Tag Archive: Brokerage

Wells Fargo “closed” my PMA account

August 4, 2008 23 Comments

Early last year, I applied for the Wells Fargo PMA account package so that I can gain access to their free trade program. However, I did not regularly use the checking (PMA) account and didn’t think much of it. Then in March this year, I read from this Bogleheads post that the PMA account might be closed for “inactivity”. So, I made a reminder to generate some sort activity at least once a year in the checking account.

However, recently, I received an email from Wells Fargo:

02-AUG-08

Our records indicate that your Bill Pay fee account XXX-XXXYYYY has been closed.  A Wells Fargo fee account is required for your Bill Pay service.  To select a new account for automatic payments, go to the Payee Details screen for each payee and select a new Default Payment Account in the Payment Details section.  If this is the only account linked to your Bill Pay service, please contact us at 1-800-956-4442.

This is not good. I log-on to my account online and true enough, my checking account is on longer listed. If the checking account is closed, then it would mean that my access to the free trade program would be terminated.

I called up Wells Fargo. The first CSR told me that my account is not closed but is “dormant” and she can fix it for me. I then asked her for the reason and she says that it is because there is no activity. I said there is one transaction in April, and her reply was that she can only look back to June. Anyway, she then requested to place me on hold. About two minutes later, she came back and told me that I need to re-activate the account “at a local branch”. I press her to see if she can do anything and she says that there is absolutely nothing she can do for me to reactivate through the phone. I was disappointed, because I hate to visit a branch and perhaps have to listen to some sales pitch while they re-activate the account.

I decided to call Wells Fargo again, hopefully I can get a more helpful CSR. This time, a gentleman answered the phone. I explained that I have a “closed” account and requested that he re-activated it. He put me on hold for a minute or so and told me that he cannot re-activate it but I can re-activate it myself by using making a purchase with using a pin-based transaction on the check card. I asked him if using the check card at an ATM machine would work. He said yes. I thanked him for his time.

Later that same day (8/2/08), I used the check card and successfully pulled out $20 from a Wells Fargo ATM machine. I also deposited a small check through the ATM to “increase the activity”. I checked online but the account is still not listed. Perhaps it will come back on the next business day.

8/4/08 Monday (next business day) morning: my checking account is still not listed. I will wait for tomorrow and see if it comes back, and update this post.

8/5/08 Tuesday: account is still not activated. Called Wells Fargo again. This time the CSR is more helpful. She agreed to send in a request to activate the account but it will take 3 to 5 business days. I asked her what caused an account to be flagged as dormant. She told me that any account without any “physical” activity for one year would be flagged as dormant. Physical activity means that you have to perform the transaction through the teller; pin-based (e.g. through the ATM) or electronic transactions (e.g. ACH transfers) DO NOT count. Oh well, looks like a trip to the bank is unavoidable if I want to get it re-activated quickly. This also means that to avoid future hassles, I should visit the branch and perform a transaction with the teller at least once a year.

8/6/08 Wednesday: My checking account has been re-activated. To see the checking account online again, I do need to choose “Add Accounts” under the  “Account Services” tab to add the account again. You can only add it back if the account is no longer flagged as dormant. Anyway, I am not sure which action caused the account to be re-activated again: whether it was my transactions last Saturday or the request I made through the CSR on the phone yesterday. I do need to think of a way to prevent it from being flagged as dormant in future.

Brokerage, Investing

Specific share identification mutual fund redemption at Vanguard

April 22, 2008 1 Comment

Background

Many investors are aware that when they sell a mutual fund or stock with a gain, they have to pay capital gains taxes for it. On the other hand, if they sell with a loss, they can claim a tax loss on it, as long as the transaction does not run foul of the wash sale rule. Fairmark has an extensive section “Capital Gains and Losses 101” that covers this in detail.

Unless an investor is selling the entire holding, it is usually best to identify specifically which shares are being sold. However, the identification part is somewhat confusing. The following paragraph from Fairmark explains why this is so:

The traditional way to specify the shares you’re selling is in the form of an instruction to your broker:

Sell 50 shares XYZ from the lot purchased on March 12, 2005.

This makes it sound like the broker has to do something special — possibly locate those specific shares, or at least make a record of some kind indicating what shares you sold. Some brokers will tell you “we don’t offer that service.” But in reality the only thing the broker has to do, besides executing the sale transaction in the normal way, is send you a written confirmation that you specified shares from the lot purchased on March 12, 2005.

This post is a review of my experience with specific share identification mutual fund redemption with Vanguard.

The Process

Prior to the day of redemption, I created a list of the tax lots I wanted to sell. These are basically the tax lots which have the highest cost basis and which will give me the maximum capital gain loss which I can claim on my tax return next year.

I then created the following message (which is a variant of the message, as suggested by seugene, from reference [1])

Subject: Specific Identification Sale of Mutual Fund

Dear Vanguard,

This is to inform you that for the following trade(s) placed today in my taxable joint account, I want to use the specific share identification method for capital gains calculation.

(A) Vanguard Total Stock Market Index Admiral Fund VTSAX, redeeming XXX.YYY shares from the following lots:

1) MM/DD/YY XX.YYY shares
2) MM/DD/YY XX.YYY shares

I understand that I am responsible for tracking my cost basis.

Please acknowledge that you have received this message.

Thank you.

Dated MM/DD/YYYY.

On the day of the redemption, I sent the above message via a secure email to Vanguard and then placed the sale of the specified number of shares online as per usual.

A few days later, I received the following confirmation:

Dear indexfundfan:

Thank you for your e-mail regarding your desire to use the specific share identification method (as defined in the Internal Revenue Code) for purposes of determining your cost basis. I am responding on behalf of your Flagship representative, XXX.

