People have reasons for not consolidating their assets.
Many worry it will be a hassle. At an earlier age, they signed up with different financial institutions offering low introductory rates. Many overdid it — not uncommon in this era of over-marketing — and now it's hard to keep track of all those accounts.
Others may be afraid of consolidation. They can't help it; the fear lurks in their DNA. Think of your grandparents in the Depression, burying money in the garden, a practice that was much safer than putting it in the failing banks of the time.
So, even though it's tax season and the perfect time to consult an advisor about their finances, many Canadians resist the idea of consolidating.
Nevertheless, by bringing all their investments into one place, in the care of one trusted advisor, investors will get significantly better results, says Lynette Wolokoff, investment advisor with Servus Wealth Strategies in Red Deer, Alberta.
"Once you build a relationship with an advisor at a financial institution — and it takes time to develop trust, as it should — they get to know you. The better I understand what my clients' goals, needs and wants are, the more I'm able to help them," Ms. Wolokoff explains.
Ms. Wolokoff, a certified financial planner (CFP) and certified elder planning counsellor with more than 20 years' industry experience, gets the fear factor. To this day, she hears about people burying cans of gold bars or coins. She understands that leaving money undisturbed in various locations, be they banks or backyards, may seem like a way of protecting it.
Consolidation means lower investment risk
What people don't realize is this: it's no hassle for them to consolidate, and it keeps their money safer. Advisors like Ms. Wolokoff handle the admin, the procedures, the transfers. "It's done from one institution to the other. The client just needs to sign to authorize it to occur, and I do all the work," she explains.
As a recent Edward Jones report noted, the effect of having various financial advisors means that each is, in effect, operating blindly, "buying different funds or stocks without a proper overview," especially regarding the client's risk. Instead of many faceless institutions holding small portions of their assets, investors may look to one advisor who can help manage all their assets and plan for the future.
Contrary to the possible misconception that "one place, one person means one product," an important part of that plan is diversifying, Ms. Wolokoff stresses. "You can still be at one institution and be very well diversified and protect your risks that way. My clients have a multitude of different products that are appropriate for their situation."
Servus Credit Union provides a unique value-add: clients are owners. "We have all the products available to our members that every other bank does, but we also have profit-sharing. Through our Profit Share Rewards system, the more business you do at Servus Credit Union and the more banking products you have with us, the more cash you get back. That's in addition to, and separate from, rates of return from our products," Ms. Wolokoff explains.
As for safety, much has changed since the Great Depression. Ms. Wolokoff points out that Canada's financial institutions are now among the world's most highly regulated. "There are a lot of safeguards in place to make sure that money doesn't get lost. Institutions have to follow up and make sure that the transfers occurred."
Tax season: the perfect time to start consolidating
As noted, it's tax season. Many Canadians already have it in their calendars to visit a financial institution. An inquiry about consolidation fits perfectly into tax and Registered Retirement Savings Plan (RRSP) arrangements, Ms. Wolokoff suggests. "You want to make sure you're contributing the right amount into RRSPs. That's important, and can only be done with a plan. Your investment advisor can help you create a plan to make sure you're making the right kind of investment."
She notes, "It's even more important for people approaching retirement, or starting to transition into retirement, to start to consolidate, because RRSPs need to be converted to RRIFs (Registered Retirement Income Funds). We need to create a good income plan to make sure they're taking advantage of tax credits. Nobody wants to receive 15 different RRIF payments in retirement. You can imagine how that gets really complicated. The more people are dealing with different institutions in late retirement, the more confusing it becomes."
Act now, Ms. Wolokoff urges. "Time passing is not going to make it easier. The sooner you address and start building a relationship with somebody, the sooner you can pay lower fees, make a better rate of return, save on taxes."
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