Streamlining Your Assets | Podcast

Streamlining Your Assets

October 19, 2022

Episode Description

FEATURING Jeff DeMaso and Andrew Busa

Life happens. You switch jobs, sell an old house, get hitched…and at each step along the way, your finances get a little more complicated, with new retirement plans, bank accounts and investment opportunities. Sometimes keeping it simple can make managing your finances a lot easier on you—and benefit your bottom line. In this episode, Jeff and Andrew discuss the upside of consolidating your assets, including:

  • Easier portfolio risk management
  • Making your portfolio more tax-efficient
  • Passing on more of your wealth to the people you care about

There’s nothing like the peace of mind that comes from knowing where you stand and that your financial plans are on track. Listen now to learn how to get that peace.

Episode Transcript

Jeff DeMaso:

Hello and welcome to another The Adviser You Can Talk To Podcast. We’re your co-hosts, Jeff DeMaso—

Andrew Busa:

And Andrew Busa.

Jeff DeMaso:

Andrew, good to be in the studio with you again.

Andrew Busa:

It’s very good to be back. I’m excited to do this episode here.

Jeff DeMaso:

Same here, same here. So let’s get into it. I am a big fan of the idea that less is more, that simple can be complex, or as my colleague Josh Jones likes to say, “Simplicity is the ultimate sophistication.”

Andrew Busa:

Yeah, he might have taken that from Leo da Vinci. We’re not sure.

Jeff DeMaso:

It’s contested. It’s contested. We’ll see. But all right, so on that point, though, today let’s talk about consolidating assets or trying to streamline your investments. We all end up getting accounts all over the place, different financial firms, maybe different advisers, and let’s talk about some of the benefits of bringing it together. And the real big takeaway, I think, to walk away with from this is that you would want to consolidate your assets because it makes it easier to ensure that your investments are aligned with your goals. And that’s both your investment goals and your financial planning goals as well. So the holistic picture of what we’re trying to achieve. But first let’s just start with how does this sprawl happen? I mean, I have it, I’ve got accounts in a bunch of different places. What do you usually see, Andrew, when you’re looking at clients and how they end up in that place?

Andrew Busa:

Yeah, well it’s a great topic, and like you mentioned, the bottom line here is beginning with the end in mind. Once you are through simplifying your balance sheet, you’re going to be in a better place with your financial plan. But as you mentioned, the sprawl of a balance sheet really does occur naturally through your life. And we’ve seen really three main reasons for why this does happen. The first is just employment. So the average worker actually has 12 different jobs in their lifetime, which is—that’s a lot, right?

Jeff DeMaso:

Yep.

Andrew Busa:

And even if half of those offer some sort of a retirement plan, you could see how your balance sheet could start to get a little bit unwieldy after a while if you aren’t doing some management along the way, right?

Jeff DeMaso:

For sure.

Andrew Busa:

Another is life events. So two common ones in this category are getting married and inheriting accounts. In either example, your balance sheet is probably growing, getting longer. That’s not necessarily a bad thing, but you do want to make sure that all of your accounts on your balance sheet have a purpose and that they’re aligned with your goals. And we’ll get into that more specifically in a second.

And then also sometimes we do come across folks who have accounts with multiple advisers because one adviser might offer an investment strategy that sort of advertises being unique from another, but a lot of times, as you mentioned in the introduction, it can just add unnecessary complexity where there doesn’t need to be in order to achieve your long-term goals.

Jeff DeMaso:

Yeah, I mean I like that. I’m guilty of that with the life events. Adding sprawl to my accounts. I mean even when we had to purchase a house, we had to open up a new savings account at a local bank that had a physical office for whatever arcane reason it was. But we still have that checking account seven years later and don’t use it. So it does happen. We need to go clean that up.

All right. But let’s pull on that thread. You mentioned it, it was a big one: Ensuring that your accounts all have a purpose and that they’re aligned with what you’re trying to achieve. So maybe let’s start, talk a bit about the investment side of that and how that works, and then we can think about the financial planning angle as well.

Andrew Busa:

Yeah, absolutely.

Jeff DeMaso:

All right. So I think the first one is just when you have accounts in a lot of different places, it makes it a little harder to know that you have a cohesive investment strategy. It’s a little harder to have your head around exactly what your asset allocation might be if you just have to keep track of lots of different accounts spread across different financial firms. And really that asset allocation is a really big part of what’s going to drive your returns, it’s going to drive your risk tolerance. So that’s something you really want to make sure you have a good handle on.

