How to handle orphan or large IRA accounts

Doug Horn

Managing investments comes in many forms. The decisions range from selecting the type of investment vehicle, how much to allocate to each, and when to make changes. During a lifetime of investing, it is not difficult to end up with a number of accounts scattered between several different locations or an account whose value has become very large for the investment it is in.

While this may not apply to everyone, this can become a problem and add to the difficulty in managing the holdings. Additionally, it adds to the volume of paperwork received in any given year. In this case, an orphan retirement account is an account that represents a small amount of the overall retirement funds and is held somewhere other than the primary location. Many individual investors know the investment choices very well for their primary account. Whether the funds are held at Vanguard, Fidelity, or American Funds, the investor knows a select group of mutual funds within these families; so when a reallocation is in order, it is easy to make the changes in their accounts. But, when a small portion is held somewhere else, these dollars are often overlooked; because the owner does not have the time to research other options for this account or because of its size, it is deemed unnecessary to make changes.

In addition to orphan accounts, many investors now face accounts with very large balances and would like to diversify elsewhere, but the cost to make the change forces many investors to remain within one fund family. Regardless of the size of the mutual fund family, it is difficult for any one mutual fund family to offer the best investment options in all asset classes. There are groups known for their domestic equity performance and others for their international or bond dominance. As total assets grow in size at one fund family, it can be advantageous to shift a portion elsewhere to gain broader investment management and diversification.

Diversification is a key component to proper management of investments. Many of the large fund families, like those mentioned earlier, offer many different mutual fund choices, but these different choices may be in name only. It is not uncommon to find many of the larger funds at these dominant fund families to hold many of the same investments. This is called overlap. Without proper tools, the average investor will have difficulty in determining how much overlap may exist among their investment holdings. To add true diversification, some of the retirement dollars may need to be moved to different fund families, perhaps to funds managing fewer dollars thus able to invest in companies worth less than $20 billion. However, the hurdle is often the cost.

Variable annuities offer between ten and twenty different managers and generally eighty plus investment choices, but many investors shy away from variable annuities due to their expenses. Unless an investor is working with only no-load mutual funds, each time money is moved from one fund family to another, there is a commission involved. But, to ignore fund families who charge a commission is removing perhaps as much as fifty percent of available investment choices and many of these funds are top-performing funds.

Having too much money with one fund family or in one fund can impact the performance of the account. Ignoring an account because it is small or held somewhere other than the primary account is not the best solution.

For my clients, I have now found a company offering a multi-manager platform without the impact of commissions or surrender fees. Clients can transfer retirement dollars into this portfolio and have access to fourteen or more different management firms, most offering several of their key funds for investment. There is no charge to the client when money is moved from one manager to another, unlike the process when changing mutual fund families. The money is available immediately for distribution or transfers elsewhere and there are no penalties accessed to the investors. This platform addresses the two concerns outlined above which many investors face and is a solution worth considering.

For assistance with insurance, estate planning, and investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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