As we head into a new year, many of us have begun to look at pulling together information for our 2015 income tax return. Many Canadians have multiple bank accounts. As well, it is not uncommon for us to see clients with multiple RRSP, RRIF and TFSA accounts. Confusion in sorting everything out at tax time is just one issue for clients who have taken a “shotgun” approach with their investment accounts.
While it does take a little bit of effort to consolidate accounts, the benefits that accrue once that has been done far outweigh any inconvenience. In fact, most firms will take on the legwork for you, as well as paying for any transfer fees that may be levied by the institutions that are losing the accounts.
I recently came across an article that noted the World Wealth Report from Capgemini and RBC Wealth Management that revealed that some 55% of Canadians with $1 million or more of investable wealth said they preferred to work with only one firm to manage their finances. Only 13% said they preferred to deal with multiple firms.
One problem with fragmented accounts is that it can be a daunting task to really get a “big picture” view of things. And the confusion is hardly limited to the investor. It is extremely difficult for advisors to give solid and appropriate advice unless they fully understand all of a client’s investments, rather than basing recommendations on only the portion of the portfolio that they are handling. For example, figuring out asset allocation, correlation, and tax-efficiency in structure can be a nightmare. Fragmenting registered accounts can cause special problems in terms of understanding what is coming from where, how much can be contributed each year and so forth. So, in terms of the client really having a handle on the total investment portfolio, consolidation is very important.
The fact is that investors who have consolidated their accounts have to spend much less time in understanding their investments, costs and returns. Time is not a valuable asset only for the wealthy, most of us, regardless of our net worth, are pressed for time trying to manage our jobs, family matters and so forth. Time really is money.
Consolidating accounts can also actually save you money. Many accounts carry with them fees of one sort or another. If you can get the same results by consolidating accounts, you will be reducing the fees that you pay, and that reduction will apply each and every year. Over the longer term, it can really add up.
One caveat that must be kept in mind if you are thinking about consolidating your accounts, is possible tax issues. This is really not a problem unless securities that you are planning to transfer to a new consolidated account are showing considerable unrealized capital gains. There are situations where the transfer of holdings into a new account could result in the necessity of selling those holdings. Obviously, this could trigger a capital gain. While it may still be advisable to make the transfer (tax will have to be paid on the gain at some point anyway), it is simpler to do the transfer “in kind” whenever that is possible. That simply means that the securities in question will be transferred and not liquidated.
Save for the capital gains considerations just mentioned, there is really no disadvantage to consolidating accounts. And, as discussed, there are many advantages.
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.
This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation). The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.
HollisWealth is a trade name of HollisWealth Advisory Services Inc. ® Registered trademark of The Bank of Nova Scotia, used under license.
HG Partners Limited is an independent company. Scotiabank companies have no liability for activities outside of HollisWealth.