How Bear Stearns Manages The Cost-Basis Crunch
With the arrival of tax season, brokers throughout the industry are once again contending with the time-consuming, frustrating and tedious search for cost-basis information.
One firm that identified a solution to dramatically streamline the work of providing up-to-date cost-basis reporting information to brokers and clients is Bear Stearns. According to Steven Callan, associate director at Bear Stearns and executive vice president of the Customer Account Transfer Division of the Securities Industry Association, the implementation of DTCC’s Cost-Basis Reporting Service (CBRS) two years ago has benefited the firm’s large network of brokers and their customers.
Mountains of paperwork
Cost-basis reporting, which provides a history of the transactions on a client’s account, is a key part of the information assembled each year for tax preparation. The data consist of asset records and associated tax lot records.
When brokers or clients move from one firm to another, cost-basis records for the corresponding accounts are updated and sent to the new firm. With millions of accounts worth billions of dollars being transferred from one financial institution to another each year, efficient and accurate cost-basis data transfer has become a higher priority.
“When we received new accounts into our firm, the sales staff needed to obtain the client statements in order to manually update the cost-basis information into a new system,” Callan said. “If further information was needed, the sales staff may have needed to contact the client to get it.”
This labor-intensive approach proved increasingly burdensome and inefficient. “Our sales assistants were spending more and more of their time on cost-basis reporting issues, which meant less time spent on important client management issues,” Callan said. “We needed to implement a system that would allow us to reduce the time and paperwork our sales staff dedicated to tracking down this information.”
Steven Callan, associate director, Bear Stearns
Logical and cost-effective
CBRS, launched in May 2003, is a companion to DTCC’s Automated Customer Account Transfer Service (ACATS). Created in 1985, ACATS allows banks and broker/dealers to submit, review and settle account transfers in an efficient and automated environment.
Available to all ACATS customers, CBRS creates an automated process in which cost-basis information is transferred between firms’ portfolio systems. The process begins when an account is transferred through ACATS and reaches “Settle-Close” status. From this point on, for the next 10 business days, cost-basis data for assets in the account can be sent to DTCC during the day. The system sorts the data after ACATS has completed its daily asset settlement process, which allows CBRS to have the most current transfer information.
Choosing CBRS was a logical, cost-effective decision for Bear Stearns, which had been an ACATS user from the beginning. Callan said the service was relatively easy to implement, since it involved building upon current systems.
As the first step in the implementation process, Bear Stearns built the capability to work with DTCC’s file format platform, according to William Kapogiannis, DTCC director, Product Marketing and Development. Once the application was in place, DTCC supported Bear Stearns in testing its application. Altogether, it took the firm several months to get the application into a production environment.
Life made easier
Since rolling out CBRS, Bear Stearns has reaped multiple benefits. “Our sales assistants now have more time to focus on other responsibilities, such as portfolio management, client contact and cash management,” said Callan. “Another plus is that when brokers move to new firms, they can focus on learning systems and getting to know people, instead of dealing with cost-basis paperwork.”
While Callan said it is impossible to quantify the hours and dollars saved by the implementation of the cost-basis system, he added that anecdotal evidence indicates CBRS has made a difference.
“The brokers we work with are happier with this service because it allows the information to flow through seamlessly,” he said. “And the clients are happy because they can now get their information immediately and move on.”
All in all, it sounds like a less taxing tax season. @
[For more information on the Cost-Basis Reporting Service, contact William Kapogiannis by e-mail at bkapogiannis@dtcc.com.]