If you are like me, you have a to-do list of items that need your attention. I actually have two checklists—one for longer term items that I need to stay focused on, and another for tasks that I need to accomplish each particular day. Depending on the time of the year, my checklists can become fairly extensive—especially at the end of the quarter or year. As it relates to technology and the business operations for your firm, there are a number of important items that you should review and complete prior to the end of the year. Some of these items are time-critical and must be completed prior to Dec. 31. Other items assist with starting the new year a little smoother and with less stress because of the preparation work already completed. However, the unique challenge with the end of the year is that time can easily get away from you. This is particularly true when you consider all the external holiday events, and the likely scenario of one or several staff members on vacation. Take the time early in the month of December to make sure that you have a solid foundation in your technology. So in the waning days of 2010, here is my recommended checklist for advisors to prepare their firm’s technology for 2011.
The place to start with your year-end checklist is with your reporting. Your clients are likely expecting a report or a set of reports early in the new year to tell them where they stand and how they got there over the last year. As early as the first week of January, some of your clients (if not most) will begin the process of gathering documents in preparation for filing their 2010 tax returns. This includes reviewing documents such as their year-end account statements, gain/loss reports, and their 1099 tax reports.
In order to get a little ahead of the potential client questions with this event, it is best to send your clients a message detailing the estimated timeline for the availability of these documents. You can head off many calls simply by including instructions on how to access these documents electronically. Some clients can often get confused in regards to accessing this information, in addition to forgetting their log-in information (username and password). It is much easier to address any “account access” problems earlier in the new year versus when a client is pressed for time to finish their taxes. And it is always a best practice to make sure your client understands that some of their tax reporting documents can be revised based on the investments they hold, especially as it relates to their 1099 tax reports.
Another reporting area to focus on prior to the end of the year is cost basis. Ensuring the cost basis is consistent between your custodian’s statements and your own performance reports is always important, but it is even more critical at the end of this year. Beginning in 2011, with the new cost basis rules for equities trades going into effect, you should be prepared for more questions from your clients (and potentially their accountants) in this area, even though the new legislation does not apply to 2010 tax returns. Needless to say, managing your client’s cost basis information will no doubt require more attention in the years ahead. Do yourself a big favor and start with a strong foundation by making sure that your 2010 year-end cost basis information is accurate, and that the cost basis you report is the same as your custodian’s reports.
Exporting your clients’ account balances as of Dec. 31 from your custodian’s website is another simple item that can really be a time saver in the event you need quick access to the information. Most brokerage and custodial systems provide account information as of the previous day’s market close as well as real-time account information. Therefore, the best time to export this information into a product like Microsoft Excel is the first business day following Dec. 31. This is basic advice, and it is very simple to complete the process, but it could offer valuable information and untold time savings when you are dealing with a reconciliation issue between the end-of-year balance information in your systems and your custodian’s. Of course, the Dec. 31 account statements are always available, but it is simply much easier to have this information stored and ready to use in Microsoft Excel.
Another area that requires your attention before the end of the year where technology can assist is making sure that you have fulfilled the required minimum distributions (RMD) for your clients with IRA accounts affected by this rule. Of course, this was not a concern in 2009 since Congress waived this requirement, but the RMD rule is back in place for 2010. Your custodian’s technology platform should be able to tell you the total amount of the RMD for the year and how much remains to be withdrawn from the IRA. Remember, the RMD needs to be processed in 2010, so be sure to review your list of affected accounts early in December.
Processing your account data files for reporting purposes can be one of the more challenging tasks after the end of the year. Generally speaking, the overall volume of transaction activity increases dramatically, especially if you own a significant amount of assets that pay dividends and capital gains, and the reinvestments that often go along with those payments. With all of this account activity, it is important to remember that some transactions that occurred at the end of the year may not be reflected in the custodian’s account until early 2011. In these cases, the transactions should have a “posted date”—which is the date when it arrived in the account—and an “as of” or “transaction date”—which is the date when the account was due the payment or receipt. These fine details are very important because if you do not recognize the correct date, transactions could inadvertently be excluded from a report. For example, a mutual fund pays a capital gain as of Dec. 30, but the transaction is not reflected in the client account until Jan. 2. Therefore, for reporting purposes you would want to make sure that the Dec. 30 date is reflected so that it is properly included in your year-end reports. This is another simple item on the surface, but can lead to extra work and frustration when it is not accounted for properly.
With the introduction of new laws regarding the safety and security of client data, it is incumbent upon advisors to review their data sources and their own data handling procedures. Add to your year-end checklist a plan to confirm that all outside vendors who have access to your client data have not had a security breach during the year. This is a required task for many financial institutions, and it certainly is a best practice for advisors. At a minimum, it will give you confirmation and documentation that your client data has been protected during the year. And of course this is a good record to have on file during an audit with the regulators. Also, it sends the right message to your outsource vendors that you are closely monitoring how they protect your client data.
I’m sure that you already have a fairly extensive year-end checklist to manage. Adding the items discussed in this article should not be too much of an additional burden, and it will save your firm time and costs as you start 2011. A checklist of this sort should also help you better serve your clients and perhaps minimize the sometimes unavoidable confusion that occurs with year-end account statements and tax reports. The more preparation you can muster and questions you can answer in December should yield increased availability to address new issues that will inevitably arrive in January—which we all know is when we can certainly use more time.
Dan Skiles is the executive VP of Shareholders Service Group in San Diego. He can be reached at firstname.lastname@example.org.