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Should I Consolidate My Investment Accounts? Thumbnail

Should I Consolidate My Investment Accounts?

Six Reasons to Consolidate Your Investment Accounts in 2021


Simplify Your Investments

Would you like more free time? This non-financial reason may be the most important. If your investment accounts are spread about - think of all the mail, emails, passwords, and documents you have to keep track of.  As a financial advisor, I've invested heavily in software that keeps track of my investments. The average investor has to rely on a good spreadsheet and a lot of memory power.

How about at tax time? Do you remember which institutions will send you a 1099? Have you ever submitted your taxes early and then forgot about that 1099 for an old investment account? Consolidating your investment accounts will simplify tax time. Your accountant will thank you.

You'll also have an easier time tracking the performance of your investments if they are in one location. Do you know how each account is performing other than looking at the account value? If one is doing well - are you sure it's diversified? Or is it outperforming because it has one or two large positions that are not in balance?

Reduce Investment Costs

Investing with multiple advisors may cause you to pay more in fees and other transaction costs. Many people like to buy mutual funds. However, some mutual funds charge transaction fees. If you have to pay $25 each time you buy or sell a fund it would make more sense to do one large transaction as opposed to buying the same fund across multiple accounts.

Generally, the more assets you have with one financial provider, the more opportunities you have to reduce your all-in investment cost. Fee-only financial advisors often offer fee breakpoints in which the percentage rate they charge drops as more money is placed under their management. If you have two investment advisors who charge you a percentage of the assets the manage chances are you could get a lower asset fee if you consolidate under one firm.

Diversify Your Investments

Consolidation makes it easier to get a holistic view of your finances. Many people wrongly assume that by having multiple financial advisors or multiple investment accounts they are diversifying themselves. Diversification doesn't require having accounts all over the place. What matters for diversification is the individual investments you have in your portfolio. Seeing your assets in one place gives you a clearer picture and lends itself to more, rather than less diversification.

Rebalancing your portfolio will be easier when all of your accounts are under one umbrella. With consolidation you can place your trades with one party instead of coordinating across multiple brokers or custodians. Your investments are just as safe and diversified if you use one reputable custodian.

Better Tax Planning

If you have multiple financial advisors - do they know what each other are investing in? Consolidating investment accounts creates tax-efficiencies by ensuring a uniform investment approach. Often advisors buy and sell similar investments. Streamlining your investments ensures capital gains are managed appropriately and that wash sales aren't created. Come tax time your CPA will appreciate only receiving one statement rather than multiple.

With higher standard deductions in recent years, one tax strategy is to time your tax savings by deduction lumping and charitable clumping. Again, this is easier accomplished under one roof. Having one advisor who looks at everything can assist you in utilizing the proper tax strategies.

Streamlined Retirement Income

Retired clients use their investment portfolio to generate income to replace their pre-retirement wages. If you have multiple accounts, it adds to the complexity of determining where to draw income from. When our financial planning clients retire, we typically set up a monthly transfer from their investment account to their local checking account. But what happens if you have multiple accounts? Do you take some from each or just from one and allow that account to deplete faster?

When it comes time to perform Required Minimum Distributions (RMDs), it can be a headache to calculate. Each financial firm will send you an RMD notice and you will have to ensure you calculate correctly at each institution. While you can take the correct amount from only one retirement account it needs to be calculated in the aggregate. If you get it wrong? The IRS makes you pay penalty - 50% of the amount you should have withdrawn. Calculating an RMD is easier and safer when only one account or provider is involved.

Easier Estate Planning

Do you know who all of your named beneficiaries are on your retirement accounts? Do you have multiple 401(k)s from prior employers? Are they all up to date? Having your retirement accounts in one place makes it easier to ensure that you are maintaining the proper beneficiary designations and is easier to update when your needs change.

This is especially true if you have remarried or have a spouse who has passed. It is imperative that these forms are filled out correctly. Not only do your beneficiaries need to be updated but sometimes you need to obtain a spousal waiver to pass assets on to your children.

Does your significant other or children know about all of your accounts? How about how to log in and access them? During a time of grief, surviving spouses, children, or executors are often left with needlessly complicated account paperwork when the account owner dies. In my experience one spouse typically is responsible for tracking most of the financials of the household. Too often when that spouse passes the widow is left with financial confusion. Consolidating financial accounts makes it easier on your heirs. 


Do you need help consolidating your investments? Are you interested in a 401(k) rollover?

Birch Investment Management provides a holistic view of your finances and can help coordinate your investment plan.

We are based in Brookings, South Dakota. You can be based anywhere.