You filed your tax return (on time!) and received a nice, fat refund. Feels good, right?
Then you find something at the bottom of a stack of papers in the office: a rogue T-3 slip from some mutual fund you forgot you even had. Oops.
For many Canadians who have money stashed away in multiple bank and investment accounts, troubles at tax time is only one result of a scattershot approach to financial management. There’s onerous paperwork, stress and even the possibility of losing the money forever, particularly after a move or in old age when keeping track of, say, eight accounts becomes daunting.
Fortunately, there’s a way to make life easier, says Lenore Davis, a certified financial planner and senior partner at Dixon, Davis & Company in Victoria.
“I believe in simplicity, which means consolidating accounts,” she says.
The high-net-worth folks seem to agree with her advice to merge, purge and work with only one adviser in a quest to streamline. According to the World Wealth Report 2013 from Capgemini and RBC Wealth Management, 55 per cent of Canadians who had $1-million or more in investible wealth said they preferred to work with only one firm to manage all their finances. Only 13 per cent wanted to deal with multiple firms.
“If you have multiple providers for like services, you’ve got all this data coming in from different vendors and systems,” says Tony Maiorino, vice-president and head of wealth management services at Royal Bank of Canada in Toronto.
It’s hardly surprising that advisers want to handle your whole portfolio, rather than just bits and pieces of it. There’s often money in it for them if they do.
Even so, for the remaining Canadians who might have fewer funds to invest than the ultra-wealthy, but are just as time-starved, consolidation can still make sense.
You get the big picture view
It’s tough to keep track of where all your money is and how your investments are performing if you’re working with a couple of advisers or have numerous accounts with different providers.
“I’ve seen people with a little bit here and a little bit there with another adviser – and it turns out they’re invested in all the same stuff with both,” Ms. Davis says.
From the adviser’s perspective, it’s also tougher for them to give you the best advice that matches your financial picture if they don’t know where that picture begins and ends. Besides, how can anyone have a plan that moves in one direction – forward – if multiple advisers are trying to take the lead and want to go down diverse paths?
It takes less time
Less paperwork equals less time, sure, but consolidation can help in another way too: fewer meetings to schedule.
“Time is always a concern for clients. So if we have to go see two or three advisers every time we need to make a modification to our plan, then that’s an issue,” says Aaron Keogh, a financial adviser and president of Greendoor Financial Inc., in Windsor, Ont.
You might pay less in fees
This is for those primarily with lots of money to invest. A $1-million portfolio split equally among four different vendors, for instance, carries less power with each.
“For most wealth management firms, the more assets under administration, the lower the fee is,” says Mr. Maiorino.
But watch those capital gains
If you’re consolidating non-registered accounts, it can be more complicated, warns Ms. Davis, as moving them from one institution to another can sometimes trigger the sale of underlying investments. A mutual fund that has been building for 25 years could have a large capital gain attached to it that suddenly needs to be paid come tax time.
Instead, before merging accounts, find out whether you can transfer the investment “in kind,” meaning without selling it and triggering tax consequences. An in-kind transfer can happen only if both financial companies offer the same investment or product.
In the case of multiple employment pensions, Mr. Keogh says he would transfer them into a locked-in retirement account, which allows more than one fund and fund companies all within the same account.
“The process of doing that is straightforward and doesn’t require much on the client’s behalf other than giving approval and filling out the forms,” he says.
While in some cases it still makes sense to split up accounts or work with different advisers – the one you rely on for advice on registered accounts or insurance can’t help you with buying or selling stock, for instance – don’t be tempted to spread your money because you think that’s playing it safe.
“A lot of people confuse diversification of investments with diversification of investment management,” Ms. Davis says. “If you work with a couple of people, you’re not simplifying your life.”