Every year, I see myself becoming more and more like my parents. When I was younger, I never understood when my mom scolded us for seemingly little things. If we opened a second ketchup bottle when a full one was already in the fridge or didn’t put the scissors where they belonged, we were definitely corrected. Now, as I search for a jar in my own overstuffed refrigerator and misplace yet another pair of scissors, I can finally say that I get it, Mom. It’s all about simplification and ease!
While managing the number and location of your investment accounts isn’t a direct comparison to multiple open ketchup bottles and scattered pairs of scissors, I think the principle still applies.
Here is why I advocate for account consolidation:
1. Your accounts are easier to monitor, which saves you time
It becomes very time consuming to review your investments if you have 3 taxable accounts and 2 individual retirement accounts (IRAs) at 4 different custodians. You must log into multiple websites, reset multiple passwords, and download multiple statements to keep track of your accounts.
If you want to make an investment change, you must do it 4 different times in 4 different ways! Your time is too valuable to do something over and over that should only need done once. It is also much easier to discover when something has gone amiss when you only need to look one place.
In addition, your 3 taxable accounts can likely be combined and your 2 IRAs can probably be combined too. They can even be at 1 custodian! Imagine just getting 1 statement per month. You can save trees and save your email inbox from being flooded!
2. Tax filing is easier
Like many Americans, I file my own taxes. The more accounts my husband and I opened, the more complex tax filing became. January through March, I kept eagle eyes on my mailbox and custodial websites to make sure I got all my tax documents. Eventually, I followed my own advice, and now my investments are in one place. I can log into one website and get all my 1099s!
The fewer 1099s I input, the less time and precious brainpower I waste.
Some tax filing software allows you to enter your custodian’s credentials, and it will download your dividends and capital gains for you. Talk about ease!
3. You may pay lower fees
Many major custodians offer free exchange-traded fund (ETF) and stock trading. However, there are still fees for trading most mutual funds. If your 2 IRAs are invested similarly, you may make twice as many trades and rack up twice as many fees.
Also, many brokers and advisors charge a percentage fee based on the level of assets under their management. Like tax brackets, the more money you have, the lower the percentage you pay in fees.
You could be missing out on lower fees by having your money with different institutions. If you combine them under one, you may reach a combined asset level that earns you a lower fee percentage.
4. You want comprehensive advice
When I analyze clients’ financial lives, I consider all their investments, whether I manage them or not. You should be advised based on your entire financial situation.
If a client has a moderate risk tolerance, that doesn’t mean I will recommend all his accounts be invested moderately. I may advise his Roth IRA be invested aggressively to capitalize on tax-free growth, and because he plans to draw from that account last. I would then suggest his taxable account be invested conservatively since he plans to draw from that account sooner. Together, the aggressive Roth IRA and conservative taxable account lead to the desired overall moderate risk level.
You are better served with big-picture investment management.
Sometimes people think that since their financial advisor does not manage all their accounts, they do not need to know about them. This is not the case! If you have accounts elsewhere, make sure your advisor can regularly see statements, so she can ensure she is giving you appropriate, comprehensive advice.
The fewer accounts you have at fewer locations, the easier it is to ensure your advisor understands your comprehensive financial life.
Overall, there are many good reasons to simplify your financial life by consolidating accounts and custodians. Most often, simplicity will greatly contribute to your peace of mind and success. However, there are situations where you may need to keep multiple accounts open, and that is fine! Simplicity should not come at the expense of accomplishing your financial goals.
Above all, be sure you understand all of your accounts, where they are, who is involved, and how they are helping you achieve your goals!