| Awards for Account Statements |
In choosing a brokerage firm, many people
focus on price or brand advertising or a personal relationship with a particular broker. Here at CostBasis.com, we focus on ... account statements! The monthly account statement from your broker/dealer is your primary data source for maintaining accurate cost basis records. Without full and comprehensive information on the activity in your account,
it is difficult for you as an individual investor
to account for the cost basis of your
investments.
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We look for cost basis features such as:
* reporting of both record dates and pay dates for stock splits and stock dividends
* reporting of exact exchange ratios for stock mergers
* reporting of the fractional share being sold for cash in lieu payments
* display of cost basis and unrealized gain/loss for each tax lot
We also look for a column showing annual income for each security and a summary of projected annual income for the portfolio as a whole. This is for financial planning purposes--how can you do tax planning and financial projections without knowing your projected annual income?
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Here are our findings from an analysis of the account statements of some of the major brokerage and clearing firms:
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Name of
brokerage or
clearing firm |
Tax lot
dates
shown?
|
Unrealized
gain/loss shown? |
Projected
annual
income
shown? |
Record
dates
shown for stock dividends? |
Merger
Exchange
Ratios
Shown? |
Fractional
share amount
shown for
cash in lieu
payments? |
CUSIP
shown
for bonds? |
Charles Schwab
& Co
|
yes |
yes |
partial(4) |
no |
?(3) |
?(3) |
yes |
Fidelity
Investments
|
no(2) |
no(2) |
no |
no |
no |
no |
yes |
First Clearing LLC
(clearing firm for 130+ brokers) |
yes(1) |
yes (1) |
yes |
no |
yes |
yes |
yes |
| National Financial Services LLC(clearing firm) |
no |
yes |
yes |
no |
no |
no |
yes |
Pershing LLC
(clearing firm for 200+ brokers) |
yes |
yes |
yes |
yes |
?(3) |
?(3) |
yes |
| T Rowe Price |
no(2) |
no(2) |
yes |
yes |
?(3) |
?(3) |
?(3)
|
UBS Financial Services Inc
|
yes |
yes |
no |
no |
?(3) |
?(3) |
yes |
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Explanatory Notes:
(1) This option is available.
(2) Information available online but not shown on monthly account statement.
(3) Not determined. The account statements analyzed did not have this type of holding or transaction.
(4) Projected annual income shown for equities and bonds but not for REITs, utilities, ETF's etc.
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The quality of monthly account statement reporting changes over time, too. For instance, Charles Schwab installed new account statement formats in July 2010 which were a considerable improvement over their former statements. It is almost always a question of cost. Brokers that previously provided more detailed information sometimes decrease it to save printing, stationery, mailing weight, or data costs.
If a broker/dealer is self-clearing, such as the major wirehouses, the statement format is unique to that firm. However, many regional and local broker/dealers use the major clearing firms listed above. For those firms, the statement format is similar for all the brokers using that clearing firm. Clearing means handling the trade settlement process and generating trade confirmations and account statements. This function can be outsourced by broker/dealers that wish to restrict their business to executing the investment order and providing investment advice.
Your task as an individual investor is to weigh the cost/benefit ratio of the commission rates against the quality of account statement reporting. In general, the more expensive brokers provide better account statements (but not always.) It's the old saying: "You get what you pay for."
Based upon our limited review of account statement formats and detail, it appears that broker/dealers who clear through First Clearing or Pershing LLC would be able to provide you superior accounting information.
We welcome the opportunity to review the account statements of other brokers and clearing firms. Please send them to us to include in our survey. (Be sure to block out all personal information and account numbers for privacy.)
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Wish List:
We would love to see a brokerage firm that not only lists the total projected annual income for a portfolio, but also shows the growth over time in the income being produced. There is a hidden bias in account statements produced by the major discount brokers because this information is not displayed. It leads investors to undervalue the importance of dividends and the growth in dividends because it takes a lot of digging to figure this out manually on your own.
In the past two years of the financial crisis, investors who stayed with a diversified portfolio of stocks for the most part saw increases in dividend income (except for the financial sector stocks), while fixed-income investors experienced reduced income. As the bonds matured or were called, the funds could not be reinvested at the same yield and interest income declined.
Instead of focusing solely on gains and losses, the brokers could do their customers a big favor by displaying this information to encourage investors to focus on dividends and the income growth and inflationary protection that they offer.
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