Sometimes the investment adage "set it and forget it" can turn into "set it, forget it and lose it," depending on where an investor lives.
Several states have become more aggressive in staking their claims on abandoned property, which can include mutual fund shares and other investments. Earlier this year, South Dakota enacted a law that requires the state treasurer to sell stocks, bonds or negotiable instruments within 90 days of their being deemed abandoned. Meanwhile, an abandoned property law is being considered in the
North Carolina legislature. Last year, Pennsylvania loosened restrictions on declaring that retirement accounts have been abandoned and later put out
clarifying guidance.
The trend of states making escheatment, or the takeover of abandoned property, faster and easier concerns the Investment Company Institute, which represents the mutual fund industry.
"Today, there are 150,000 South Dakota households owning $42 million in mutual fund assets, all of which are at risk of falling victim to the South Dakota state treasury's grab for funds," the ICI said in an
announcement about the state's law.
States are reducing the number of years for which an account has to be dormant, from seven to three, and are changing the trigger from returned mail to the investor's failure to reach out affirmatively to restake their claim on the accounts, according to Tamara Salmon, ICI associate general counsel. Sometimes people realize their accounts are gone when they see a zero balance.
"That comes as a rude awakening for a lot of investors," Ms. Salmon said.
They can get help from their financial advisers in avoiding a state's grab.
Neal Van Zutphen, president of Intrinsic Wealth Counsel Inc. in Tempe, Ariz., had to respond to three escheatment notifications from Charles Schwab & Co. this week. Under state laws, custodians have to classify accounts with no activity as unclaimed property if the investor can't be contacted.
In these situations, Mr. Van Zutphen vouched for his clients and had the escheatment restrictions removed.
The accounts were small and easy for the investor to overlook. For instance, one was a $1,000 money market fund. Another was an individual retirement account worth about $1,900.
"We say these people are alive and well," Mr. Van Zutphen said. "Just because an account doesn't have activity doesn't mean the investor is dead. It just means there's no active management needed for it."
Ted Turner, a registered representative at American Portfolio Services in Osterville, Mass., has helped Fidelity ascertain that clients with small, inactive accounts are still holding them.
"By going to me, they save all those phone calls," Mr. Turner said.
But he's also run into a situation where a fund turned over an account to a state without his knowledge. One firm released a $30,000 money market fund that had been held by one of his clients to the state of Washington, which then sold it. In the transaction, the account lost $4,000, which Mr. Turner is now trying to recover for the estate of the now-deceased client, who was alive when the account was taken from her.
Mr. Turner often recommends a buy-and-hold strategy for his clients. Sometimes that means he has to be vigilant about escheatment.
"I believe in compounding of interest," Mr. Turner said. "Every broker has a responsibility to watch their clients' money, especially older people."
ICI is also trying to alert clients.
"We've got to educate shareholders," Ms. Salmon said.
