“Don’t put all your eggs in one basket.”
It’s advice most of us have heard for years. And when you’re talking about your life savings, it seems especially reasonable.
So when a financial advisor suggests consolidating several investment or retirement accounts, it can raise an important question: Is it really safe to have so much of my money in one place?
It’s a good question. It also gets at a common misunderstanding about what “one place” actually means when it comes to your investments.
Having several accounts managed by one financial advisor is not necessarily the same thing as investing all of your money in one investment, one company or even one financial institution.
Here’s what to understand before deciding if consolidating your investment accounts makes sense for you.
Your Financial Advisor May Not Actually Hold Your Money
This is one of the most important distinctions to understand.
When you work with a financial advisor, the advisor may manage your investments without actually taking custody of them.
Many independent financial advisors use a third-party custodian to hold client assets. The custodian maintains the accounts and handles functions such as holding securities, processing transactions and providing account statements.
The financial advisor, meanwhile, provides advice and manages the portfolio according to the authority and responsibilities outlined in your advisory agreement.
In other words, having one advisor oversee your accounts doesn't necessarily mean handing that advisor a pile of money to keep.
Understanding who actually holds your assets, how your advisor can access them and what safeguards are in place should be part of your due diligence when choosing an advisor.
Consolidation and Diversification Are Two Different Things
This is where the “eggs in one basket” analogy can become misleading.
Imagine you have:
- A 401(k) from a former employer
- A traditional IRA
- A Roth IRA
- A taxable brokerage account
- Another investment account you opened years ago
Having five accounts does not automatically mean you are diversified.
You could own many of the same investments across all five.
On the other hand, you could have several accounts overseen by one advisor and still own a broadly diversified mix of investments across different asset classes, industries and areas of the market.
The number of account statements you receive isn't what determines diversification. What you own inside those accounts does.
That distinction matters.
So, Why Consolidate Investment Accounts?
For some people, consolidating accounts can make their financial life easier to understand and manage.
You can see the bigger picture.
When investments are scattered across different providers, it can be difficult to know what you actually own as a whole.
You might have one account that looks appropriately invested on its own and another that does too. Put them together, however, and you may discover that you're far more concentrated in one type of investment than you realized.
Seeing accounts together can make it easier to evaluate your overall allocation and risk.
Retirement withdrawals can become easier to coordinate.
As you move from saving for retirement to actually using your savings, another set of decisions enters the picture.
Which account should you withdraw from first?
How much should come from taxable versus tax-deferred accounts?
What might a withdrawal mean for your tax situation?
Having a coordinated view of your accounts can make those conversations easier.
There is simply less to keep track of.
Old accounts have a way of accumulating over a career.
One 401(k) becomes two. An IRA gets opened somewhere else. You inherit an account. Suddenly your financial life involves multiple websites, statements, passwords, beneficiary forms and investment selections.
Consolidation may reduce some of that administrative clutter.
That can be especially valuable as you approach retirement and begin thinking about simplifying your finances for yourself and, eventually, for the people who may help manage your affairs.
But Are There Reasons Not to Consolidate?
Absolutely.
Consolidation should not happen simply for the sake of having fewer accounts.
Certain accounts may offer investments, pricing, guarantees, creditor protections or other benefits that could be lost by moving the money.
Employer-sponsored retirement plans can have rules and features that differ from IRAs. Some investments may also have tax consequences or restrictions associated with selling or transferring them.
There may also be situations where keeping assets at more than one institution is appropriate based on your circumstances and preferences.
That's why the question shouldn't simply be: “Can I move this account?”
It should be:“What would I gain, lose or change by moving it?”
What Happens If the Custodian Fails?
This is another concern behind the “eggs in one basket” question.
Investment accounts are different from bank accounts, and the protections work differently.
Bank deposits may be covered by FDIC insurance, subject to applicable rules and coverage limits. Brokerage firms may be members of the Securities Investor Protection Corporation (SIPC), which provides certain protections if a SIPC-member brokerage firm fails and customer assets are missing.
SIPC protection does not protect investors against normal market losses or guarantee that an investment will maintain its value.
It is also important to remember that securities held in a brokerage account generally remain the customer's property. Understanding how your specific custodian holds client assets and what protections apply is an important part of evaluating where your money is held.
Questions to Ask Before Consolidating Your Investments
If you're considering moving several accounts under the management of one financial advisor, don't be afraid to ask detailed questions.
A few good places to start:
- Who will actually custody my assets?
- Will my accounts remain titled in my name?
- What authority will you have over my accounts?
- What protections apply to the custodian?
- Are there fees associated with transferring or closing my existing accounts?
- Will I lose any investment options, guarantees or other benefits by moving?
- Are there tax consequences associated with the transfer?
- How will you invest and diversify my assets once they are consolidated?
- How can I independently view my accounts and transactions?
- What happens to my accounts if I decide to stop working with you?
A financial advisor should be able to clearly explain the answers.
The Bigger Question: Does Everything Work Together?
There can be comfort in seeing your money spread among several institutions.
But more accounts don't automatically mean more safety.
And fewer accounts don't automatically mean more risk.
The more important questions are how your assets are held, what you are invested in, what protections are in place and how all of those accounts work together toward your goals.
For some people, consolidation can make their financial lives simpler and their investment strategy easier to coordinate. For others, there may be good reasons to keep certain accounts exactly where they are.
The answer isn't automatically “move everything” or “keep everything separate.”
It's understanding what you have and making an intentional decision about where it belongs.
At LincolnBridge Financial Planning, we help clients look at their entire financial picture, including accounts accumulated across different jobs, institutions and stages of life. If you're approaching retirement and wondering what should stay, what could be consolidated and how everything fits together, we're here to help you sort through the options.
FREQUENTLY ASKED QUESTIONS
Is it safe to have all my investments with one financial advisor?
It can be, depending on how your assets are held, the custodian being used, the investments you own and the controls and protections in place. Working with one advisor does not necessarily mean the advisor personally holds your assets. Ask who serves as custodian and what authority the advisor has over your accounts.
Does having all my accounts in one place hurt diversification?
Not necessarily. Account consolidation and investment diversification are different concepts. Diversification depends primarily on the investments you own and the risks they represent, not simply the number of financial institutions where you have accounts.
Should I roll old 401(k)s into an IRA?
It depends. An IRA rollover may offer benefits in some situations, but an employer plan may have investment options, fees, services, withdrawal rules or other features worth keeping. Compare the specific options before making a rollover decision.
Is my brokerage account FDIC insured?
Generally, securities such as stocks, bonds and mutual funds are not FDIC-insured bank deposits. Brokerage accounts may have other protections, including SIPC protection when held at a SIPC-member brokerage firm, subject to applicable rules and limits. SIPC does not protect against investment losses.
Is it better to have one financial advisor or multiple financial advisors?
There isn't one answer for everyone. Multiple advisors can provide different perspectives, but they may also make it harder to coordinate investments, taxes, withdrawals and an overall financial strategy. One advisor can provide a more unified view, but you should understand how assets are custodied, managed and protected before consolidating.
What should I consider before consolidating retirement accounts?
Review fees, investment choices, tax consequences, withdrawal rules, creditor protections, account services, beneficiary considerations and any special features you could lose. A rollover or transfer can have long-term implications, so it's worth evaluating the account before moving it.