Keeping Your Accounts From Being Lost to State Governments

I, and everyone else at AAII, try to avoid hyperbole. Though it does prompt people to look at certain articles, screaming “You Really Need to Pay Attention to This (And We Really Mean It This Time)!” from the rooftops doesn’t help anybody invest better. But the Investment Company Institute (ICI) recently issued a warning that I do think you should heed: state governments are claiming the assets of mutual fund accounts whose owners are deemed as being lost.

At first, the warning seemed pretty straightforward. If a mutual fund company loses contact with the shareholder and cannot, after a reasonable effort has been made, locate the shareholder, the account can be deemed lost, abandoned or unclaimed. After a period of time, state governments can add the lost and unclaimed property to their coffers. If you move and fail to notify the financial institutions you transact with of your change in address, there is a risk you could forfeit the money you have placed with them.

What surprised me was the “no contact” standard. According to the ICI, “unless an investor proactively contacts the mutual fund company regarding his or her account once every three, five, or seven years (depending on state law), he or she can be considered lost and the state can claim the account. Importantly, automated features on an account (such as regular, ongoing purchases or redemptions, or reinvestment of dividends) do not necessarily count as contact, so such activity might not protect a shareholder’s account from state escheatment laws.”

I reached out the ICI to get context about how often the “no contact” standard actually results in an account being recharacterized as abandoned. They responded by saying that they are not aware of their member organizations tracking which of their accounts having an automated feature, such as reinvesting dividends, end up as being escheated to the states. Their associated general counsel, added, “We encourage shareholders (1) to protect themselves from these laws before they lose their accounts to the states by contacting their financial institutions at least once a year; and (2) check to see if they’ve already lost property to a state (by going to https://www.naupa.org/.)”

Even if the no contact standard did not exist, it would still be a good idea to periodically check with all of the financial institutions you work with (banks, credit unions, insurance companies, brokers, fund companies, etc.) to ensure all of the information they have on file is correct. You don’t just want to check the address, but also your Social Security number, how the accounts are titled, who has access and, if they’ll keep it on record, emergency contact information. While you’re at it, check your credit report to ensure there aren’t any inaccuracies. (Consumer Reports suggests using AnnualCreditReport.com.)

There are other steps you can take. Never click on a link to financial institution from an email; rather, go directly to the institution’s website using a URL you know to be correct. Use a variety of passwords. A password management program can help with this. (I personally use Dashlane, but there are others.) If somebody calls and asks for your Social Security number or other personal information, hang up immediately—even with they claim to be from the Internal Revenue Service (IRS).

It’s often easy to overlook the seemingly simple steps, but sometimes not ensuring all of the details are correct can lead to unwanted headaches or worse yet, a financial loss. A little effort can help protect the wealth you’ve accumulated and are trying to preserve or grow.

New on the AAII Blog

AAII President John Bajkowski has started to contribute personal insights to our blog. His first post, The Peter Lynch Investor Personality Test, is now online and more commentary from him will follow.

Also, we’ve redesigned the blog’s interface to make it more user-friendly and allow AAII members to comment. If you haven’t been to the AAII Blog lately, stop by and take a look.