Consolidate and conquer

The power of combining assets under one roof.

Consolidate and conquer

Few investors would argue the benefits of diversifying a portfolio, but there is a time when putting your eggs into just one "basket" may actually work for the better—when you consolidate your accounts with one service provider.

Besides the obvious perks—simplicity and convenience—there are other benefits attached to combining your assets under one roof. These include more effective asset allocation and diversification, potentially lower fees, higher service levels, and better planning, among others.

So, with all the advantages made possible by consolidating, why do so many investors still have their money spread among several investment firms? Some people think they're diversifying more broadly, although, in fact, they may be duplicating investments at different firms. Others "think it's safer in this environment, given all the media attention to recent investment scandals. But they're probably better off keeping tabs on just one provider," says Thomas Balcom, a Certified Financial PlannerTM from Miami, Florida.

Nina Benton, a Certified Financial PlannerTM from Edison, New Jersey, concurs. "Now more than ever," she says, "people need a single relationship they can trust."

Then there are those who have simply ended up with accounts in different places due to job changes and 401(k) plan balances left behind at former employers. "That's where we do a lot of consolidating," notes Balcom. "Those plan assets are often better off rolled into one IRA with one provider to expand the range of investment choices and to manage the assets more effectively."

One provider can help you take charge

Taking control of your portfolio and making your investments work effectively for your goals are among the most compelling reasons to consolidate multiple accounts. If you have investments in several locations, it's difficult to stay in control of your overall portfolio. It's also complicated to make your investments work together. In fact, you could be duplicating exposure to certain asset classes.

"Financial services providers might categorize assets differently, so it's hard to get an accurate view of your overall allocation," Balcom says. Worse, he adds, "You might not realize how far off track your asset allocation has become, unless you're constantly monitoring every account in every place. For most individuals, that's tough to do."

When you consolidate, it's much easier to take charge of your strategy and keep your intended asset allocation on track. "After market events like our most recent downturn, you can assess the damage to your overall portfolio and react prudently," Benton adds. Moreover, rebalancing is a far simpler proposition. "If the money is in one place, rebalancing takes one set of transactions, rather than several through multiple providers," observes Balcom.

Improve tax efficiency

Consolidating your assets could also help you invest more tax efficiently, which is often a priority for high-net-worth investors. "Doing so makes it much easier to compare gains and losses in your nonqualified accounts and to take advantage of tax-loss sheltering," says Balcom. Further, notes Benton, "Bringing qualified and nonqualified assets under one roof helps you identify opportunities to use more tax-efficient strategies." For example, a diligent saver who has maxed out his or her retirement plan contributions might have assets in taxable accounts that could work more effectively in vehicles such as tax-deferred annuities.

Pay less, get more

If you're investing through multiple providers, you might be paying more fees than necessary—particularly in retail brokerage accounts. While this generally isn't true for workplace savings accounts like 401(k)s and 403(b)s, when it comes to brokerage accounts, financial providers typically need assets and trading to reach certain thresholds before offering price breaks. Typically, the more assets you move to one financial services provider, the more opportunities you may have to avoid unnecessary account fees, as well as to pay lower fund expenses and qualify for lower commissions on brokerage trades.

Plan smarter

Consolidating may also improve the quality of certain planning activities, such as retirement income planning. Typically, you need to determine a sustainable withdrawal rate, meet minimum required distributions, and monitor your assets to make sure you're not depleting your resources too quickly.

"This is a challenge if you have to monitor accounts in multiple locations," says Benton, "but fairly straightforward if you've got access to everything in one place." In fact, she notes, from a comprehensive guidance and planning perspective, "it's much easier to tailor an appropriate combination of products and services to a client when you have access to their complete financial picture."

Simplify and go green

The financial details of your day-to-day life are complicated enough. Why make it harder by trying to track your money in multiple places? Doing so takes time and effort that many people just can't sacrifice.

And consider this: If you're inclined toward eco-friendliness, not only does having fewer account statements make it easier to manage your finances, it also cuts down on the use of paper.

"Think about how much easier it would be for your accountant to get one set of 1099 forms at tax time, rather than several," Balcom says.

Look before you leap

If you decide to consolidate, do it wisely. For most 401(k) and 403(b) assets, you can roll your assets into a tax-advantaged account without incurring taxes. However, for nonqualified assets, such as those held in brokerage accounts, you need to find out whether consolidating will force you to liquidate certain positions and possibly incur tax consequences. Then, determine whether that scenario works with your financial plans. For annuity investors, it's essential to review the surrender charge policy, and possibly adjust the timing of your consolidation to avoid excess expense in the process. Overall, you need to be sure that the tangible benefits outweigh any potential costs.

Clearly, consolidating is a decision that warrants some time and consideration. But the potential benefits are far too compelling to ignore. You could improve and find it easier to maintain your asset allocation, as well as diversify your portfolio more effectively. You might find opportunities to save money, both through improved tax efficiency and the lower fees often associated with having higher asset levels at one provider. Most of all, you'll have a chance to plan more effectively and to take control of your finances. And that's a move that, in the end, could improve your overall financial picture.

Next steps

  • To discuss consolidating assets with a Fidelity representative, call your plan's toll-free number.

Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest.

Views and opinions expressed are not the opinions or recommendations of Fidelity Investments. This material is provided for informational purposes only and should not be used or construed as a recommendation for any security.

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Fidelity Investments Institutional Services Company, Inc. 100 Salem Street, Smithfield, RI 02917.



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