Consolidation Can Yield Huge Benefits for Investors

by Steve Cassaday, CFP®, CFS

Having all financial affairs in one institution has many significant potential benefits and is one of the essential components of a good long-term investment plan.

Consolidation should include brokerage, checking and savings accounts, charge cards, and retirement accounts. Obviously, not all accounts can be consolidated in all cases, but to the extent possible you should get them to one institution that can combine banking, brokerage, and custody functions.

Consolidation does not mean individual retirement accounts are combined with non-IRAs or single accounts are combined with joint accounts. Rather, the process, called “householding,” results in one consolidated statement listing all accounts on one page followed by pages with the details of individual accounts shown separately. That way you can seeing what is happening with all (or most) of your money in one easy step every month.

This is important for many reasons. Accurate assessments of rates of return, diversification levels, asset allocation (which can be key determinants of risk) and rates of saving or spending are hard to get when accounts are at multiple institutions.

Without knowing those things, investors are less likely to have favorable outcomes, but important metrics are easily monitored when you only have to look at one statement or one website.

Centralized record keeping is another advantage of consolidation. Tax preparation is easier when all dividend, interest and gain/loss information comes from one source. Also, all expenditures by checks and charge card can be automatically summarized and categorized each month and at year-end so tax-deductible expenses are easily identified.

Cash flow management and budgeting becomes increasingly important as our financial situations get more complex. Direct deposit of paychecks, pensions and social security to one account from which bills are paid avoids unnecessary complexity.

When income and spending are juxtaposed, it is very illuminating, and budgeting and cash flow management become easier.

Estate planning is enhanced and more likely to achieve its maximum potential intended benefits when assets are consolidated. The largest mistakes we see in estate plans are not flaws in the documents but rather a failure to properly title accounts so they comport with the planning documents. Estate administration, inherently complex and difficult, is simplified by consolidation.

In a consolidated arrangement, there is one set of documents and one point of contact for the estate administrator. Otherwise, a likely scenario would require your children to take off time from their work, get someone to take their kids to school and soccer, hop on a plane to come to your house and spend three weeks looking for your checkbook. You may want to consider this strategy to make things easier for your children.

The receiving institution will gladly help you with the consolidation process. Although there are exceptions, you do not have to sell things to consolidate because investments can be transferred “in kind.” Retirement plans can be rolled over, a move that is not a taxable event.

There may be some costs associated with moving things, and although these are usually relatively minor, you should have the receiving institution check on this for you. Get it to show you all potential costs in writing.

You don’t have to do a consolidation all at once. You can start slowly and consolidate some things but not others. The objective is to get as many things into as few buckets as possible.

The $64,000 question is, what if I consolidate everything and then the institution fails? Consolidated accounts are usually at brokerage firms, and, in general, client assets in brokerage accounts are segregated from the brokerage firm’s balance sheet and cannot be attacked by creditors if the firm fails. Your IRA can’t be seized to pay the broker’s lighting bill, and you won’t be standing in line to get your money out.

Visit for more details on this.

Once investors understand the case for consolidation, the potential long-term benefits associated with it are quite compelling.

As seen in the 7/8/2011 issue of Washington Business Journal


Contact Michelle Tigani

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