Thanks to increased federal regulations, many custodians are providing cost basis information in the files downloaded to PortfolioCenter. Now you have two systems to keep up to date! Fortunately, you can compare the cost basis information downloaded from the custodian to the cost basis in PortfolioCenter and locate the discrepancies via the cost basis reconciliation report.
Before you reconcile cost basis for the first time, prepare PortfolioCenter with these 5 steps to smooth the process and minimize your headaches:
1) Confirm that the taxable status of each account is set properly in PortfolioCenter. Since the legislation requires cost basis tracking only for taxable accounts, you can significantly reduce that processing time and clutter on the report by accurately identifying your taxable accounts. Why waste time reconciling cost basis for tax deferred accounts?
2) Make sure the matching method assigned to each account in PortfolioCenter agrees with the matching method assigned by your custodian — and it is the matching method you and your clients prefer. Remember that changing the matching method in PortfolioCenter only changes the defaults and future transactions. If the matching method in PortfolioCenter was set wrong, you will need to correct the historical transactions.
3) Reconcile the share quantities in PortfolioCenter with your custodian, if you haven’t already. The Share Reconciliation report compares the cash and share quantities in PortfolioCenter with the quantities at your custodian. You should be reconciling daily or at least weekly. If the share quantities don’t match, neither will your cost basis.
4) Scrub your PortfolioCenter database and fill in as many gaps as possible. You should have a system for flagging missing cost basis on new accounts, spinoffs and mergers so that you post and reconcile daily without waiting for information that may arrive days or weeks later. Now is the time to review your system and fill in as many gaps as possible.
5) Once your PortfolioCenter data is accurate and as complete as possible, check with your custodian to see if you can upload the now pristine cost basis from PortfolioCenter to their system. This will get you off to a great start.
Consider outsourcing to an expert.
Resources:
Schwab Performance Technologies Cost Basis Legislation Overview
TD Ameritrade Cost Basis information
Fidelity Institutional Wealth Services Cost Basis Overview
T.Rowe Price Cost Basis Accounting & Calculation
Careful records can result in capital gains