The Cost Basis Reporting Market: An Update
Although the first regulatory effective dates for reporting adjusted cost basis have passed, the cost basis reporting market continues to evolve in terms of technology requirements, regulations, and firm adoption.
During the past six months, Celent conducted close to 50 interviews with broker-dealers, mutual funds, transfer agents, custodians, prime brokers, and technology providers to determine their status as it relates to cost basis reporting. Celent presents the results in a new report, The Cost Basis Reporting Market: An Update. The study discusses major trends and developments in the cost basis reporting market after the first effective date has passed, and examines where firms are headed in terms of technology adoption to address cost basis reporting requirements.
Although most firms have been conducting training programs and hiring additional staff to prepare internally, many have not adequately communicated the changes to investors. Celent believes that a more proactive approach to communication will stem the expected inflow of inquiries.
”Firms should expect a substantial amount of call volume and inquiries related to these 1099-Bs and other cost basis questions,” says Isabella Fonseca, Research Director at Celent and coauthor of the report. “Cost basis reporting may initially be viewed as nothing more than a compliance requirement, but the new regulations provide an opportunity for financial services firms to enhance client relationships and promote greater trust and transparency.”
“In 2010, most investment firms were taken by surprise with the complexities of the cost basis reporting regulations and the breadth of enhancements that needed to be made. Calculations surrounding the 2012 and 2013 effective dates are very complex and present an even greater challenge,” says Alexander Camargo, Celent Analyst and coauthor of the report. “It is important for firms to start early to get a handle on the fixed income regulations for 2013.”
The report defines cost basis reporting and looks at how the regulations have changed compliance requirements. It analyzes areas in which cost basis reporting can provide value-added services to end users, and looks at trends for both financial services firms and technology players. The report also provides an analysis of the major challenges and technology decisions by market segment and size of firm. A detailed look at technology needs and CBR capability requirements for each market segment follows. The report then provides an analysis of existing challenges and lessons learned after the first round of implementation for the January 1, 2011 effective dates. It concludes with Celent’s projections regarding where cost basis reporting is headed.
Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].
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Table of Contents
Changes to Cost Basis Reporting Requirements
IRS Notice 2011-56
Cost Basis Reporting Trends and Developments
Use of CBR Solutions by Market Segments
Mutual Fund Firms
Transfer Agents and Custodians
Client Decision-Making Process
Market Segment Decisions and Priorities
Importance of Cost
Mutual Fund Firms
CBR Capabilities Required by Firms
Challenges and Lessons Learned
Perceived Gaps and Challenges
Leveraging Celent’s Expertise
Support for Financial Institutions
Support for Vendors
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