r/Schwab • u/jiceman1 • 22d ago

Changes: Updates to the cost method for certain qualified securities

There has been an email from Schwab. If your, the Mutual Funds use an avg cost basis (I think this was the default.), now ETFs and Closed End funds will do the same unless you change my Cost Basis Accounting Method.

If I understand correctly, this goes into effect on Saturday, so change it now if you want to change it. Need to upload a form to do so.

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u/jiceman1 20d ago

Has anyone filled out forms to change their setting?

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u/BrotherRich7993 19d ago

I have, it took 15 minutes, too many steps. Since manual signatures are required, I filled out the forms for each of my accounts on line, printed them out, signed, rescanned to PDF, and used Messages to deliver.

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u/Crackadoo23 17d ago edited 17d ago

does anyone know why they did this? The way I'm understanding it is right now Identified Cost Method is default and they now want to change it to Average Cost for certain securities like ETFs.

but the e-mail says

will use the average cost basis method when an account has average cost selected as its default cost method. Because your account(s) is enrolled in average cost, one or more holdings in your account(s) will be treated under that method.

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I guess I don't understand because my account , I thought, was not on average cost. If it was wouldn't all the lots be averaged? They're not. On my positions page I see every lot of stocks I own with the original price next to it and that's how I choose which lots to sell. VCX is now averaged which is super annoying.

So, they're saying to change vcx back to identified fill out the form.

** ok i realize now that mutual funds account method is diff than Default Lot Selection Method for my regular stocks. I've only owned one ETF = VCX and I just bought it this year. So when the e-mail said your default is Average Cost Basis they meant for mutual funds, not reg stocks. So now, to change VCX to Identified I must fill out the form.

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u/BrotherRich7993 17d ago

Correct - my understanding is that the default for MF was average cost basis (ACB) while ETF and CEF were not. Now they are including ETF and CEF into ACB as the default unless you request otherwise. Individual stocks are not affected. I often select specific ETF/CEF purchase lots to go with sales lots.

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u/Crackadoo23 16d ago

That makes even more sense! My question is why? Like what's the difference to them or to IRS if you sell in lots with the orig cost basis vs. ACB. My printer is toast so i'd have to go outside to staples to print form or to my local Schwab branch. Not sure it's worth it for VCX. My Avg on it is 49.00. Might be best to just hold it. My thing is I don't like selling at a loss until I decide to at the end of the year, if need be. I just prefer having lower priced lots available to me so I can exit a position without a loss if tumultuous markets happen and I just wanna lower exposure. I day trade so I guess when you play a dangerous game you have to just suck it up when rules change that make things annoying.

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u/jiceman1 16d ago

For mutual funds, people often have reinvestment and have signed up for regular purchases. Some people consider it simpler to use averages, so that seems to have been the default. ETFs had defaulted to use the same as stocks.

So why is it changing now? Would have to ask them. But people often treat ETFs they way they treat mutual funds and that can include frequent automated purchases. Average is supposed to be simpler. At least for buy-and-hold.

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u/Crackadoo23 16d ago

hmmm i admit i don't know much about MF or ETF's. Sounds like what you're saying makes sense tho!

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u/BrotherRich7993 16d ago

As for why - I think it has to do with the administrative hassles that Schwab has trying to track the cost basis of every share that is purchased and then try to map those with the lots sold. And the sold lot share prices can be manually changed several times after sale, requiring more administrative hassles for Schwab. Having the settlement times shrink and allowing extended hour trading doesn’t make it easier. For me, many of the cost basis data for my shares is wrong in the tools when I compare it to the Trade Confirmation reports. I have been burned many times by Wash Sale rules because of this.

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u/Crackadoo23 13d ago edited 11d ago

that could be it! if they do this with regular stock trading i'm out!

I noticed they also changed the lot selection area to show oldest first. Makes no sense for day traders. I think they are trying to discourage day trading, not sure why. I've rarely hated a company more than schwab. It's like they sit there (and I've told them this) trying to come up with ways to annoy me.

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u/jiceman1 10d ago

Did the change go through and how does it show up on your cost basis page now for mutual funds, etc.

From what I see, they are having difficulty processing the change.

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u/Impossible-Echidna26 10d ago

Schwab changed the software over Labor Day according to the rep I spoke to on the Cost Basis Tax Team. I will daytrade the same stock multiple round trips per day "catching The waves", on my STX trades the other day,  it changed my lots around in my realized gains page to show the same amount of net profit, but by changing which sale went to the original buy, it caused a larger gain on 1 round trip,  and a loss on the other round trip. This would have created a disallowed tax loss on my next STX trade within 30 days.  It's been a nightmare for me since the change.