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Monthly Financial Jargon: Consolidating Accounts



The world of finance and investments is notorious for its extensive use of jargon. With a goal to enhance financial literacy and make the world of money more transparent, we have our “monthly jargon” articles that focus on debunking financial terms that are often used sans explanation. This month, we’re discussing an investment concept that can streamline your portfolio and help make your overall financial life easier to manage: consolidating accounts.

What Does “Consolidating Accounts” Mean?

Consolidating accounts means exactly what it sounds like: combining accounts and bringing your accounts under one institution or advisor. Managing your financial life can be challenging enough, and adding an additional layer of complexity by distributing accounts across multiple institutions can add unnecessary stress that is not worth the effort it requires. Consolidating your accounts and bringing your investments to one company can help make your financial and investment life simpler, more convenient, and easier to manage.

Think of it this way: A consolidated view of your accounts managed by one company can provide you with a complete picture of your finances in one place, which allows you or your advisor to more easily monitor your asset allocation, risk exposure, and tax liabilities. You don’t have to worry about conducting the same evaluation across various platforms, which can result in easily overlooking important pieces of your investment life that can impact your portfolio, like fees and tax-saving strategies.

Benefits of Consolidating Accounts

By consolidating accounts, you are able to simplify your investment life simply by cutting down on the number of accounts you have to maintain, which can make your portfolio easier to manage in several ways. Here are a few of the major benefits of account consolidation that show why consolidating your accounts is worth the effort.

      1. Simplification

It may sound trivial, but simply cutting down on the sheer number of statements you receive can be advantageous, especially when it comes to compiling statements for tax season. By consolidating accounts, you eliminate additional paperwork – whether electronically or via mail – and doing so helps you to declutter your financial life. The simplification benefit also extends to your asset allocation. Having your portfolio in fewer accounts helps you or your financial advisor see your allocation more clearly, and having this consolidated picture of your assets can help you and your advisor optimize your diversification, avoid being over-weight or under-weight in certain sectors, and make savvier and more prudent investments for your big-picture investment life. Consolidating your accounts can also present you with an easier way to view and manage all of your investment risk to ensure your exposure accurately reflects your risk tolerance. This also plays a major role in terms of your retirement plan. Viewing your portfolio in one place makes it easier to track what is happening across your accounts, so you can rebalance when necessary. Furthermore, managing your financial life in one place allows you to more easily have a look at your cash flow and your savings progress.


      2. Tax-Efficiency

Having your accounts in one place can help you execute a more tax-efficient investment strategy simply by having your accounts streamlined in one visual. Having fewer accounts to keep track of and compile paperwork for and having all of your accounts with one advisor makes it easier to view your gains and losses, which helps you or your advisor to see where you can take advantage of certain tax strategies. Taxes can be overlooked when it comes to investment planning, and, yet, if done properly, making your portfolio more tax-efficient can have a significant impact on your tax returns. For example, keeping your more tax-efficient investments in a taxable account and your less tax-efficient investments in tax-advantaged accounts can produce significant tax savings. Tax-loss harvesting is another tax-efficient investment strategy that involves selling securities at a loss to offset a capital gains tax liability. These strategies are significantly easier to implement when your accounts are held in one place and in fewer accounts.


      3. Fee Reduction

Fees and commissions can have a significant impact on your returns. If you’re investing through multiple institutions and advisors, you are most likely paying more in fees than you should be. Some fees may seem trivial on their own, but when you add them all up, you may be surprised to see how much you are offering up. Fund expenses, management fees, trading fees, annual fees, and account-level fees are a few of the ones to keep an eye out for. By consolidating accounts under one advisor, you are increasing your account balance with that advisor, which may qualify you for a lower fee structure that results in significant savings. Additionally, financial institutions have different accounts and trading fees, so it’s prudent to evaluate what you are currently paying in fees to see how best to consolidate your accounts.

Final Points

Overall, holding your investments with one advisor or financial institution helps you to more easily view and manage the big picture of your financial life. Together, all of these benefits – in addition to others like simplified estate planning – can help you implement an effective, comprehensive financial plan that you can feel confident in, knowing that everything is being monitored and no accounts or investment opportunities are being overlooked. By having your investments in one place and across fewer accounts, you or your advisor will be able to more effectively manage your accounts, improve tax efficiency, optimize your asset allocation, monitor your risk, and potentially lower your investment costs to help you take control of your finances and enhance your financial empowerment.

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