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When I started them three years ago, I decided the “Retiring With Enough” blog and podcast would attempt to simplify the complexities of retiring. It’s not the easiest task because very few things about retiring are simple, and multiple questions need addressing and resolving.
One of the questions many people struggle with concerns the decision to consolidate financial accounts.
Over the years I built a portfolio that encompassed different accounts. These accounts included brokerage accounts at differing financial institutions. Additionally, I owned individual retirement accounts, a company-sponsored retirement plan, and an HSA account. I owned a handful of individual stocks that I purchased, received as gifts, or inherited. The retirement accounts and HSA accounts were the result of personal retirement planning.
The accumulation of multiple brokerage accounts is harder to explain, and is likely the result of the desire to capture the “next best thing”. As brokerage trading fees diminished, different brokerages initiated smaller trading fees to encourage clients to open accounts. My numerous brokerage accounts may have been the result of chasing diminishing trading fees.
Multiple accounts mean more complicated record keeping, retirement planning, and tax preparation. The bottom line is, it’s just harder to keep track of multiple accounts across multiple platforms.
When working full-time, it seemed easier and less time-consuming to leave multiple accounts in place rather than expend the time and effort required to consolidate accounts. When I quit full-time practice and had more free time, I felt it was time to consider consolidating accounts.
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What was the Scope of my Holdings?
At its most complicated point, my portfolio included:
-Five brokerage accounts of different values at five brokerage houses -A HSA Account at an online bank -Individual IRA accounts for myself and my wife -A company sponsored Keogh retirement account -Individual stocks (20-30 spread over several different accounts purchased or inherited).
If my net worth during this time had been based on the number of accounts I possessed, I would have been considered wealthy. But I wasn’t wealthy! I had a lot of accounts, not a lot of money!
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Pros of brokerage account consolidation
- Easier management and a clearer portfolio view: Consolidating accounts streamlines management by giving you a holistic view of your assets. Instead of tracking multiple statements and logins, you have a single location to monitor your asset allocation and overall performance.
- Reduced fees: Larger consolidated assets often qualify you for reduced trading fees, lower management fees, and other cost-saving benefits.
- Optimized investment strategy: A consolidated view helps you identify and eliminate investment overlap, ensuring your portfolio is properly diversified and aligned with your goals. It also makes it easier to rebalance your portfolio as market conditions change.
- Simplified tax reporting: Fewer accounts mean fewer tax documents (e.g., 1099 forms) to track at tax time, simplifying the reporting process.
- Streamlined estate planning: Consolidating assets makes it easier for heirs and executors to manage your estate, saving them time and reducing administrative burdens during a difficult time.
- Enhanced professional guidance: A financial advisor can provide more effective and strategic advice when they have a comprehensive, single view of your financial picture.
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Cons of brokerage account consolidation
- Potential loss of unique benefits: Consolidating can mean forfeiting specific benefits tied to your current accounts. For instance, an old 401(k) might offer unique, low-cost institutional funds or special withdrawal rules not available in an IRA.
- Tax consequences: Moving money, especially from taxable brokerage accounts, can trigger capital gains taxes. Understanding the potential tax implications of selling during consolidation is essential.
- Limited investment options: The new consolidated account may not offer the same breadth of investment options as your old plans, potentially limiting your choices.
- Risk of higher fees: While consolidation often lowers fees, a move to a different firm may include higher management or trading costs, especially if you have a smaller balance.
- Risk of premature distributions: In some cases, rolling funds out of an employer-sponsored plan before retirement could subject you to Required Minimum Distributions (RMDs) earlier than usual.
- Decreased creditor protection: Assets in an employer-sponsored plan (like a 401(k)) may offer better legal protection against creditors and lawsuits than those in an Individual Retirement Account (IRA).
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What to consider before consolidating
Before you consolidate your brokerage accounts, it’a a good practice to:
- Review all accounts: Evaluate the fees, investment options, and any special features of each account you hold.
- Consult a tax advisor: Discuss potential tax implications, especially if you are considering selling assets in a taxable account.