And if you’re going to work with just one adviser and they’re going to be able to understand your full picture, they’re going to be able to be a little more clear and controlled in your asset allocation. Whereas if it’s spread out and they don’t have that full picture, then, again, maybe they’re managing a piece as you want, but how’s that other piece being managed and is it done in concert or with consideration of that? So that’s just an argument for trying to build a more cohesive, comprehensive investment plan and having greater visibility. I think that’s the biggest reason to do it.

Andrew Busa:

Yeah, I agree with that. And I even think from—talking specifics—like a rebalancing. It’s how do you really do that effectively across your entire portfolio if you’re working with multiple advisers at the same time? You can rebalance one account to a specific allocation, but is that really where that account should be when it’s weighted with all of your other assets? That seems to me it’d be very difficult to do.

Jeff DeMaso:

It is, it is. And even if some people only have one adviser but then they do some stuff on their own, it can kind of create some of the same questions as well. I think there’s a few nuances to that piece: The actions that one adviser takes can have implications for other advisers. So one example might be if you’re talking about rebalancing. If one manager is buying emerging markets and the other one is selling emerging markets, well, you maybe incurred some taxes there, there may have been some trading costs, and net-net to you as the investor at the end of the day is you still have the same exposure to emerging markets, but there was some movement within that. So that’s a bit of an inefficiency piece that can come about when you have assets across a number of different places.

Andrew Busa:

Yeah. And even in that example there it’s very difficult to really invest with any intentionality, I think, if you’ve got one adviser who has a philosophy of no emerging markets and another adviser that is very enthusiastic about it. Again, not really a cohesive strategy. And I think that just kind of makes it difficult to know how you’re invested overall and what your philosophy is.

Jeff DeMaso:

Yeah, I mean you need to know what you own and why you own it. And, look, we’re huge proponents of diversification. It is a bedrock principle of our investment approach. Investors should be well diversified. But this is a case where you can almost take diversification too far to an extent and it can create some inefficiencies. Whether that’s, again, buying and selling the same asset in different places and creating friction there. We can talk about tax-loss harvesting as well and that’s a big one this year. With markets down, a lot of advisers—and we do this as well with clients—we say we’re going to try and realize some losses in your portfolio while keeping you invested in the markets. You’ll be there to participate when the rebound does come, but in the meantime we’re going to try and reduce your tax bill.

But to do that well and to make sure you don’t run afoul of any of the wash-sale rule, which would negate the loss that you realized, you really need to have a whole picture of all of the activity that’s going on across all of your accounts. Because if you’re selling something in one place to realize a loss and you buy that same asset somewhere else the next day, well, technically you violated the wash-sale rule and you didn’t realize that loss. So again, this is creating inefficiency in the portfolio.

Andrew Busa:

And you could see how that could happen fairly easily, if one adviser has one strategy, the other adviser has another, you could trip that wash sale. You can see how that would happen. And again, like you said, that’s going to disallow any loss that you would otherwise be able to claim on your tax returns. So definitely I agree. I think the tax management piece of this—as we think about how this fits in, how simplifying your balance sheet fits in with your overall financial plan from a tactical tax efficiency standpoint—you just think about if one adviser has a full view of your entire financial picture and they understand where they can sell to claim a loss, maybe offset gains in another account or something like that. I would say it’s almost impossible to do that if you just have a flashlight in the dark and you’re trying to guess where to claim losses and gains. Easier if you have a full view.

Jeff DeMaso:

Yeah, absolutely. And, no, I think we should maybe pivot to taxes here, but of course there’s some other advantages of reporting in one place. It’s, again, easy to know what you own. It can be lower fees if you can usually consolidate and you have more assets in an account with an adviser—they might be able to give you a lower fee. You can get into different share classes of mutual funds. That might lower fees as well if that’s the strategy your adviser uses. But I think let’s pull on that thread of taxes because the realizing gains and losses and wash-sale rules are only one piece of it in terms of having that holistic view when it comes to taxes.

