Pre-Retirement Consolidation

The wisdom of account consolidation
Now that the children are out of the house and retirement is around the corner, it may make sense to consolidate your investment accounts and assets in one place. Among the many benefits, you will be able to get a complete picture of your financial situation which may allow you to plan better, invest more effectively and manage taxes and taxation more efficiently.

More effective asset allocation
The process of asset allocation refers to the spreading or ‘allocating’ of investments across the three major asset classes: cash, bonds and stocks. Asset allocation is one of the most important investing concepts as it helps reduce overall risk while helping to ensure one area of your portfolio is performing. Consolidating your investments makes for more effective asset allocation because you only have one portfolio to diversify which helps manage risk and investment duplication/overlap. A single, consolidated investment portfolio also makes rebalancing easier which involves buying and selling investments to help maintain the integrity of your original asset allocation.      

Greater tax efficiency
As an investor you will pay tax on a wide range of investments but not all investment income is taxed in the same way or at the same rate. It all depends on the types of investments you’ve made (stocks or bonds for instance), the types of accounts you hold them in (registered vs. non-registered) and how much you earn (tax bracket). Consolidating your accounts and investments will help you to structure the right types of investments in the right amounts and in the right accounts so you can enjoy greater tax efficiency and potentially save money.

Better financial planning
Most people want a financial plan that’s integrated, comprehensive and customized to meet their goals and the goals of their family. Consolidating your assets with one financial advisor gives them the big picture enabling them to better meet your planning expectations. It also makes it easier to plan for and manage tax issues while investing and investment decisions benefit from clarity and a singular purpose. You will also eliminate conflicting advice, there will be less confusion and your estate will transfer in a more orderly, expedient and less costly manner to beneficiaries.

Simplified reporting
Choosing a single financial institution to oversee your affairs will also make your life a lot easier when it comes to reporting. You will receive one investment statement, you will benefit from more accurate reporting of investment returns and you’ll be able to track your investments with ease which cannot be done unless everything is consolidated. You may also receive fewer tax slips which should reduce the amount of time you spend on your taxes or make it less expensive for someone else to prepare.

Less administration
Consolidation can go a long way to simplifying your administrative life especially when it comes to pre-retirement planning. If you have multiple accounts – registered, non-registered and/or TFSAs for instance – it could be a challenge determining which source of income you may or may not want to draw upon. This becomes particularly difficult when you must convert your RRSPs into RRIFs and you’re required to make minimum withdrawals from each account annually.  Better to get it sorted out and streamlined in advance so your advisor can determine the most tax-efficient way to maximize your retirement income. The same thinking applies to estate planning and intergenerational wealth transfer which requires significantly more administration and paperwork if everything is spread out.

Save money
Account consolidation may yield substantial savings as many institutions reduce their fees when assets reach a certain size threshold. It may also allow you to qualify for higher levels of service or premium discounts. In some circumstances, your account fees may also be tax deductible.

Keep in mind
As sensible as consolidation may appear in the long run there may be charges and penalties that may stem from an account closing or transfer out of assets. There may also be tax consequences so be sure to understand the implications prior to consolidation and check the terms and conditions connected with the disposal of current investments. Finally, some deposit-taking institutions are not members of the Canada Deposit Insurance Corporation or the Canadian Investor Protection Fund which protect your deposits and assets in case of failure.  If these safeguards are important to you make sure the consolidating institution is a member.