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Should I Consolidate My Assets?

“The ability to simplify means to eliminate the unnecessary so that the necessary may speak.”Hans Hofmann.

Having multiple investment managers is often viewed as a reasonable strategy to diversify risk.  We would agree with the premise if you’re using different platforms.  For example, investing core assets with a large custodian and utilizing a distressed hedge fund manager could complement each other.  However, investing with big bank A and big bank B under the premise of diversification is probably not optimal (assuming similar asset allocations).  In fact, you could be taking on more risk than you set out to. 

To be clear, your current investment manager wants you to consolidate with them.  Their advice will always start out as “let us see what you’re doing with the portfolio at XYZ management to make sure you are properly diversified.”  They really want to see what you have, then recommend consolidating with them. 

Should you consolidate your assets?  It depends…

The Case for Consolidation

  1. Easier to manage risk and total asset allocation– having a clear understanding of aggregate risk exposures is portfolio management 101.

  2. Deeper, more meaningful relationships– who has time to track and meet with multiple advisors?

  3. Avoid redundancies in holdings– asset allocations are fluid.  What if your stable of advisors are loading up on the same area of the market?

  4. Greater tax efficiency– tax loss harvesting is more precise when you can see gains & losses within one umbrella

  5. Lower fee rates for increased asset values– this could potentially save thousands in fees per year

  6. Save time– dealing with a single tax statement, username & password, and performance report will simplify your life

The Case Against Consolidation

  1. Real or perceived risk avoidance– are you worried about a custodian failing or advisor fraud?  

  2. Drastically different investment strategies that complement each other– pairing a diversified portfolio with a direct alternative investment (private equity, venture capital, Bitcoin, etc.) is perfectly reasonable. 

  3. Access to other market views/research- can offer value if you’re running a “do-it-yourself” portfolio and want access to professional guidance

  4. Check and balance – if you enjoy bouncing ideas off multiple advisors

In our opinion, it’s best to consolidate if you’re working with several institutions that roughly do the same thing i.e. multiple asset classes, investing in publicly traded securities, etc.  The case for consolidation is a no-brainer if you’re working with a non-fiduciary advisor. 

If you’re hell bent on using several custodians, we would encourage using an account aggregation application to track your household asset allocation (Personal Capitalhas a free tool). 

If you’ve been meaning to consolidate assets, but don’t want to deal with the headache, it’s easier than you think.  The cost of inaction (paying excessive fees, poor service, bad performance, tax inefficiency) compounds over time and can put a serious drag on your wealth.

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