There's never been a more exciting time to be a financial services consumer. Technology has made world-class investment advice affordable for everyone, and competition has pushed many fees, commissions, even investment minimums down to zero.
Bringing all your investments to one institution can help make life simpler and more convenient—and maybe even save you some money. A consolidated view of your accounts, with a single company or software that provides a complete view of your finances, can make it easier to track your asset mix, tax situation, and financial life. If you consolidate assets with a single company, you may become eligible for lower commissions and fees, additional services, and even fewer fees.
"Managing your financial life takes time, but adding the complexity of planning across multiple providers can make it more time-consuming," says Ann Dowd, CFP®, vice president at Fidelity. "Why make it hard on yourself to get a complete view of your cash flow, financial needs, and investments?"
Here are 4 ways consolidating your accounts could help simplify your financial life.
1. Complete view of investments
If you have investments in several locations, it can be difficult to stay on top of your overall portfolio. It’s also complicated to make your investments work together. You could be duplicating exposure to certain investment types.
When you consolidate, it’s much easier to take charge of your strategy and help keep your intended asset allocation on track. Moreover, rebalancing can be a much simpler task with an integrated view. It can be easier to form a clear picture of your performance and investment mix when it’s all in one place.
Typical consolidation opportunities include moving money from a 401(k) held at a former job to a new employer's 401(k) plan and rolling it over to an IRA after retirement. A rollover IRA can offer more investment options, the simplicity of managing a single portfolio, and access to different services.
Of course, you always want to carefully consider any potential benefits of remaining in the 401(k) plan before deciding to roll it over. You'll want to think about the unique investment choices, including potentially lower cost shares, fees and expenses, and tax considerations, along with the plan’s withdrawal rules and the protection it generally offers against creditors. Additionally, investors with company stock in their 401(k) or other workplace retirement plan might lose the option to elect net unrealized appreciation (NUA) if they roll these assets into an IRA and should speak to their tax advisor before making any decisions.
Read Viewpoints on Fidelity: Considerations for an old 401(k)
At Fidelity, you can see all of your investment accounts, at Fidelity and elsewhere, with Full View®.
2. Track potential tax opportunities
Bringing retirement and brokerage accounts together with a single service provider may make it easier to implement a tax-efficient investing strategy. For taxable accounts, tax-loss harvesting may be easier when your investments are with a single provider in one account, where you can easily see your gains and losses.
Or, you may find it easier to implement an asset location strategy. Your more tax-efficient investments can be in one taxable account, while less tax-efficient assets can be kept in tax-advantaged accounts like IRAs. If they're with a single provider, it can be more convenient to keep track of them.
3. Reduce fees and commissions
Fees can affect your returns. These days, you can find index funds with low or even zero expense ratios, place online trades with no commissions, and get brokerage accounts with no account fees. When you pay less in fees, more of your money is available to potentially grow and compound over time.
If you're investing through multiple providers, you might be paying more fees than necessary.
Some providers may generally be lower cost than others. It can be a good idea to investigate the fees charged on your accounts and investments to see how much you've been paying. That can help you see how any change would impact you.
4. More effective planning
Consolidating accounts may also improve your financial planning, such as retirement income planning. For example, retirees need to determine how much to withdraw from their retirement accounts each year to ensure that their retirement savings will last their lifetimes—a so-called sustainable withdrawal rate. They also need to make sure they're meeting their required minimum distributions (RMDs) from retirement accounts when the time comes at age 73.1
With all of your accounts under one roof, it could be easier to evaluate and implement your withdrawal strategy.
Look before you leap
If you decide to consolidate, do it wisely. Consider whether consolidating will mean liquidating certain investments and possibly incurring tax consequences. For mutual fund investors, consider the investment options, particularly if your 401(k) or workplace plan offers institutional shares, which may be less expensive. Overall, you need to be sure that the benefits outweigh any potential costs.
Creditor protection can be a consideration as well. IRAs are protected from creditors up to a certain dollar amount in personal bankruptcy proceedings but the money in an employer plan is generally shielded from creditors.
Think about safety and security as well. Look for institutions that use strong encryption, advanced firewalls, and secure emails. They should provide enhanced security around high-risk transactions—without adding a lot of extra work for you.
Consider these important features:
- 2-factor authentication. For extra protection on logins and sensitive transactions, get a security code via text or automated call to verify it's you.
- Money transfer lockdown. Block electronic money movement out of your accounts, protecting your balances from unauthorized transfers.
- Security text alerts. Get instant security alerts on your mobile number when certain transactions or profile updates are made to your account.
Learn how Fidelity keeps your accounts safe: Our security measures
It's also important to consider how your money is protected in case your financial institution goes out of business or declares bankruptcy.
- The Federal Deposit Insurance Corporation (FDIC) is a US government agency that insures cash deposits at FDIC member banks, generally up to $250,000 per account.2
- The Securities Investor Protection Corporation (SIPC) is a nonprofit organization that protects stocks, bonds, and other securities in case a brokerage firm goes bankrupt and assets are missing. The SIPC will cover up to $500,000 in securities, including a $250,000 limit for cash held in a brokerage account.
Consolidating is a decision that takes some time and consideration, but the potential benefits may make it worth your while. You could find it easier to set and maintain your asset allocation as well as diversify your portfolio more effectively. You might find opportunities to save money through both improved tax efficiency and the lower fees often associated with having more money at one provider. Most of all, you'll have a chance to plan more effectively and take control of your finances. That's a move that, in the end, could improve your overall financial picture.