- Consider an in-kind transfer: To avoid selling assets and incurring capital gains taxes, you can request an “in-kind” transfer, which moves your existing investments directly to the new account.
- Evaluate your goals: Ensure that consolidating will help you achieve your overall financial objectives and that the benefits outweigh any potential drawbacks.
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After I retired at approximately age 62, I began to realize the toll all of these multiple accounts were exacting on time management, portfolio management, and tax management. I had inadvertently created a situation that increased complexity, instead of facilitating simplicity.
One of the positive side effects of my decreased workload was more free time. One of the best uses of my newfound free time would be simplifying my financial picture. It took an extended period, but I now have virtually all my accounts in one location.
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How Did I Start the Consolidation and How Did I Accomplish It?
Easy victories build confidence, so I started with accounts that would be easiest to consolidate. Since I maintained after-tax brokerage accounts in five locations, this would be a great place to start and a relatively easy victory!
Please note that I said easy, but not quick! It actually took several years to complete this relatively easy process. Procrastination and indecision reared their ugly heads during this time.
Most transactions no longer require a stockbroker to place trades and complete transactions. Earlier in my investing career, each financial transaction had to be completed by a stockbroker with access to financial markets. As Internet transactions became more secure and easier to complete, stock brokers were no longer required to complete most transactions. My first accounts to consolidate were accounts held at brokerages that still required broker-generated transactions. With the inception of online brokerages and self-managed Accounts, portfolios could be managed without a broker.
I must inject a note of caution at this point. Closing a brokerage account and transferring assets to a new brokerage account is a relatively easy process. Normally it starts with opening an account at the receiving brokerage. The new receiving brokerage then requests that assets be electronically transferred into the new brokerage account at the new firm. This process can usually be completed within several weeks, with funds appearing in your new brokerage account after processing and transferring. Although streamlined, the transfer is not always completed without complications.
First, it’s important to request an “In-kind” transfer. An in-kind transfer is when you move assets, such as stocks, bonds, or mutual funds, directly from one account to another without selling them or converting them to cash first. This means the investments are transferred “as-is,” allowing you to maintain current holdings, avoid capital gains taxes, and remain invested in the market during the transfer process.
It’s not uncommon to have transfer problems with in-kind transfers. Some brokerage firms will not accept in-kind transfers of funds registered in another brokerage’s name. Also, some brokerages may not accept assets housed at a different brokerage due to the parameters of the receiving brokerage’s platform. An example would be a person who is transferring assets from Fidelity to Vanguard or Schwab. Fidelity’s platform may not accept Vanguard mutual funds or vice versa. This means a Vanguard S&P 500 fund would have to be sold and re-purchased within Fidelity as a Fidelity S&P 500 fund. The same may be true for certain stocks or assets that can’t be transferred between different brokerage accounts.
If assets transferred are held in a Qualified Account, liquidating and reallocating funds between brokerages is relatively simple and easy with no tax consequences. If transferring assets are held in After-Tax Accounts, these liquidations are considered a taxable sale and repurchase (with tax consequences attached).
The best results may occur by working with a brokerage financial representative. This representative will guide you through the transfer process in the most tax-efficient manner. But, it’s important to understand that many transfers involve the sale and re-purchase of assets which may generate ordinary income or capital gains.
This happened in my case as I transferred assets between different brokerage platforms. By working with brokerage financial advisors, I minimized, but did not avoid, the liquidation of some assets.
With no taxes, it’s easier to liquidate holdings and transfer cash. Although easier, it does mean that you will have a period where none of your assets are invested in the market. This could be good or bad, depending on the direction the market is headed.
Second, it’s important to consider which brokerage will ultimately hold assets. With assets at several firms, I consolidated accounts to the Fidelity platform. I am not advocating Fidelity over any other firm. Fidelity works best for my needs, but other investors may find that different firms better suit their needs. There is no right choice for everyone. The correct firm will be the one that best handles your assets and has the best mix of products for your needs.
