You can calculate your net worth by deducting your total liabilities from your assets. However, assets come in many varieties. Some are liquid, which means you can sell them quickly, while others are hard or impossible to sell and are known as illiquid assets. In the investment arena, brokers often refer to liquid assets as being investable.
Investable assets include the balances held in your bank accounts, certificates of deposit, mutual funds, stocks and bonds. Insurance contracts with a cash value are also regarded as investable assets, as are funds held in retirement accounts. Real estate assets are normally classified as illiquid because you cannot necessarily sell your home at any given time. Your ownership share in a private company also represents an illiquid or noninvestable asset because you cannot always find someone willing to buy your share. Other types of property, such as cars and jewelry, are also illiquid, as are some long-term securities that you cannot liquidate for a number of years.
Investment advisers attempt to uncover information about your investable assets because you could liquidate assets that you hold at other financial institutions and reinvest that money through your broker. Your broker receives a commission whenever you purchase securities. If you do not liquidate mutual funds that you currently own but move those funds to a different brokerage firm, that firm can still make money on those shares. Most mutual funds charge annual operating fees, and your broker gets a commission every time the fees are assessed.
While your broker stands to benefit from your consolidation of investable assets, you also can make money when you combine accounts. Banks typically have tiered interest rates for savings accounts, which means that you earn more interest when you combine money from two separate accounts. Mutual fund companies reduce sales commissions when your overall share purchases reach certain levels. You are more likely to reach these breakpoints if you consolidate your investable assets.
When you keep all of your investable assets in one place, you expose yourself to the risk that your broker or bank may become insolvent. As of the date of publication, the Federal Deposit Insurance Corporation insures bank deposits of up to $250,000 per person per bank. The Securities Investor Protection Corporation insures securities for up to $500,000 per customer per investment firm, but not all firms are SIPC members. Therefore, despite the benefits of consolidating accounts, if you have a large net worth, you should consider spreading your investable assets across several investment firms.