Andrew Busa:

Yeah, for sure. And one that jumps to my mind from a tax management standpoint is streamlining your required minimum distributions when you’re consolidated and have a simplified balance sheet. So just a quick review on the penalty if you get RMDs wrong: If you fail to withdraw an RMD or fail to withdraw the full amount of the RMD, that amount not withdrawn is penalized at 50%. So one of the stiffest penalties in the IRS code, so something you—

Jeff DeMaso:

You should want to avoid that one.

Andrew Busa:

Yeah, you don’t want to do that. And if your accounts are consolidated as much as possible, it’s going to make it easier for you to understand how much RMD you need to take every year, and potentially even combine all of your RMDs to take them from one—or at least fewer—accounts, depending on what your situation is. So again, that’s just sort of one where if you can ease the administrative burden off of yourself, why not? Let’s just do that and make that happen.

Jeff DeMaso:

Well, I think on easing the administrative burden, there’s also just when you have it in one place, it’s easier come tax time to collect the 1099s and the form that you need. So come tax season and reporting, it’ll be a little more streamlined, a little more simplified.

Andrew Busa:

Yep.

Jeff DeMaso:

Again, maybe not a total game changer for someone, but, again, if you’re easing that administrative burden, that’s a nice little win as well.

Andrew Busa:

Oh, yeah. I mean if the theme of today’s podcast is simplification, it’s not going to simplify your life all that much if you’re getting more tax documents than you need come tax filing time. That time of year can be challenging enough for some of us. It’s not going to make it easier if you’re dealing with more documents than you need to. So, again, if you’re consolidating your taxable accounts with one adviser, one custodian, that’s going to collapse the number of forms that you’re getting at the end of the year. Maybe a little bit of a smaller win compared to the other ones that we’ve talked about so far, but if you’re dealing with a lot of accounts, you could feel that difference, potentially, after you’re done consolidating.

Jeff DeMaso:

Okay, so let’s understand this kind of idea of simplifying, making things easier at challenging times, and tax season for some is that. But let’s maybe think bigger picture in terms of estate as well and if you can make things easier for your family and your surviving spouse and other members of your family. How does that kind of play in here? Is there a piece there that we should be considering?

Andrew Busa:

Yeah, this rolls up to what we mentioned before with thinking about your broader financial plan, the benefits of consolidation, but the main one really is simplifying for your surviving spouse and your heirs in general, when we think about getting your estate plan set. And that’s really what estate planning is: It’s planning for what happens when you’re no longer here.

And I think maybe asset consolidation and simplifying your balance sheet isn’t the first thing that comes to mind when you think about estate planning. Most of the time you’re thinking about getting your wills or your trusts set up correctly, your beneficiaries. All that is great too, but just think about it. If you have a shorter, simpler balance sheet, picking up the pieces financially after someone is gone is going to be a whole lot easier than having to be on the phone with three or four different custodians or advisers to figure out how you’re going to handle a particular account maybe when your spouse has passed. Instead, the potential to deal with a single point of contact to be able to really manage that whole process for you is really going to make that feel, I think, easier in an already very challenging time to deal with, let’s face it.

Jeff DeMaso:

Yeah, I mean I think we’d all want to make things as easy as possible in our family when we’re not here, and this is one way to try and help do that.

Andrew Busa:

Yeah. Another one, too, here—that we sort of drew an analogy as we were thinking about this—is the idea of working with a legacy adviser: Someone who knows you and your family and potentially has already had a family meeting and understands not only your goals but also the goals of your next generation. So if you’re working with that one single point of contact, it’s almost like working with a doctor that’s aware of your broader family history. Their advice is just going to be more effective if they have that background knowledge, compared to if you’re working with multiple people at once, where it’s just not going to be maybe as efficient as it could be.

Jeff DeMaso:

So, okay. If people buy into our argument here for consolidating assets, what are some of the things they might want to be aware of in trying to do that?

Andrew Busa:

One thing I think about is aiming for in-kind transfers, and what we mean by that is you don’t want to realize taxable gains unnecessarily. So what I mean there is if you’re deciding to move an account from one place to the other, you don’t need to sell all of your positions to then move it over into the other account. You can potentially do in-kind transfers and then manage that process over a short or medium term with your adviser. I think you deal with that a lot with clients.

Jeff DeMaso:

Yeah, we absolutely do that work with clients in bringing in positions in kind and think about how they fit in, tax implications, and we can build custom portfolios around that. That’s absolutely part of what we do.

