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Three Great Reasons for Account Consolidation

By: Jason Whitby

By: Jason Whitby, MBA, CFA, CFP®, AIFA®

Longtime investors know that it is easy to accumulate different investments spread out across a number of different accounts held at a varied assortment of firms. Perhaps you still have your 401k from a former employer. Or you still have that Dividend Reinvestment Program account your grandparents funded on each of your birthdays. Perhaps you have a Wall Street friend who handles a few accounts. Maybe your spouse inherited a couple of investments from her parents. And perhaps you have CDs spread amongst a whole host of banks. Accounts just seem to accumulate and clutter up over time to the point you are no longer sure what you have, where they are or how they are performing. It can be an impossible task to stay on top of things.

Consolidating your accounts and investment relationships can provide you with ease and convenience along with tangible and financially quantifiable benefits. Here are three great reasons to consolidate your accounts and centralize your finances with one relationship.

1. Comprehensive portfolio management

What is your asset allocation right now? How long does it take you to calculate your investable assets? Do you own Treasury Bonds in a taxable account instead of a tax deferred account? How will a new investment affect your overall portfolio strategy? Are you collecting investments instead of managing investments? Do you still own tax exempt bonds even though you’ve been retired for years and are in a low tax bracket? Having too many accounts and too many investments can actually create more risk instead of adding diversification. Consolidation allows you to optimize your asset allocation, to qualify for lower fees and to achieve the most efficient diversification. It allows you to recognize when to rebalance and to identify the ideal asset location. Consolidation allows you to recognize investments that may no longer be appropriate and it allows you to see the interactions and spot weaknesses, thereby reducing risk in your portfolio. It is important to see how each investment and each account interacts with the others. This comprehensive approach requires organization which is best attained with consolidation. You want to be managing the entire forest, not just planting the trees. Consolidation allows you to comprehensively manage your portfolio instead of just reviewing your assets.

2. Managing your taxes more efficiently

What are your realized gains and income distributions so far? Do you take your required IRA distributions from each account respectively or do you take the entire balance from the most effective account? Do you know when and what securities to tax loss harvest? Do you know if a Roth conversion is going to make sense? How many 1099 reports do you have to gather before you can file your tax return? Does your accountant charge extra for all the statements he has to process? Consolidation allows you to quickly and easily attain important tax information. It can also help you manage your IRAs in the most efficient and optimal way. Consolidation allows you to integrate your investment and tax planning more effectively and in a way that allows you to access and act on important tax information.

3. Transition planning for your surviving spouse or heirs

Perhaps the biggest benefit is the one most of us don’t want to consider. What if you weren’t around? Would your surviving spouse or children be sent on a scavenger hunt? Would they be forced to dig through documents and old statements trying to find where the money is? When you have accounts spread out across different firms and different banks it could take months for them to figure things out. Or worse, there could be orphaned positions & accounts that are never located. How many firms do you need to call to find out who you have listed as your IRA beneficiaries? Consolidation helps ensure a smooth transition and minimizes the risk in settling an estate. It makes things easier for you to track what you own, how they are titled and who will be getting what. Consolidation reduces the chance of forgetting to update beneficiaries. Consolidation can make a big difference to your heirs during this emotionally devastating time.

Pulling it all together

At this stage you should be looking to simplify your life. Consolidation means you have fewer firms to deal with which means you will spend less time servicing your affairs and more time managing them. You can actually get things done instead of putting them off for yet another year. Consolidation allows you to see the big picture and to integrate your investments, taxes and estate planning in a comprehensive approach. Consolidation means less paper work, less mail, lower costs and less clutter. There is no reason to be cooking in 10 kitchens when you can be successfully cooking in just one.