New Schwab White Paper Helps Prepare Advisors to Implement Second Phase of Cost Basis Reporting Requirements

SAN FRANCISCO--(BUSINESS WIRE)--Continuing its rollout of resources to help advisors transition to new cost basis regulations, Charles Schwab today announced its latest registered investment advisory (RIAs) firms industry white paper, Cost Basis Reporting: Preparing for 2012. The white paper, part of the Schwab Market Knowledge Tools® (MKT) series, provides a preview of changes on the horizon for 2012 and strategies for advisors to manage and communicate with clients effectively. Schwab Advisor Services is a leading provider of custodial, operational and trading support for more than 6,000 independent RIAs.

“The changes coming to cost basis reporting in 2012 are more complex than those that took effect in 2011, making proactive client communication all the more important”

Beginning January 1, 2011, under the Emergency Economic Stabilization Act of 2008, custodians and broker-dealers were required to report the adjusted cost basis of sold equity securities to the Internal Revenue Service for the first time. The new regulations were designed to help capture accurate reporting of investors’ gains and losses at tax time. Since the first phase of the three-year rollout, Schwab has been supporting advisors with tools and resources to help manage the transition and to stay in synch with Schwab’s cost basis data.

“The changes coming to cost basis reporting in 2012 are more complex than those that took effect in 2011, making proactive client communication all the more important,” said Brian Keil, director of cost basis and tax reporting for Schwab. “As custodian, Schwab is arming advisors with resources and strategies on how to manage the changes for a more seamless transition that will help save time and reinforce their value to clients.”

Schwab’s new white paper highlights the biggest issues in upcoming changes to cost basis reporting:

Alerting clients about the extension of cost basis reporting requirements to include mutual funds, exchange-traded funds (ETFs) and dividend reinvestment plans (DRIPs) acquired and sold on or after January 1, 2012
Proactively communicating with clients about the changes to the new Form 1099-B that went into effect this year

These changes have two important implications for the way advisors approach cost basis reporting. First, advisory firms need to ensure that their own client reporting matches the data sent by brokers. Second, for tax-sensitive investing, firms need to consider the tax consequences of a trade at the time of trade, because cost basis methodology cannot be changed after the trade settles. The white paper walks advisors through the changes and recommends steps advisors can take now to ensure a smooth client experience:

Develop a communications strategy. Clients will need to be guided through the changes coming to mutual funds, DRIP shares and ETFs. Just as advisors may have reached out to clients last year about the changes to equities, firms should develop a strategy to explain the legislation that takes effect in 2012.
Train back-office staff. Firms should prepare for workflow changes and a jump in client inquiries, especially when they receive the new Form 1099-Bs containing cost basis information on equities sold in 2011. Even if clients do not hold any equities, the new form will be completely redesigned and advisors’ staff will need to be prepared to answer questions.
Develop a summary sheet. Even if advisors have already reached out to clients about changes to Form 1099-B, many clients will need a reminder as to why they are receiving cost basis information and what they are responsible for reporting on their tax return. A summary sheet can educate and remind clients on how to read information on the new forms.
Contact clients’ CPAs and tax advisors directly. The changes coming in 2012 present a relationship building opportunity to reach out to clients’ CPAs and tax advisors and discuss the new cost basis requirements. By connecting with them, firms can potentially create a more holistic investment and tax-planning experience by using the Form 1099-B to include tax impact in assessing clients’ financial picture.

A video from Brian Keil reviews 2010 cost basis activities and provides a snapshot of 2011.

In addition to the new white paper, Schwab is hosting a webcast series to help prepare advisors for the upcoming regulatory changes. For more information or to register for a webcast, advisors should visit the cost basis resource section of Schwab Advisor Center, Schwab’s website for its RIA clients where advisors can access the latest information: www.schwabadvisorcenter.com/costbasis.

Cost basis legislation also will be a major component of Schwab’s upcoming SOLUTIONS workshops, live one-day educational sessions on advisor technology, held across the country this year.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with more than 300 offices and 8.1 million client brokerage accounts, 1.4 million corporate retirement plan participants, 736,000 banking accounts, and $1.7 trillion in client assets as of May 31, 2011. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Independent investment advisors are not owned, affiliated with or supervised by Schwab. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com. (0611-3890)

Schwab does not provide regulatory, tax or compliance advice. Consult professionals in these fields to address your specific circumstance.

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