February, 2011 HKFS REALIZED & UNREALIZED GAIN LOSS AND INCOME & EXPENSE REPORTS

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1 February, 2011 HKFS REALIZED & UNREALIZED GAIN LOSS AND INCOME & EXPENSE REPORTS The final December 31, 2010 reports were mailed to clients as well as available on the HKFS website for advisors in mid January COMPOSITES Schwab will deliver 1099 Composites to our clients mid to end of February. SEI will deliver 1099 Composites to our clients by early March. Please remember that Schwab does NOT report any information on group retirement plans such as 401K, PSP, Defined Benefit Plans to the IRS. It is the TPA s responsibility to report to the IRS. Schwab does provide an Account Summary to the trustee of the plan that would be appropriate information to be given to the TPA for help in IRS reporting. REQUIRED MINIMUM DISTRIBUTIONS (RMD) FOR 2011 The Operations Dept. has calculated the 2011 RMDs for all Asset Management (RIA) accounts so if you need that information, please contact your Financial Advisor or Administrative Assistant. Also, Schwab includes the RMD amount on the client s monthly statement in the Distribution Summary section as well. January Schwab statements t t reflect 2011 RMD amounts. We have compared the calculations. HKFS CLIENT STATEMENTS WEBSITE We have made changes to the HKFS client statement section of our website. When you launch your client statements, you can now sort the columns simply by clicking on the column header. For similar view to previous site, we suggest you click on the Package Description or Description columns. Or you can use the Search button (located on left of screen) and type in advisor s last name for Package Name. Please remember that if your client is receiving a Premier report, you will find those reports in your alphabetical list of report packages under P for Premier. If you have any questions, please contact JoAnn Kramer, jkramer@hkfs.com.

2 Operations Update Contd. Page 2 of 5 401K and ROTH 401K ROLLOVERS You may help complete 401K rollover (self-directed) paperwork for your clients. Please remember it is not as simple as choosing the IRA Rollover option. In recent years, ROTH 401Ks are now part of 401Ks so part of the IRA rollover could be a ROTH IRA Rollover. Please make sure you are asking the question and thus making sure the client has an IRA and /or ROTH IRA opened at your custodian to receive the rollover. If the paperwork is completed incorrectly and a ROTH IRA rollover is deposited into an IRA account, it will depend d on whether one check or two separate checks are received into that t IRA. If they receive two separate checks meaning the ROTH IRA rollover amount is separate, Schwab will be able to help correct the error by either doing a deposit correction or moving the assets in kind from IRA to ROTH IRA. If one check is received with combined IRA and ROTH IRA dollars into the IRA, then the client/cpa would need to go through the correction process with the IRS, apply for a private letter ruling by explaining the situation and requesting approval on how to fix it. This is a very time consuming and expensive process. CLIENT SOCIAL SECURITY NUMBER (SSN) OR TAX ID We ve had delays in opening accounts lately because the Social Security Number (SSN) or Tax ID is incorrect on the application. Please be careful to review the SSN or TAX ID with the client when signing applications. Schwab requires a W-9 completed and signed by the client in order to open the account in this situation. In addition, We ve had some issues recently regarding Trust accounts and using SSN vs EIN. When it is a Revocable Trust, many times the SSN is used to open the account BUT there is actually an EIN assigned to that trust. We usually find out when the transfer paperwork is submitted that the TAX IDs don t match. When Schwab is the custodian, they require that an entirely new application is submitted with the Trust EIN, you can t just submit a W-9 9to change the TAXID. Please be aware of this issue and check whether an EIN has been assigned to a Trust when you are opening an account. If the SSN is used to open the account and there is an EIN assigned, Schwab will require new account paperwork thus causing more work and time to correct it. It is not something that Schwab will approve or we can help fix, unfortunately. IRA DISTRIBUTIONS Schwab has changed their withdrawal power rights which affects tax season. Withdrawal Power of Financial Advisor (WPFA) authority grants advisors the authority to move money between identically registered accounts. Starting September 30, 2010, you will need a client-signed letter of authorization or a client-signed standing letter of authorization to transfer client assets between accounts that are not identically registered. Identical registration means that the name on the accounts as well as the type of account, such as brokerage or IRA, must be the same. In the past, during tax season we had the authority to move money between an individual (taxable) account to an IRA but that authority is no longer available. Schwab has created a new Standing Instructions Form for checks, journals, and wires.

