Fidelity delivers a white paper and a warning to RIAs regarding new cost-basis rules
Multi-custody arrangements and third party platforms can lead to troublesome data fragmentation, the Boston custody giant says
Jim Starcev
I think I would side with Fidelity on this one. Syncing cost basis data between a custodian and a third party system is hard (I know because I did it for years as Managing Principal at Etelligent Consulting). The biggest challenge was not addressed in the article. That is selling partial lots. The example of the 1000 shares of IBM that was acquired over 10 dates (10 lots). If you sell 500, which do you sell. Most people default to FIFO (first in, first out), but there are multiple ways you can do this (high cost, LIFO, versus, etc.). Getting this to match how it is coded at the custodian is challenging. If it doesn’t match, not only this trade, but the shares left will not match what is reported. Even if the custodian downloads cost basis info, which would be very helpful, this is still going to be hard to reconcile.
Brooke Southall
Hi Jim,
Thank you for taking the IBM example to the next level and for rendering an opinion on this whole challenging topic. Of course, it makes me wish I’d called for your opinion for the article in the first place!
my best,
Brooke
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