Simplify your financial life; Get rid of the account sprawl

Coastal Karnataka is beautiful and lush with its white beaches, backwaters and coconut trees. Being my husband’s hometown, I have been going there for many years. Over the
years, I have seen lovely, old slate tiled houses with expansive gardens being replaced by apartment complexes.

On enquiring, I find that either the owner passed away and the children sold the property or the owners are septuagenarian, with children living overseas or elsewhere in India. The children cannot think of coming back due to their professional commitments and lifestyle. In some cases, the younger generation finds it easier to monetize the asset and use it for their
needs than have a white elephant to maintain.

Apart from property, Investors tend to accumulate multiple assets over a lifetime. Investors split investments at more than one financial institution or advisor for diversification. Rather
than simplify, investors complicate their financial life as they grow older. But, the account sprawl as it is called only over diversifies and hinders the ability to track one’s finances effectively.

While consolidating is important always, it is especially so as you get closer to retirement because

1) You can plan your retirement more holistically if you have a clear picture of all your assets and cash flows. When I ask prospects about their investments, they send me a
bunch of account statements but do not know themselves exactly how much is invested where. Account documents missing is common as with busy professional life, people are not able to keep track of papers.

2) You can save time and money. Dealing with a multitude of advisors or firms means additional paperwork, time spent in dealing with them not to mention having to
keep track of multiple passwords. Fewer investments may help lower fees. For example, exiting low returning insurance policies would certainly help reduce costs.

3) It can help simplify tax filing and build tax efficiency. Lesser number of investments means lesser papers to submit for tax filing and the ability to plan investments which
are tax-efficient.

4) You can plan your asset allocation correctly. Investors are either overweight or underweight asset classes as they are not able to figure out their allocation towards different asset classes in the absence of a consolidated view. Further, you can avoid duplicating investments.

5) It will be easier for your spouse or children to manage, after you. Often, legal heirs waste time and energy in managing the financial affairs of the deceased. Remember,
your spouse may not be fully conversant with financial matters and hence consolidating investments is beneficial.

To consolidate your finances, list down all market investments, gold, property, insurance and other assets and involve your spouse in this activity so that he/she can also get to know about the family finances. Close underperforming or small investments first. As such, having a maximum of 4-5 mutual funds is suggested.

Close insurance policies if the sum assured is low. You may have bought these policies 15-20 years back and the amount covered will not be big plus there wouldn’t be penalties on withdrawal. Make a list of all items in the locker. Children these days are not interested in heavy gold ornaments and take a call on what you would like to do with the jewellery. If you own multiple properties and especially if children live abroad, evaluate if 2% rental income is really worth it. Work with a financial planner to
help you redistribute the investments based on your needs and risk profile.