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You Can Experience The Joys Of Consolidation

By: Frank Armstrong

The Problem

It’s not unusual for financial planners to see new clients with six to ten or more financial accounts scattered across as many institutions. That would include zombie accounts in 401(k)s of past employers, various IRAs, trust accounts, mutual funds, brokerage accounts, fixed and variable annuities, and bank accounts.

These accounts were generally purchased at different times from different sales people or organizations and without any idea how they might contribute to a coordinated financial plan or investment strategy.

That’s insane. Those people don’t have a plan, they hold a loose collection of assets which is virtually impossible to manage as a coordinated investment strategy.

By the way, there is no argument for diversifying your investment accounts between different financial institutions. Even if one of the large discount brokerages were to go bankrupt, your assets are totally separate from theirs and protected from any of the brokerage house’s creditors.  

As the number of accounts go up, the administrative problems multiply:

  1. Each account has a separate ID and Password.
  2. Each account has different transaction costs
  3. Each account has different investment choices.
  4. Each account may have different share classes, some may pay 12b-1 fees or have surrender costs.
  5. The zombie pension accounts are undoubtedly paying for administration and advice that provides little or no value for non-participants.
  6. The non-qualified (taxable) accounts each generate their own tax reporting.
  7. Each account generates statements using a different reporting format.

As a practical matter, nobody can deal with this level of complexity. And so they don’t. The individual accounts grow and shrink like weeds. The owners have lost control. Chaos reigns.

The Fix

You can easily bring order to this mess. Just open accounts at a single discount brokerage house like Schwab, TD Ameritrade, Fidelity, or E-Trade. You may need one for your qualified accounts (IRAs and 401(k)s) and another for your taxable accounts. Then ask the brokerage house to handle the transfers for you. Provide them with a current account statement from each of the old accounts. Voila! You are done.

The Payoff

Your life becomes much simpler:

  1. Maybe for the first time you will get a consolidated statement showing all your financial assets in one place.
  2. Now you can see what you own and what the asset allocation looks like.
  3. You can plan and execute an investment strategy.
  4. If you want to make changes in your portfolio you have one source to deal with.
  5. The major discount brokerages have an open architecture menu with almost unlimited choices. Your menu of investment options expends exponentially.
  6. You will have only one statement to deal with. You can keep it all on line so those shoe boxes of reports can all be shredded. ,
  7. You will receive a single consolidated tax report for your accountant
  8. You can keep more of what you are earning. Your total investment costs should shrink dramatically, while your net returns can grow unencumbered by high fees.
        • Tax permitting you can dump all your high cost load funds and any paying 12b-1 fees.
        • You can now index the world for just a tiny fraction of one percent per year.
        • Index funds or ETFs are highly tax efficient. Lower costs and lower taxes are unambiguously a good thing.

 

Simplicity is good. Especially if you can save time, money, aggravation and taxes while executing an investment strategy that meets your needs.  Now you will have time to work on your golf swing, take your grand daughter sailing, and enjoy a romantic meal with your spouse.