund or ETF (exchange-traded fund). The JABCX itself is well-diversified, not just across the equity markets but the bond market as well. In fact, most balanced mutual funds have a diversified mix of stocks and bonds. In the case of the JABCX, over 60% is allocated to stocks, while over 30% is allocated to bonds — think a 65/35 kind of balanced fund, which is slightly more aggressive than the more common 60/40 allocation.

While the Reddit user’s father isn’t guilty of not diversifying, he is at fault for not better communicating what the fund actually is and that it’s already providing a mix between stocks and bonds. If there’s a yellow flag with the wealth planner, it’s this lack of communication. While it’s always a good idea to throw plenty of questions at a wealth planner, it’s their duty to ensure you know what you’re invested in and that you’re comfortable with the exposure.

The JABCX is already diversified. The real concern is that the Reddit user’s dad is paying fees on top of fees.

Additionally, the JABCX, while well balanced with a four-star rating according to Morningstar, has a fairly high adjusted expense ratio, currently at 1.63%, in my humble opinion. Such fees will be on top of the fees paid to the wealth planner.

Indeed, I believe there are more cost-effective ways to gain balanced exposure to stocks and bonds. Notably, the wealth planner may wish to manage a portfolio of stocks and bonds themselves rather than relying on a passive product that the Reddit user’s father could have bought and held themselves straight from a brokerage account.

Perhaps it’s worth asking the wealth planner why they’re being paid hefty fees to purchase a product that itself has fees. Personally, the lack of communication and preference for a product that one could easily purchase themselves has me leaning towards finding another advisor — one who can communicate investment products, asset allocation, and, perhaps most importantly, fee structures more clearly.

The bottom line

In short, there’s no need to worry about diversification in this case. The JABCX is a great, balanced fund that is diversified in itself. However, the big question the Reddit user should pose to their father’s wealth planner is why they’re paying them so much to put them in a product they could have easily bought themselves.

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