3 Operations Update Contd. Page 3 of 5 NEW SEI FORM FOR IRAS SEI has created a new form for IRAs and withdrawal power for investment advisors called IRA Distribution & Tax Withholding Authorization Form. The purpose p of this form is to give HKFS authorization to request a distribution on the client s behalf instead of having to sign an IRA Distribution Form each time. The authorization would allow HKFS to request a distribution payable to client and mailed to the address on record or ACH/wired to a like registration bank account. In addition, we would be able to make changes to existing recurring IRA distributions. CHECKING SCHWAB WEBSITE FOR TRANSACTION FEES FOR TRANSFERS Schwab s new advisor website means some things are in different places than with their previous website. Please familiarize yourself with how to lookup whether a mutual fund is subject to transaction fees which will help you make a decision whether to liquidate the fund at the previous custodian or transfer in kind to Schwab. On the Schwab Advisor Center website, click on Trading and Research (top left next to Charles Schwab logo). Click on the Research tab (on right), then click on Mutual Funds (on left). In Fund Lookup box, enter fund name or symbol and search button. Scroll down to the Fees/Expenses box and find the Status keys. If you see code F, that means Transaction Fee Fund. You ll want to find out what the fees are at the previous custodian to liquidate and make a Decision. SCHWAB ACCOUNT TRANSFER FORM VS CHECK AND JOURNAL FORM To avoid delays, please be careful to use the correct form: 1) The Transfer of Account Form is used to Transfer an account held outside of Schwab into a Schwab account. 2) The Check and Journal Request Form or IRA Distribution Form are used to move funds currently held at Schwab into another Schwab account, regardless if we are the advisor on the account. Schwab will no longer process the wrong form if received. REMINDER ABOUT SCHWAB FORM FOR BUNDLING STATEMENTS If your client has multiple accounts with different account holders, Schwab s automatic process is to put account holders in the same envelope using same name, same SSN guidelines. So for example, a husband and wife s IRA will be mailed in separate envelopes by Schwab. In order to bundle the statements in the same envelope, please have your clients complete and sign the Schwab Statement Bundling Letter of Authorization form. This form is on the Account Checklist. CUSTODIAL TERMINATION FEES As a reminder: Schwab charges $50 transfer out fee and SEI charges $75 transfer out fee. We regularly reimburse termination fees on assets transferring into an Asset Management account with HKFS, however we do not reimburse custodial termination fees when accounts leave us.

4 Operations Update Contd. Page 4 of 5 SCHWAB PHISHING SCAM ALERT We have been informed by Schwab that they have become aware of a new phishing scam on their website. ('Phishing' is a criminal attempt to acquire sensitive information about your accounts, such as user names and passwords.) When a client logs in to their Schwab account either via or after they have entered their user id and password, they get a "Charles Schwab Authorization" pop up window that asks them to provide client data such as mother's maiden name, driver's license, expiration date, occupation, employer, etc. This may or may not affect you, depending upon your computer firewall, anti-virus setup, etc. But we wanted you to be aware of this problem, in case you do experience it. Schwab Technical Support says if you receive this pop up window, you should NOT answer the questions. Unfortunately, the window won't allow you to go any further into the website. If you experience this problem, call Schwab Alliance at immediately. They will help you install anti-spyware software and provide a new user name and reset your password. SIGN UP FOR AUTO REPLY ON PROEQUITIES STP Get automatic replies regarding approval or rejection of your submissions on the ProEquities STP (straight through processing) system. You will save a lot of time logging onto the system to check status. As soon as a submission is reviewed, you will get an alert. You have the option to receive s anytime an STP submission is rejected or approved, and where you want a message sent. Simply go to then Account Login, then Advisor Portal, My Profile, Application i Settings. Set & forget! This tickler lets you know things are OK, or if something else is needed. Just check the message flag. A win for you. A win for clients, allowing you to speed any needed corrections, additions, or changes.

5 Operations Update Contd. Page 5 of 5 SUGGESTION BOX Please JoAnn Kramer at jkramer@hkfs.com with any suggestions. If you have any questions regarding the above information, please contact: New Account Paperwork - Lori Saylor (lsaylor@hkfs.com) x545 Transfers - Jill Herbst (jherbst@hkfs.com) x520 Distributions - Jeanna Schmidt (jschmidt@hkfs.com) x533 RIA Operations Manager - JoAnn Kramer (jkramer@hkfs.com)x509 Brokerage Operations - Sue DeSousa (sdesousa@hkfs.com) x531 Insurance Operations - Jody Steger (jsteger@hkfs.com) x503