I had a recent conversation with a new client who indicated he had received more paperwork as a result of his opening an investment account with us than he had in one of his files for a significant real estate investment. His observation caused me to think about the paperwork we provide our clients and what is truly necessary to maintain. Part of your objective for working with an investment manager is to delegate the responsibility of your investment decisions to a specialist. This means minimizing your day-to-day involvement in the process.
Our clients each receive statements from Cornerstone as well as monthly statements from the custodian, both of which are required to be sent. Often, these are sent electronically unless the client has opted specifically for paper. The custodian has an obligation to provide these statements in addition to trade confirmations to the account holder, and they serve as a secondary check for the account owner. Since these documents from the custodian are often viewed and retrieved on-line, what is important for the investor keep?
Account Origination Documents
This would include your original account application as well as any Investment Management Agreement you have signed with your advisor. These documents are important for you to retain. As investment managers, we have copies of this documentation and provide our clients their own counter-signed copy of the Investment Management Agreement.
Monthly Statements & Trade Confirmations
These do not need to be saved, but some clients prefer a record of past investment balances and decisions. If you receive a copy of your account from both an investment manager and your custodian, compare them for the period and only retain one copy once you have verified their accuracy with one another. This decision alone will reduce your retained paperwork by half. You can keep each account in its own binder, with one binder retained for each year.
As well, if you are working with an investment management firm, it is their responsibility to provide proper record maintenance including cost basis for your securities. This means they should retain the trade records necessary for your account, and you do not need to maintain these documents.
As part of our service to clients, we provide for each taxable account an annual gain / loss report that is useful in tax preparation. These reports should be retained with your tax records for the relevant year.
These can be provided to you by individual companies, mutual funds or Exchange-Traded Funds. There is no need to keep these permanently unless you feel compelled to do so. There is a lot of useful information in these reports, from company financials to expenses for mutual funds. But if you are working with a fee-only advisor, they should be frequently reviewing this information as part of their service to you. If you are not, you may consider reading some of the information provided before disposing of the reports.
There are a number of other financial documents you may have on hand that you would like to consider for disposal. As always, if there is personal information on the statement, shred these documents rather than throwing them away. The following are general rules of thumb we personally use to retain records for a period of time over which they may be useful (but that allow us to get rid of them once their useful period has likely passed).
Bank statements: after monthly reconciliation, we retain these for one year.
Cancelled checks: only checks for major purchases or services (or potentially disputed items) are kept after monthly reconciliation; this would include any charitable contribution where you might not get a report from the organization.
Tax preparation documents: you can be audited for tax documents for the past three years, and (if a problem is found) the past seven years may also be reviewed. As soon as the seven year period has elapsed, it is fine to destroy the tax forms and supporting documents.
Past bills: we retain these for one year.
Past credit card statements: same as above, with the exception of a period where there is a major purchase (one that may be covered by some type of purchasing insurance).