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Nine Steps to Take Before You Move or Consolidate Your Accounts

April 2007

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Most meetings with financial planners typically include a sales pitch to move all your accounts to one place (inevitably the place where the financial planner works!) There are two primary reasons to consider consolidating your accounts: first, it can really simplify life and make it easier to track and analyze your money; second, it can sometimes save you quite a bit of money, especially when some of your old accounts are so small that they are generating extra fees. But if you are considering moving one or more large and complex accounts, or even several small ones, don’t be in a big rush. And don’t think the financial planner always has the best plan.

1. Have realistic expectations and know what you want to accomplish. No broker or money manager has all the magic answers. Every financial services firm has strengths and weaknesses. The best broker for your neighbor may not be the best one for you. Are you looking for a broad selection of low cost mutual funds that will make up the core of your retirement account? Or do you manage a large account of individual stocks? Do you trade actively in stocks and options? Or are you just starting out with a small Roth or regular IRA? In each of these cases, I would be inclined to short-list different financial services firms.

2. Be sure you’re using your current accounts to the max. Have you fully explored your current broker’s web site? Your broker may offer tools and/or services you never knew about. One client of mine recently discovered that she is eligible for free estate planning with her current provider—something that she is sure to find helpful. Are you unhappy with the service you’re getting? Sometimes a call to the branch manager can get you reassigned to a different financial consultant who will be a better fit with your personality and/or goals. If you are at a full service brokerage and the fees are excessive, but you like everything else, a frank discussion with your financial consultant can sometimes result in lower negotiated commissions.

3. Take a test drive and do lots of comparison shopping. Moving a large account can be a complex and time-consuming endeavor, and it pays to take your time making the decision. If you’re shopping around for a discount broker, it often makes sense to open one or two small accounts for a year to test features that interest you, such as the trading platform, or third party research on stocks and funds. Try out the web site; see how you like the monthly statements. Live through one tax season with your new broker and see how helpful/accurate the year-end 1099s are and whether prompt tax help is available. Explore research and financial planning tools. Find out which of your favorite mutual funds are offered. Bug the customer service line with questions. Be sure you understand all the fees your new broker charges.

4. Find the diamond in the coal pile. A recent client who had done a fair bit of job-changing came to me with eight different 401k and 403b accounts scattered across the country. A prime candidate for consolidation? Absolutely! But, first we conducted a full scale review of mutual fund offerings and fees at each one of his existing accounts. It turned out that one of the eight plans was amazing, with a unique and very thoughtfully selected menu of reasonably priced mutual funds in special segments like emerging international markets, small and mid sized companies, and global bonds. He eventually chose to move seven of his accounts to a broker who offered excellent low-cost index funds, saving thousands of dollars every year, but he kept the eighth little gem of an account and redeployed the funds so that they complemented his index fund holdings.

5. Minimize the cost of moving. If you own individual stocks in your accounts you can generally move them without a problem, but mutual funds and unit trusts are another matter. Not all brokers ‘make a market’ in every mutual fund and if you transfer your account you may have to sell some or all of your funds first. If your account is a taxable brokerage account, the capital gains taxes on any funds you have to sell might make an ill-planned move very costly. Even if your account is a tax-sheltered retirement plan, moving can result in significant costs. If your fund holdings include class B shares, or unit investment trusts, for example, or very recently purchased funds, you might get hit with hefty exit charges if you have to sell the funds. Those exit charges generally change with time, so if you’re planning on making a move be sure to note all the dates when your class B shares convert to class A shares that can be sold without an extra exit charge and be sure to instruct your broker to take you off the automatic reinvestment plan for any unit trusts you own. If you have funds that you really like, that are playing an important role in your portfolio, this can be a very good reason not to move your accounts, or to keep shopping until you find a provider that you like better who does support the funds that you want to keep.

6. If it ain’t broke, don’t fix it. It is easy to be seduced by a new sales pitch. It can be very pleasant to be courted by planners and advisors who promise the moon, but in truth, the chances that you will do much, much better at another brokerage firm or with a different money manager are fairly slim. Make a list of the reasons why you’re considering a move and get an objective second opinion.

7. Don’t go off in a huff. It never pays to move just because you are angry with a financial service provider. Complain; write or speak to the branch or district manager; and have a detailed list of things you would like them to do. For example, let’s suppose you discover that your financial consultant has pushed you into a whole bunch of expensive, high risk funds. You might well ask to be reassigned to a different FC and it would be very reasonable to ask that your money be moved into more appropriate mutual funds commission free. Go to the top with your grievance, but don’t assume it will necessarily be better anywhere else. If you eventually decide to move, do it only after you’ve done your homework and done everything you can to minimize the costs of moving.

8. Explore new software instead of a new broker. Realize that you can often get one of the prime benefits of consolidation with less hassle by installing the right software on your computer. With Quicken or Microsoft Money, you can easily track multiple accounts once you’ve set up the electronic links. Morningstar and the Wall Street Journal online offer excellent portfolio monitoring software that can help you track and analyze your accounts, even if they are held at different firms.

9. Consider working with a financial coach as you plan an account move or consolidation. Your financial coach is your impartial advocate and sounding board, helping you to make the decisions that are right for you and your family. Find out more about how financial coaching can help you become an empowered investor.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Past results are not indicative of future performance. Outside sources used in this article are believed but not guaranteed to be accurate. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.