answer like a pro

“I’m already well diversified — I deal with three or four different institutions.”

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“I’m diversified — I have investments in three banks.” Here’s a response that clarifies the difference between location and allocation.

Having multiple institutions doesn’t guarantee effective diversification

When it comes to financial diversification, many people instinctively associate the concept with holding investments at multiple institutions. It may seem logical: more accounts, more diversity, less risk… right? In reality, this belief is often mistaken and can even create a false sense of security.

Diversifying your portfolio doesn’t mean “opening several bank accounts” or “working with multiple advisors.” It means “strategically allocating your assets across different types of investments, economic sectors, geographic regions, and time horizons.” It’s this allocation not the number of institutions that truly reduces risk.

False diversification: a common trap

Let’s take a concrete example: an investor holds three investment accounts at three different institutions. In each one, they own a typical balanced fund made up of 60% Canadian equities and 40% bonds. The result? The investor believes they’re diversified, but their overall exposure is essentially tripled. In reality, they’re concentrated in the same asset classes, the same geographic regions, and often the same major companies (Canadian banks, Shopify, CN, etc.).

Duplication is common. Major Canadian institutions often use similar models in their mutual or model portfolios, leading to significant overlap in the securities held. Therefore, having multiple accounts or advisors doesn’t necessarily mean your strategies are truly complementary.

True diversification is multidimensional

Effective diversification is built on several pillars:
  • Asset class diversification: equities, bonds, real estate, cash, alternative investments.
  • Geographic diversification: Canada, United States, developed markets, emerging markets.
  • Sector diversification: technology, consumer goods, healthcare, energy, finance, etc.
  • Time diversification: combining short-, medium-, and long-term horizons to reduce volatility.
  • Currency diversification: to mitigate the effects of fluctuations in the Canadian dollar.
This allocation must be designed globally, regardless of how many institutions are involved. What matters is the consolidated asset allocation not the number of platforms where the assets are held.

The hidden costs of having multiple institutions

Working with multiple institutions can reduce overall efficiency:

  • Lack of coordination: no comprehensive view, making it impossible to maintain a coherent tax or estate strategy.
  • Redundant fees: each institution charges its own management fees, often for similar strategies.
  • Compromised tax optimization: tax-efficient strategies (e.g., holding bonds in an RRSP and equities in a TFSA) require unified management.
  • Greater monitoring effort: multiple statements, different interfaces, and a more complex overall picture to track and update.

An integrated approach: the key to true diversification

A good financial advisor will establish a strategy tailored to your risk profile, goals, and tax situation. They’ll take into account all your assets — regardless of where they’re held to build a coherent strategy. Conversely, working with multiple advisors without coordination often leads to a fragmented, redundant, and inefficient portfolio… ultimately, one that’s riskier than it appears.

In conclusion

Diversification is not measured by the number of institutions, but by the quality and complementarity of the assets held. Having three or four accounts at different banks won’t protect you from an economic slowdown if all your investments follow the same trends. For true risk management, a well-structured strategy within a consolidated portfolio is far better than scattered investments without an overall vision.

Sources :

  • Autorité des marchés financiers (AMF) – “Diversifying Your Investments”
    https://lautorite.qc.ca/grand-public/investissements/conseils-cles-avant-dinvestir/diversifier-ses-placements
  • TD Canada Trust – “Portfolio Diversification Strategies”
    https://www.td.com/ca/fr/investir/placement-en-direct/articles/diversification-de-portefeuille
  • National Bank – “Diversification: Why and How to Properly Allocate Your Investments?”
    https://www.bnc.ca/conseils/finances-personnelles/placements/pourquoi-diversifier-portefeuille.html
  • GFM Financial Group – “Diversifying Your Portfolio: How and Why?”
    https://gfmgroupe.com/blogue-details/456/diversifier-son-portefeuille-comment-et-pourquoi
  • Morningstar – « How diversified is your portfolio really? »
    https://www.morningstar.com/articles/1091407/how-diversified-is-your-portfolio-really