Charles Schwab, the brokerage giant, has produced a new report that it says will help registered investment advisor firms make the switch to new cost basis reporting requirements, as part of sweeping new US regulations.

The report, called Preparing for the New Cost Basis Legislation, reviews the forthcoming changes in the reporting of adjusted cost basis of sold securities, highlighting the key changes that begin in 2011. The new law means brokers will have to start reporting on clients' tax statements the gains and losses realized on their investments. They will also have to transfer cost basis information - which is the purchase price of the security plus any fees - when a client moves his or her account to a new brokerage firm. Figures in the industry say this will cause considerable upheavals into how firms do business. 

The US Emergency Economic Stabilization Act of 2008 says, that for the first time, custodians and broker-dealers must report the adjusted cost basis of sold securities to advisors’ clients and to the Internal Revenue Service.

The requirements will be phased in over three years, beginning on 1 January 2011, with equities acquired and sold on or after this date.

Schwab Advisor Services said it plans to introduce technology enhancements to enable advisors to more easily stay in synch with Schwab’s cost basis data.

“As a custodian, Charles Schwab shoulders most of the compliance burden for the new requirements, but we are encouraging advisors to take action as well,” said Brian Keil, director, cost basis and tax reporting, at Charles Schwab.

The report recommends a number of steps, such as the creation of a communications plan, anticipating client needs and evaluating the impact on a back office.

(To view the report in full, click here).