We acknowledge receiving your specifications, identifying the particular shares purchased on several dates to be redeemed from your Vanguard Total Stock Market Index Admiral Fund in the account #XXX. To assist you in making an adequate identification of such shares, we are confirming your specifications as outlined below in accordance with federal regulation section 1.1012-1(c)(3) of the Internal Revenue Code.

You are redeeming XXX.YYY shares from the following lots purchased on the following dates:

1) MM/DD/YY XX.YYY shares
2) MM/DD/YY XX.YYY shares

In the event you were using a different method to determine cost basis (for example, average cost method), you may need written consent from the Internal Revenue Service (IRS) to change to the specific share identification method. Consult your tax adviser if you have any questions concerning tax reporting methods or for additional assistance.

Please be advised that Vanguard’s recordkeeping systems support the average cost basis method of basis determination, not the specific share identification method. Therefore, it is your responsibility to keep sufficient records to support your basis determination under the method you have chosen, including but not limited to tracking the cost and related gain or loss of shares [exchanged, redeemed] for purposes of reporting that information to the IRS.

Additionally, since you are using the specific share identification method for tax reporting, any average cost basis statement that you may receive from Vanguard for this fund and account should be disregarded.

I have forwarded a copy of this e-mail to your representative. If you have any further questions, you may contact your Flagship Representative at 1-800-XXX, extension XXX. If your representative is unavailable at the time of your call, the next available trained representative will be happy to assist you. If you prefer, you may ask to be transferred to his voice mail. He will promptly return your call.

Flagship’s business hours are Monday to Friday from 8 a.m. to 10 p.m. and Saturdays from 9 a.m. to 4 p.m. Eastern time. You may also feel free to visit our website at www.vanguard.com, 24 hours a day, 7 days a week.

Sincerely,

XXX
Registered Representative
Vanguard Flagship Services

I printed a copy of the above to PDF and save it together with the secure email I had sent out a few days earlier.

That’s it. I now have a written confirmation that the brokerage had received my instructions to redeem specific shares of my mutual fund.

PS. The Fairmark article linked above has a brief section discussing the “legality” of whether an email confirmation (versus a paper confirmation) is sufficient. For my personal records, I am inclined to think that the secure email is sufficient, but another person’s situation could be different.

Reference

[1] Boglehead forum discussion.

Brokerage, Investing, Strategies, Tax Issues

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Review of VEIEX to VWO ETF conversion at VBS

April 18, 2008 4 Comments

For various reasons already discussed (Should I convert…? and Is it worthwhile to pay the ETF conversion fee?), I recently converted my Vanguard Emerging Markets Index mutual fund holding (VEIEX) to the ETF class of the fund (VWO). The following is a review of the conversion process.

Prior to conversion

My VEIEX holding is in the taxable account with Vanguard. From the prospectus, it is stated that:

If you convert your conventional shares to ETF Shares through Vanguard Brokerage, all conventional shares for which you request conversion will be converted into ETF Shares of equivalent value. Because no fractional shares will have to be sold, the transaction will be 100% tax-free. Vanguard Brokerage does not impose a conversion fee over and above the fee imposed by Vanguard.

I was especially curious about the “100% tax-free” part because it implies that VBS must be supporting some kind of fractional share tracking. I sent Vanguard a secure email, asking specifically if VBS supports the trading of partial ETF shares. The following is their reply:

With regard to your question, depending on the conversion rate of the fund, it could be possible for you to end up with fractional shares of an ETF. In order to sell fractional shares in your brokerage account, you would need to sell your entire whole share position in the given security. Any remaining fractional shares will automatically be sold on the settlement date of the transaction, which is normally three business days after the trade date. For example, if you own 500.346 shares of XYZ Inc., you would simply enter an order to sell 500 shares of XYZ. When the trade settles three business days later, the fractional shares are automatically liquidated and no additional commissions are charged.

I think their reply is reasonable: VBS does not support the trading of partial shares; but if you sell the entire holding, the partial shares will be liquidated automatically without any additional charge.

Note: I asked the same question on the Bogleheads forum and received answers from jeffarvon and stan1 even before Vanguard replied.

The conversion

I called up Vanguard Flagship service on a Wednesday morning and told the rep what I wanted to do. He first made sure that I already have a VBS account and then transferred me to the VBS department. The VBS rep confirmed the following:

  • No fees for the conversion for Flagship clients.
  • The conversion is completely tax free. Vanguard will exchange fractional shares if necessary.

I was also told that I can enter the cost basis of the tax lots into the system at VBS after the conversion. The tax lots can be broken into fractional share if necessary. I told the rep to go ahead with the conversion.

On Wednesday night, I noticed my VEIEX holding was zeroed out. Under the “Transaction History” tab, an entry with transction type “Conversion from” was added. The mouse-over balloon shows the information on the conversion prices (for VEIEX and VWO) and the number of shares of VWO I would get. At this point, the VWO shares have not been deposited into my VBS account.

On Thursday night, the correct number of VWO shares were deposited into my VBS account.

After the conversion

What that is left for me to do after the conversion is to enter in the tax lot information. I had already prepared this information before hand and calculated the equivalent number of VWO shares for each tax lot in a spreadsheet.

To enter the cost basis, I clicked on the “Cost Basis” link under the VBS account, and then followed by the “Enter cost” link. This takes me to the following page:

2008-04-12-vwo-tax-lots.png

By default, only five lines for data entry are available but more lines can be added by using the “save and insert more lines” link. I successfully entered in 32 tax lots. After I submitted the information, it took one business day for the data to be updated.

Overall, the conversion process was done without any hiccups. The most painful part was actually for me to get information of the 32 tax lots and then enter them into the system.

Brokerage, ETF, Investing, My Portfolio

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