An interview with Lori Trezza, V.P. Product Management at DTCC
Q. Lori, tell us first about the current status of the long-dreaded legislation that will require public companies – or their agents – to maintain and to furnish all sellers of securities with up-todate cost-basis information.
The legislation passed and was signed into law just a few weeks ago, as part of the “Emergency Economic Stabilization Act of 2008”, affectionately known as “the bailout bill.” Basically, it will require publicly traded companies – or their agents – to maintain cost-basis information about individual shareholder accounts - and to send cost-basis information to any of their shareholders who sell stock on or after January 1, 2011 – and, of course, to send copies of the reports to the IRS. Effective January 1, 2012, all mutual funds, and all dividend reinvestment and other stock purchase plans will also be covered by the Act, and on January 1, 2013 other kinds of securities will also be covered.
Q. When the Optimizer last wrote about this, there were a tremendous number of details to be worked out. Isn’t this still the case, or did someone work a miracle here?
You’re right; there are still an enormous number of details to be decided in terms of administration and processing procedures, the basic “mechanics” of making this all work. The Treasury Department will take the lead here, as most observers hoped they would. But the most important message, I would say – and one that was really driven home at the recent Securities Transfer Association meeting – is “Don’t wait. Start to get ready now.” And, very much worth noting, the Act calls for big penalties where there are instances of noncompliance.
Q. This brings us to AccuBasis, which certainly seems to present a “just-intime” solution to a very complex and very pressing problem. Is this really the case in your opinion?
A year ago, most securities issuers, and their transfer agents, looked at AccuBasis as a potentially “nice to have” service. Most of our issuer clients had signed up because they wanted to provide exceptional service to their investors. But with the new legislation, AccuBasis is starting to look like an absolutely “must have” product. We are really excited to be so far ahead of the curve.
Q. Tell us a little bit about the way public companies have been using AccuBasis now.
Until recently, most companies have simply ‘pushed out’ the availability of AccuBasis on their investor-oriented Websites. Shareholders who need costbasis information can simply access AccuBasis on their own, enter their own information as to when they bought stock, and the system does the calculations. A few companies, like AFLAC for example, have customized the AccuBasis model to take the particular rules of their DRP or employee stock purchase plan into account.
Q. Can you mention some of the companies that are already offering AccuBasis to their shareholders?
Sure. Aside from AFLAC, and The Walt Disney Company, who were among the pioneers, there are a large and growing number of energy companies – like Alliant Energy, Duke Energy, First Energy, Hawaiian Electric, OGE Energy and Otter Tail. Companies like these tend to have a lot of very long-term investors, and dividend-re-investors - and strong local and employee ownership. So they tend to place a lot of emphasis on shareholder service – as do a fast growing number of banks and financial institutions, like Union Bank & Trust, Sterne Agee & Leach, Trustmark National Bank, H&R Block – along with a growing number of other companies, like Johnson Controls, that pride themselves on providing excellent service to their shareholders.
Q. What about going forward? Many savvy investors would like to be able to manage their cost-basis by designating specific blocks of shares for sale. Can AccuBasis compute and report the costbasis for each block of stock acquired by a given investor?
Absolutely. AccuBasis has the ability to take a specific account, make any and all adjustments due to stock splits or spin-offs, and record the actual costbasis for each block of stock acquired - whether through subsequent purchases or dividends reinvested. We are discovering that many issuers – and many of their transfer agents, past and present – do not have all the historical pricing information, and possibly lack long ago corporate action information, all of which are imperative to a shareholder for accurate cost-basis reporting. The AccuBasis database goes back as far as 1925 and, as the 2008 Forbes Investment Guide noted, “The information is definitive.”
Q. Let’s talk a bit about dividend reinvestment plans, employee stock purchase plans, so-called mandatory exchange and tender offers, and spinoffs. All of these products and situations would seem to present pressing needs for accurate cost-basis information – even without the legislation. Can’t AccuBasis calculate an investor’s actual cost-basis right up front, and send it to them, in lieu of the incredibly complicated verbal descriptions they send now, that always end with “consult your own tax advisor”?
Yes. It’s very easy to do in a merger or spin-off, and it’s only a little bit harder in the case of DRPs and employee plan holdings, where there tend to be many individual purchases, including shares acquired through reinvested dividends. It is worth noting that these kinds of transactions generate a lot of inquiries about cost-basis, over a very long period of time. We’re also told that this is one of the largest sources of complaints that companies get about “shareholder service”. So it can really pay off to handle this proactively.
Q. What about the costs involved, and who absorbs them?
As far as cost, so far, not too many companies have been interested in absorbing or sharing the costs, but I think this may well change in light of the legislation. In the case of a merger or spin-off it would certainly seem to make sense to calculate and to proactively send out the actual cost-basis to each shareholder up-front. We are also talking with many agents who see that this service can help them win business. And, increasingly, given the new legislation, many companies – and their agents – are seeing this as a shareholder service that is becoming critically important. Some brokerage firms, for example, want their brokers to be able to see the client’s cost-basis information when it’s time to make a sale. Many DRP agents may also want to have this kind of information more readily available to shareholders than it is today.
Q. It surely does look as if AccuBasis is indeed a service that has come along “just in the nick of time”. Where do you see it going next?
With the new legislation looming, securities issuers – and their transfer agents and plan agents – will have to make a decision whether to build, to partner or to buy some kind of cost-basis reporting service. AccuBasis is ready to fill-the bill for any of those business models. We have the historical pricing and corporate action and dividend data and the calculation engines that will drive the production of 1099 forms for sales, whether the shareholder chooses average cost basis or a specific method. Carl, we’re ready now.
For more information about AccuBasis, contact Joyce Rosen at 212-855-3935, or jrosen@dtcc.com. Or visit www.Accubasis.com
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