The firm that an investor chooses should have multiple investment options. There should be an option to engage the firm’s portfolio management services or to self-direct assets. The firm should also provide one-stop shopping for all of your needs. A client should be able to hold CDs, bonds, stocks, and mutual funds in one location. It is optimal if additional accounts can be maintained at the same firm.
For many years, my assets have been self-directed. Fidelity provides a dedicated CFP (Certified Financial Planner) to help with financial planning and decisions, but does not manage my assets. Portfolio and asset management are available through Fidelity Financial Services.
I transferred my HSA account to Fidelity and my HSA now resides alongside my other accounts. I also transferred my individual Roth IRA accounts for myself and my wife into my Fidelity account. I transferred individual stocks in-kind into my Fidelity account without creating taxable transactions. Most stock transfers are in-kind, but as full shares. Partial shares from DRIPs (Dividend Re-Investment Plans) are usually sold and the proceeds transferred as cash. The sale of partial shares may generate capital gains or ordinary income.
When I transferred my dental practice and quit working full-time, I dissolved my company’s profit-sharing plan. These funds were transferred into an individual Rollover IRA. This Rollover IRA was established at Fidelity. Having both Accounts at Fidelity facilitated easier conversion of funds from the Rollover IRA into my existing Roth IRA. It was a simple process to move funds from one account to another account at the same firm. The total conversion of this rollover IRA into my existing Roth IRA took several years, but the rollover IRA now has a zero balance and all funds have been converted. For more information about this see: MY ROTH IRA (UN)SPENDING.
In a recent podcast, I stated that I now have some assets managed by an outside firm. This is a partner firm with Fidelity, with assets managed by an outside firm, but these assets remain within my Fidelity account. The outside firm has trading authority without the ability to transfer assets outside of my Fidelity Managed account.
At various times in my investing lifetime, I owned Accounts at Edward Jones, Scottrade, TD Ameritrade, Morgan Stanley Wealth Management, Schwab, Vanguard, and Fidelity. My HSA account initially resided at HSA Bank before being transferred to Fidelity. This was in addition to personal and business Accounts held at several banks. Each firm and bank has positive and negative attributes. My oldest accounts have been with Vanguard and Fidelity. When I began the process of consolidating accounts, there was some concern over “putting all my eggs in one basket”. This has become a minor concern, as the benefits of consolidation outweigh the negatives.
I am happy to state that I am essentially finished with account consolidation and now have one account at Fidelity. However, I still have individual inherited stocks that need to be re-titled before they can be transferred.
It’s a good feeling to know that my investing life has been simplified, and that our investment accounts will be easier to locate and manage if I am no longer around.
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Final Thoughts
There are areas of life that no one really wants to address. Account consolidation, legacy and estate planning, Social Security claiming strategies, and the decision to quit working are several of these areas.
Account consolidation has been a steady process over the last few years. Three years ago I whittled the list down to Accounts at Vanguard and Fidelity. My HSA plan was also held in a separate location. Last year I decided to move everything to Fidelity.
I felt that Fidelity best fulfilled my needs. Investors with simpler finances may be best served by a smaller firm than Fidelity. Investors with higher net worths may find that Fidelity doesn’t satisfy their need for more complex investments and management. This decision is personal and should fit the needs of the individual investor or family.
I have a friend who’s been very happy with his account at Charles Schwab, and friends who love their Accounts at Vanguard.
I am happy to say that all accounts, including my HSA account, are now held at Fidelity.
Yes, I have some concerns about all accounts being held at one firm, but these concerns are minor.
In my mind, the convenience of having all accounts in one location, and the ease of transferring funds between accounts outweigh minor concerns. There were some aggravations during this process, and there are potential tax implications that must be carefully considered and addressed.
My estate and legal documents were drafted approximately 11 years ago. Since 2014 my address has changed three times and my children are older. All are adults with their own businesses. In addition to my change of address, our estate and Legacy needs have also changed. Updating Estate documents is next on my list.
Procrastination did play a part in prolonging consolidation. If procrastination is an ongoing problem see: WHY NOT NOW?
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