It’s oh so common for Canadians to hold investments at more than one financial institution with or without multiple advisors. So common that there’s a name for it: it's called “account sprawl” When finncial advisors talk about the importance of "diversification" this is not the kind of diversification we are talking about! Having more than one provider holding onto your investment assets will not guarantee improved financial security and success. On the contrary, having your investment assets with more than one provider can increase risk and result in a few other problems from a few different perspectives. Simplifying your financial life by consolidating to one advisor and one institution can provide many benefits.
Here are 6 good reasons to consolidate your financial assets:
- Greater Clarity can reduce risk Consolidating your investment accounts can give you greater clarity about your overall wealth and about how your assets are both allocated and diversified. Having your assets all together will help you avoid duplication and over exposure. Ensuring that you have appropriate asset allocation based on your objectives and personal risk tolerance, is a cornerstone of investment success, as is diversification among asset classes, geography and industries. Without consolidating your investments, you can run the risk of being underweight or overweight in certain asset classes (Equity versus Fixed Income) or geographical sectors or sectors.
- Tax efficiency Consolidating investment assets can help clarify more tax-effective ways to structure your investments within registered and non-registered accounts. It makes it easier to understand your overall tax situation and provides enhanced insight into how to structure future retirement income flows. Consolidation will also simply your tax preparation by virtue of the fact that you would only have one institution issuing tax forms and statements.
- Holistic financial planning A truly holistic financial plan is integrated and personal and should be comprehensive in order to include all of your current and future plans and goals. Consolidating all of your assets together provides clarity and a clearer picture of your current situation making financial planning easier and more accurate.
- Simplification saves time Time is precious. No one seems to have enough time! Juggling more than one advisor or financial institution can mean creating redundancies related to correspondence, paperwork and meetings not to mention, multiple online usernames and passwords. Simplifying your investments by consolidating with one trusted single point of contact reduces the amount of time you need to manage the advisor relationship. Time will be saved when tracking and monitoring your assets particularly when you start withdrawing registered plans that have a minimum withdrawal requirement.
- Simplify your estate From an estate planning perspective, having assets at multiple institutions can cause delays and complications for your executor. No executor wants to engage in a scavenger hunt that involves tracking down accounts. That can add frustration on top of grief. Simplifying your estate can also reduce the risk of assets not being claimed. As 1 of 2 Canadian experts on the problem of Unclaimed Financial Assets, this is a big deal to me. Unclaimed financial assets are a$6 billion+ and growing problem in Canada. Comprehensive Unclaimed Property legislation is lacking in Canada-Learn more here about the problem of Unclaimed Financial Assets or here
- Save Money Consolidating your investments will often reduce your overall fees because investment minimums or preferred pricing may be in available. Often fees are on a sliding scale meaning the more you invest in one place, the lower your fee. Multiple administration fees can also be avoided.
However, there are some important considerations to make before you consolidate your investments...
- TAX: Check to make sure there are no tax implications that may occur when consolidating your investment assets. Most particularly, capital gains might be triggered if you move the assets in cash instead of "in Kind"
- FEES: Check to see if there are fees that will be charged if you transfer your investments elsewhere; especially DSC fees (Deferred Sales commission)
- PROTECTION: Review any potential impact on existing investment protection. Investment protection programs include the Canada Deposit Insurance Corporation (CDIC) as well as the Canadian Investor Protection Fund. Be sure to determine if any of your investment protection will be impacted negatively by any potential move to consolidate your assets.
In summary, a consolidated approach with your investments can make you feel more confident knowing you and your advisor are “on the same page,” (literally) and can happen with a few transfer documents. I would be happy to help you understand what benefits, consolidation of your assets might make on creating a more focused and cost-effective approach to managing your investment portfolio. All the best