Andrew Busa:

And then another one is just with 401(k) rollovers. That’s part of consolidation. Again, remember we mentioned if you have 12 different jobs throughout your career, maybe you have four or five 401(k)s by the time all’s said and done. If you’re rolling 401(k)s either into other 401(k)s or into a new rollover IRA, just be aware of how the rollover actually occurs. This can really vary from provider to provider for different 401(k)s. Some are a little easier to deal with than others. So work with your provider to really make sure that you understand how that happens, and hopefully your adviser can actually help you do that process.

Jeff DeMaso:

That’s great. As I sit here and we talk about this idea of consolidating, I don’t necessarily want to come across as super self-serving, that we’re just saying, “Hey, everybody consolidate your assets with us.”

Andrew Busa:

Right.

Jeff DeMaso:

Of course, we clearly think that there’s benefits to doing that, but I might be putting you on the spot, Andrew. Can you think of some reasons why someone might want to not fully consolidate? And I’ll give you one idea that comes to mind for me. We’ll give you a chance to think. I’m throwing that on the spot for you. But one example: We have some clients that like to trade, like to have a piece of the portfolio that they have a hand in and are controlling. Some people talk about it as their fun account or whatever you want to think about it. But for those clients we might say, “Okay, let’s take a piece of your portfolio and let you have control over it, and you can make the investment decisions on your own.”

I think then we’d still want to say, “Okay, let’s please keep us aware of what’s going on there so we know how to incorporate it into our actions.” Again, we don’t want to run afoul of a wash-sale rule if you’re buying and selling something that we also own. Or we want to know if you’re taking on a certain amount of risk, and we just want to be able to incorporate that into your financial plan and your overall investment portfolio. But that’s one that comes to mind is just people that really like to have a space where they’re making investment decisions, but maybe they don’t want to do it with their entire portfolio because of the responsibility, and they want to work with a partner for their overall wealth but do want a little account where they get to pull the trigger, so to speak. That might be one reason someone might not want to just fully consolidate that makes sense to me.

Andrew Busa:

I do see that for folks. Sometimes it’s a hobby, sometimes it’s something that keeps them engaged in daily and current events, which is good. The other one that I think about is it is possible to have really good relationships with multiple advisers, and sometimes you do have that connection with an adviser that you know you enjoy working with. So that can be one reason why you might want to maintain more than one advisory relationship. I think if you are considering consolidating, just think about making sure that who you consolidate with really offers all of the services that you need to be successful with your financial plan. So I even think about our firm, Jeff, over the last three or four years, the number of services that we’ve added in our sort of evolution to being a full-service wealth manager, offering tax planning, offering estate planning, those sorts of things. So when you do make the move to simplify, just make sure that you know everything that you’re being offered with the adviser that you choose to work with.

Jeff DeMaso:

Well said, Andrew. I think that’s a great point to end on. And let me just, again, reiterate kind of the big takeaway here: We’re arguing for asset consolidation because it makes your life simple and it helps ensure that your investments are aligned with both your investment goals and your financial planning goals. Really trying to tie together that holistic picture of your financial balance sheet and what you’re trying to achieve.

This has been Jeff DeMaso and Andrew Busa from Adviser Investments, thanking you for listening to The Adviser You Can Talk To Podcast. If you enjoyed this conversation, please subscribe and review our show. You can check us out at adviserinvestments.com/podcasts. Your feedback is always welcome. If you have any questions or topics that you’d like us to explore, please email us at adviserinvestments.com. Before closing, I’d like to thank Kailey Steele and Ashlyn Melvin. They do all the hard work making this podcast possible. Thank you for listening.

Podcast released on October 19, 2022. This podcast is for informational purposes only. It is not intended as financial, legal, tax or insurance advice even though these topics may be discussed. Past performance does not guarantee future results. All investments involve risk and can lose value. Always consult a financial, legal or tax professional before taking specific action. Information and events addressed in this podcast, as well as the job titles, job functions and employment of the podcast’s participants with respect to Adviser Investments, LLC may have changed since this podcast was released. For more information on each individual featured in this podcast, see the Our People section of our website.

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Consolidate your assets to make sure your investments line up with your goals.


Jeff DeMaso, CFA

Interim Chief Investment Officer and Director of Research

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