February 12, 2013
What's the most useful tool for your advisory practice that you've probably never heard about? I nominate an online service that fills in the blanks in your client asset management system.
What blanks? Let's say you take on a new client who has a concentrated position in Exxon Mobil. You think that, for diversification purposes, it should probably make up less than 40% of her overall portfolio. There's only one problem — the client has owned the stock for a long time, and she has no idea how much she paid for it.
If you recommend selling part of the stock position, what do you do about calculating her cost basis for tax purposes?
This is exactly the situation for which an online tool called Your Old Money, from Princeton, N.J.-based Investment Archive, was designed. Amelie Escher, the company's founder and CEO, says that when she worked for an advisor who had $200 million under management, she routinely encountered clients who had no purchase price data or no clear idea of when they started owning some of their legacy stock positions. Her advisory firm had hundreds of missing cost-basis fields scattered in the portfolio files, and other advisory firms seemed to have the same problem. "I thought to myself: Didn't anybody have a way to fix this?"she says today.
Your Old Money takes daily price data from GainsKeeper (a Commerce Clearing House subsidiary) and rummages through stock data (going back to 1973) and mutual fund data (back to 1986) in a very sophisticated and helpful way.
You start by inputting a few pieces of information. The client gives you the current value and number of shares he or she currently owns. The client also has to know whether dividends were reinvested. You may have to go through a memory exercise, prodding the client to remember the approximate date that the original stock purchase was made. Can you pinpoint the year? Summer or fall? Can you remember what the weather was like when you talked with your broker?
When you finally enter a fair approximation of the purchase date, Your Old Money's calculation engine figures out how many shares must have been purchased at the average daily price within that time window, taking into account every dividend-reinvestment transaction between then and now, to reproduce today's holdings at today's market price.
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