2013 Year-End Technology Action Steps

The start of 2014 is just weeks away. I’ll spare you the comments regarding how fast the year has gone by (and it has), but there are some technology action steps that you should address before we ring in the new year. Some of these items must be done prior to Jan. 1. To help you stay on track, let this month’s article be one of your checklists for finishing out the year.

Required minimum distributions for 2013 need to be processed prior to the end of the year. You should be able to view the details regarding RMD transactions using your custodian’s technology, including how much needs to be withdrawn from each account that is subject to an RMD, as well as any amount that has already been withdrawn. However, it is very important to remember that custodians sometimes don’t have enough information to calculate the RMD due to an account transfer, inherited IRA, etc. It should be someone’s responsibility at your firm to review all accounts that could be subject to the RMD requirement. Don’t wait until the very end of December to do this, as some custodians have cut-off dates prior to Dec. 31 for processing these distributions.

Reviewing both the unrealized and realized cost basis for your clients’ accounts is another critical exercise. It is important to review this for 2013 tax preparation prior to the start of 2014. Now that we are several years into the new cost basis legislation, I hope you are very familiar with the implemented cost basis rules and the information that will be delivered to the IRS by your custodian. You do not want any surprises, so now is a good time to review the information in your custodian’s system and compare it with other products you use. To make this easier for your firm, many portfolio reporting systems are now able to reconcile the cost basis lot details with your custodian using the data files that are provided on a regular basis.

The end of the year is also a good time to review the accuracy of your clients’ account details: home and email addresses, tax ID number, phone numbers, beneficiary information, etc. As I’m sure you already understand, a lot of information is sent to your clients during the first quarter. It could be embarrassing for your firm if an update was missed and then, for example, your client’s 1099 was sent to the wrong address. This is not a complicated task, but it is one that requires your attention to ensure no changes have been missed during the year.

This time of year also includes a significant increase in the number of transactions in client accounts. Examples include more activity due to dividends, capital gains, contributions and gifting stock or other assets. Considering this increase in activity, it is important to remember some of these transactions may be recorded with an “as-of date” in the brokerage account, which would be different from the date the actual transaction is posted. This requires more attention when the posted date is in January 2014 and the as-of date is in December 2013. A common example is when a mutual fund pays a capital gain on Dec. 31, 2013, that is posted to the brokerage account on Jan. 1, 2014. In this example, you want to make sure your year-end performance reports do not under-report the value of an account due to the as-of date transaction.