DTCC Forms Strategic Alliance To Deliver New Cost-Basis Solution
Signing the strategic alliance agreement: Nico Willis, chief executive officer of NetWorth (left) and James Balbo, DTCC managing director, Asset Services.
DTCC and NetWorth Services Inc. have formed a strategic alliance to offer a new service that provides security issuers, transfer agents, broker/dealers, mutual fund companies and other financial services professionals with cost-basis information quickly, accurately and efficiently, solving a problem that has plagued the industry and its investors for years.
Investors need cost-basis information to properly report gains or losses when filing tax returns and in determining the unrealized gains or loss of a position. Researching cost-basis information, however, has proven to be difficult, time-consuming and expensive.
The solution
The new service, which will be offered through DTCC Solutions LLC, a DTCC subsidiary, is Web-based and enables an investor to obtain cost-basis information in a matter of minutes. The investor goes to the Website of the transfer agent, issuer, mutual fund company or other financial services firm and clicks on the cost-basis link. This connects them to the DTCC/NetWorth Website where they can access cost-basis information by inputting the CUSIP number, the security name or the ticker symbol of the security and the approximate date of purchase. The site can be designed to look as if it is the Website of the fund company, issuer or agent. Another option is for organizations to host the Website and bring it in-house by special subscription.
The cost-basis service automatically calculates the historical security changes caused by stock splits, mergers, dividend reinvestments and every other possible cost-basis adjustment, including security pricing history that dates back to 1925. It quickly retrieves financial information from its massive database, recreates a complete history of an individual security and then delivers the accurate, adjusted cost-basis information – all within a matter of minutes.
Joan DiBlasi, senior manager, Shareholder Services, Aflac
The Internal Revenue Service (IRS) and major accounting firms are already using the cost-basis service to calculate the adjusted cost basis for listed equities and mutual funds.
"This is just the kind of cost-basis service we've been looking to offer our customers," said Joan DiBlasi, senior manager for Shareholder Services at Aflac. "We get so many investor requests for help on cost basis, and too often the search for this information turns into a long, drawn-out manual process. It’s a time-consuming task. We need to make this information easily available to customers, and this service will help us do that."
Industry problem
Cost-basis information has always been a problem for investors, causing customer dissatisfaction for the broker/dealers, issuers, transfer agents and other financial executives that investors rely upon. Cost-basis information is determined by a variety of factors that can affect the value of a security. The original purchase price and how it was purchased – through a dividend reinvestment plan, an employee stock option plan or at a discount market price – has a direct impact on cost basis, as do corporate actions such as stock splits, mergers or spinoffs.
Investors often turn to their broker/ dealers, transfer agents or issuers, assu-ming they can supply them with the information. And while some firms provide a form of cost-basis reporting, there’s no guarantee that the information is complete, accurate or up-to-date.
Mutual fund companies, for example, get thousands of requests a year for tax information, with investors asking the companies to reconstruct the cost-basis history of a security. This process – which now can take hours or even days to complete – would be automated and streamlined by the new service, reducing costs for both the fund company and investor.
Customer requests
"This service will provide the industry with the cost-basis tool it has needed for some time," said Joseph Trezza, DTCC vice president, Asset Services. “We’ve met with many of our own customers in recent months to discuss the cost-basis issue and they all asked for the same thing – a cost-basis solution they could offer their customers that's fast, accurate and reasonably priced. And they wanted it sooner rather than later.
"We looked at available cost-basis services and quickly realized that NetWorth was far and away the best and that it was a product we wanted to offer our customers," said Trezza. "Many of our customers, including financial institutions and other service providers, see the cost-basis solution not only as an important value-added service for present clients, but as a way to attract new customers."
Perfect fit
"We're very excited about working with DTCC," said Nico Willis, chief executive officer of NetWorth. "Our cost-basis service is the most robust and comprehensive in the market today. This strategic alliance gives us the opportunity to introduce our service with DTCC – the corporation that has set the benchmark for excellence in providing standardized and automated solutions for the financial services industry. It is a perfect fit."
The Taxpayer Advocate Service, an independent office within the IRS that works to protect individual taxpayer rights, has reported that the cost-basis service "can reduce taxpayer burden by stream-lining documentation of cost-basis calc-ulations during audits and can create a reliable standard for taxpayers, preparers and the IRS."
Willis said NetWorth developed the cost-basis product in direct response to countless inquiries from investors, institutions and financial service professionals needing a standardized, cost-effective and accurate cost-basis tool that can be customized to meet specific customer needs.
DTCC already offers a service that auto-mates and streamlines the transfer of cost-basis information when a customer moves an account from one firm to another (assuming the first firm maintained that information). That service is a companion service to DTCC’s Automated Customer Account Transfer Service (ACATS). ACATS enables banks and broker/dealers to submit, review and settle account transfers in an efficient, automated environment. @
[For more information on the new cost-basis service, contact Joseph Trezza at 212.855.4400 or jtrezza@dtcc.com.]