Diversification is among the most crucial aspects of successful investing.
While ensuring that capital is allocated across asset classes and geographies is central to this concept, having investment accounts spread among multiple financial institutions – and often advisors – is a kind of diversification that can pose a headwind to performance.
Unfortunately, this situation is commonplace among older investors who have been accumulating wealth for years, says Kathryn Del Greco, an investment advisor at TD Wealth in Toronto.
But times are changing. “Now we are seeing a significant trend away from having multiple accounts managed by multiple advisors,” she says.
Having multiple accounts reflects a time “when advisors were really more in the position of selling products and used by clients as stock-pickers.” Today, however, the industry largely recognizes the benefits of bringing assets together under one umbrella as advisors are more focused on total wealth management.
Kathryn Del Greco, vice-president and investment adviser, TD Wealth, TorontoThe Globe and Mail
Although consolidation is certainly beneficial for advisors, as fees are often paid as a percentage of assets under management, investors stand to benefit, too, Ms. Del Greco says. For example, having one financial professional able to see the big picture and invest your assets in one comprehensive plan certainly makes sense.
“That holistic viewpoint is especially valuable to … baby boomers as they enter into their retirement years,” she says.
Peter Hodgson, a portfolio manager with BMO Nesbitt Burns in Toronto, thinks consolidation makes sense. In addition to having one wealth manager quarterback your investment portfolio, he or she can manage other aspects, such as tax and estate planning.
“You get a much more comprehensive wealth plan with one advisor,” he says.
Equally important, all investments under one roof add up to a larger sum, which provides the investor with buying power. Management fees, for example, typically decrease as assets increase, Mr. Hodgson adds. Higher fees paid can also bring more personalized service.
“If you’ve got $10,000 with one advisor, another with $50,000, and so on, you can’t expect to receive comprehensive wealth management along with ancillary services like estate planning,” he says.
Another benefit to consider is that if you fall seriously ill or die, it’s much easier for your spouse or executor to manage your assets if they are held in one place. “The last thing you want to leave them with is your financial affairs spread across multiple financial institutions,” Ms. Del Greco says.
Consolidation can also help to reduce the risk of unintended overconcentration in your portfolio. With assets spread among multiple institutions and advisors, the chance of inadvertently owning too much of certain segments of the market – different accounts containing the same securities – is much greater than if one advisor were overseeing your assets.
“That’s really important," she says. “You need one advisor who can look at whether asset allocation across all investments is in line with your goals ... and risk tolerance.”
Transferring wealth, however, might trigger fees and taxes. Assets should be transferred in-kind, if possible, to avoid taxable capital gains in taxable accounts, she says. That can be difficult with proprietary funds and other investments.
Still, Ms. Del Greco says, taxes should not stop individuals from consolidating. “I always tell clients we will be mindful of tax strategies and implications, but we never should lead with them over what makes common sense," she says.
The costs for transferring registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) are often negligible, about $100 to $130 per account. Many financial institutions seeking to manage your money will pay those costs, she adds.
For some, consolidating assets might not be the wisest move, says Tom McCullough, chief executive officer of Northwood Family Office in Toronto.
“Consolidation in terms of oversight is important, but having all your eggs in one basket is not a good idea,” he says. For one thing, you may not get a wide enough selection of investment products to suit your needs.
Moreover, high-net-worth families might need to move significant amounts of taxable assets and could end up with an equally significant tax bill if some of those investments needed to be sold.
Another option for investors might be the product of a Montreal-based fintech firm. It allows users to keep their accounts in different financial institutions and still have a complete picture of their overall wealth.
The platform, Wealthica, allows investors to connect all their investments to a single dashboard, says the company’s CEO, Simon Boulet. It updates balances daily while providing consolidated reporting on performance, fees and taxes.
“We offer freedom for investors to go with the institution offering the best deals while still keeping on top of everything,” Mr. Boulet says.
While having the freedom to find the best deal on savings accounts and GICs may appeal to some, others may value the simplicity of consolidating assets with one firm.
It’s likely their best means to get superior service for their dollars, Ms. Del Greco says.
“From a practical standpoint, I would rather be a bigger client who can demand more," she says, "than risk being a small client who could be forgotten in a large book of business of an advisor.”