Recent Study Shows Financial Service Institutions Underestimate Expenses Related to Cost Basis Reporting

Financial service institutions (FSIs) can expect to be inundated with inquiries when cost basis is first reported to clients for 2011 tax year

Scivantage and TowerGroup to hold webinar to discuss opportunities associated with cost basis reporting requirements

Jersey City, February 17, 2010Scivantage, a leading provider of Web-based, front- and middle-office technology solutions to the financial services industry, today announced the results of a survey entitled “The Cost Basis Preparedness Study”, conducted by TowerGroup in conjunction with Scivantage, which indicates that FSIs are vastly underestimating customer service and ongoing maintenance expenses related to cost basis reporting and those firms that begin preparations in 2010 will have an advantage.

Participants surveyed in Q3 2009 included leading investment management and brokerage firms. The survey was targeted at individuals with intimate knowledge of their firms’ cost basis strategy with 53% of the respondents in operations, 16% were executive managers, 10% in compliance and legal and 4% in IT. The remaining 14% came from other areas including product development and tax.

Beginning in 2011, brokerage firms and mutual fund companies will be required to track and report adjusted cost basis information to both the Internal Revenue Service (IRS) and their clients. With the Cost Basis Reporting Law just around the corner, financial institutions should be well into the planning stages for purchasing and implementing a cost basis system. Failure to comply with even a single component of cost basis could result in significant compliance penalties, service disruptions and disgruntled customers.

“Yet some of the most shocking results were the underestimates by firms for the cost of compliance related to cost basis reporting,” said Sean Cunniff, Research Director Brokerage & Wealth Management, TowerGroup. “According to the findings, it appears the financial industry does not believe that servicing cost basis inquiries will be an enormous burden, with 74% of participants planning to staff less than 10 full-time equivalents to field inquiries and 85% believing they will spend less than $1 million on cost basis customer service annually.”

“As a leading provider of automated cost basis and portfolio tax reporting solutions, Scivantage is providing clients with a competitive edge in deploying a service that meets IRS guidelines proposed for 2010 and beyond,” said Cameron Routh, senior vice president of strategic products, Scivantage. “In particular, we help firms minimize the reconciliation process that accompanies basis reporting, which in turns minimize costs and increases customer satisfaction”.

The survey also found that 86% of respondents will outsource all or some of their cost basis reporting functionality, and that 100% of the respondents building solutions in-house expect to spend at least $3 million on the effort.

To learn more about the impact of cost basis reporting, on Thursday, February 18th at 4pm EST, Sean Cunniff and Cameron Routh will be holding a webinar to unveil the full survey results from this exclusive report and share insight into the pitfalls and opportunities associated with the cost basis reporting requirements.

Key topics covered during the webinar will include:

  • Learn how leading financial institutions are planning to solve cost basis reporting challenges, and discover what some firms are doing to gain an early competitive advantage;
  • Explore the hidden costs of the law, and identifying why firms need to prepare customer service and marketing initiatives right away;
  • Gain insight into the new IRS proposed regulations and learn how they may affect your firm;
  • Review the latest benchmarks on staffing, product capabilities and spending, to see how your firm stacks up; and
  • A live Question & Answer session that will be held to address specific questions on the regulations and overall industry preparedness.

About Scivantage

Leading financial institutions depend on Scivantage for essential front- and middle-office applications that deliver transaction-critical data, automate key business processes and drive operational efficiencies. Scivantage’s proven, back-office independent brokerage solutions offer a powerful suite of applications that span the workflow of financial professionals and support the complex investment needs of the retail investor. From online trading and event notification management to automated account opening, maintenance and funding, Scivantage enables financial institutions and financial professionals to dramatically reduce operational costs, strengthen customer relationships and improve productivity. For more information, please visitwww.scivantage.com or contact us at +1.866.724.8268.

Enabling Financial Transactions. > Automate > Connect > Transact

About Scivantage Maxit

Scivantage Maxit™ is the most comprehensive, automated cost basis and portfolio tax reporting system available. This enterprise solution seamlessly integrates with all major and proprietary back office and clearing systems and offers a full suite of tax-based investment decision support tools for financial advisors and individual investors, including:

  • Complete, real-time cost basis support for investment product offerings, including stocks, mutual funds, index and stock options, ETFs and bonds
  • Automated basis adjustments for corporate actions, including complex voluntary actions
  • Automatic wash sale identification and adjustment
  • Broad lot relief method support, including MinTaxTM, a proprietary tax efficient method
  • Customized tax reports for realized and unrealized gains/losses, IRS Schedule D and Form 6781

In addition to Maxit’s robust set of core features, mutual fund companies will benefit from added functionality to support their unique business needs, including proper treatment for sales charges, sales load deferrals and return-of-capital distributions. Maxit also provides support for share class exchanges, RIC treatment of ETFs and a cost basis step-up tool for gifting and inheritance.

For more information about Scivantage Maxit or to stay informed on the latest information about the newly enacted cost basis reporting law, visit Scivantage’s Basis Reporting Knowledge Base at www.basisreporting.com.

Posted in Press Release.