Vertical Stuff Transaction Printers Should Know

By | October 11, 2010

A quick note on some regulations that are impacting transaction documents in the Financial Services Vertical:

1. Cost Basis Reporting

2. 401(k) Fee Disclosure

The Emergency Economic Stabilization Act of 2008 is best known for the $700 billion bailout provision – but also includes new requirements for financial intermediaries  to report adjusted cost basis  to investors and the Internal Revenue Service (IRS) for securities transactions. The stated goal of the legislation is to provide investors with the means to accurately report gains or losses on the sale of securities for their annual tax filings. However – a more realistic perspective would be that the government wants a way to ensure that investors are accurately reporting gains and losses (particularly the gains!) on their annual tax filings. In 2005, the IRS estimated that the US federal government was losing approximately $11 billion in tax revenues due to the failure of investors to accurately report adjusted cost basis information and it has likely gotten worse since then.

While adjusted cost basis will be required to be reported on the 1099-B, many firms are also preparing to include  it on customer statements so that their customers are aware of the tax consequences of their trading activity. At minimum, firms are preparing messaging strategy around this issue. This legislation will impact Equity holdings (brokerage) in 2011, Mutual Funds (held directly or through brokerage) in 2012 and debt investments and options holdings in 2013. The DTCC provides a good overview of the reporting requirements and open questions. This will make statements and possibly trade confirmations and 1099-B forms longer – significantly longer for firmst that do not currently report holdings at the tax lot level.

Next on the list of regulations making envelopes fatter is the US Department of Labor who will be issuing new guidelines in the next 30 days to require 401(k) plan sponsors (employers offering 401(k) plans) to provide plan-participants (employees invested in the plan) with more-detailed information on the fees and expenses associated with the investments in their retirement portfolios. While the legislation talks about the plan sponsors, in reality, the process changes will fall on the backs of the recordkeepers who support them – companies like Fidelity Investments, T. Rowe Price, Schwab, TIAA-CREF – who are the same companies dealing with the cost basis changes as well. Investment News is a pretty good source to keep on track of changes for the 401k market – however they are more concerned with the potential litigation aspects of the issue than the impact on customer communications.

What does this all mean to you? Well, if you are a service provider, this is a great opportunity to help your clients out with redesign and plain language services to minimize the impact of providing the new information. In situations like this, the impact on page count is a concern, but the phone ringing off the hook due to new and confusing information can be even more costly in the short term. If you don’t have the expertise in-house to provide this type of vertical market redesign and consultation – now would be a good time to find a partner because the regulatory changes aren’t going to stop any time soon. With the right partner – you have a chance to be a real hero to customers struggling with these regulations – and that’s the kind of relationship you want to build right?

So keep up with the “vertical stuff transaction printers should know” and have a real conversation with your next customer or prospect.

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