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Schwab ETF splits causing Quicken Portfolio Discrepancies

GeezerGeek

On 10/11, Schwab split ETF shares for several funds, including SCHA, SCHD, SCHF, SCHV, SCHX, and SCHZ, just to name a few. If you owned fractional shares of any of the split ETFs, your Quicken Portfolio will likely show discrepancies in the share balance. Quicken assumes that the fractional shares split but when Schwab added the additional shares to the account, they only added whole shares and dropped any fractional shares after the split. If you had 10.3 shares of a Schwab ETF before a 2 for 1 split, Schwab added 10 additional shares to your account giving you a share balance of 20.3 shares after the split. Quicken will add you 10.3 shares to your account giving you a share balance of 20.6 shares after the split causing a 0.3 share discrepancy in your share balance from what Schwab shows. Often, brokers sell the fractional shares and post the proceeds. Maybe Schwab will do that tomorrow but, in the meantime, your Schwab ETF portfolio holdings may not match your Quicken portfolio holdings.

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Tom Young

And, of course, Quicken's quote provider also downloaded post-split share prices back to 10/7, causing a drop in your net worth that doesn't actually exist.

GeezerGeek

I had not noticed that. My net worth is taking a beating, according to Quicken. Net worth is down about 15% today from what it was yesterday. Schwab reports I'm up about 1%.

GeezerGeek

Just got this message from Schwab. It is dated the 9th but was sent and received today. The Cash-in-lieu for fractional shares won't be posted until the 14th>

"Date: 10/9/2024

Category: Important Notification

Schwab Asset Management® will be forward splitting shares of 20 Schwab ETFs on October 11, 2024, at the ratios shown in the table below. For each of the ETFs, the forward share split will increase the total number of outstanding shares and reduce the share price by the same ratio. As a result, while eligible shareholders with shares at the time of the split will receive more shares, the split does not change the total dollar value and cost basis of their ETF position(s). We will be allocating cash-in-lieu of any fractional shares resulting from the split.

Changes to the number of shares from the forward splits may not be fully reflected and accurate in shareholder accounts until market open on October 11, 2024. Cash-in-lieu from any fractional shares will show in accounts on October 14, 2014."

GeezerGeek

And it looks like the problem with the Quicken equity prices that Tom Youg reported has now been fixed.

https://community.quicken.com/discussion/comment/20457135#Comment_20457135

GeezerGeek

If you Google "Schwab ETF splits", you can get a list of what Schwab ETFs split and what the split was. I've also pasted in that information below. After my morning October 11 download, Quicken prompted me to accept the splits, which I did. After the splits were applied, my Quicken share balances reconciled with the Schwab share balances except for the fractional shares which Schwab is supposed to adjust on October 14.

Ticker	Fund	Record date	Payable date	NAV/share as of 9/24/24	Split Ratio
SCHG	Schwab U.S. Large-Cap Growth ETF	10/9/24	10/10/24	103.90	4-for-1
SCHD	Schwab U.S. Dividend Equity ETF	10/9/24	10/10/24	85.02	3-for 1
SCHM	Schwab U.S. Mid-Cap ETF	10/9/24	10/10/24	83.20	3-for 1
SCHV	Schwab U.S. Large-Cap Value ETF	10/9/24	10/10/24	80.26	3-for 1
FNDX	Schwab Fundamental U.S. Large Company ETF	10/9/24	10/10/24	71.55	3-for 1
FNDB	Schwab Fundamental U.S. Broad Market ETF	10/9/24	10/10/24	70.18	3-for 1
SCHX	Schwab U.S. Large-Cap ETF	10/9/24	10/10/24	67.74	3-for 1
SCHB	Schwab U.S. Broad Market ETF	10/9/24	10/10/24	66.39	3-for 1
FNDA	Schwab Fundamental U.S. Small Company ETF	10/9/24	10/10/24	59.58	2-for-1
SCHK	Schwab 1000 Index® ETF	10/9/24	10/10/24	55.16	2-for-1
SCHP	Schwab U.S. TIPS ETF	10/9/24	10/10/24	53.78	2-for-1
SCYB	Schwab High Yield Bond ETF	10/9/24	10/10/24	53.36	2-for-1
SCMB	Schwab Municipal Bond ETF	10/9/24	10/10/24	52.33	2-for-1
SCHA	Schwab U.S. Small-Cap ETF	10/9/24	10/10/24	51.57	2-for-1
SCHR	Schwab Intermediate-Term U.S. Treasury ETF	10/9/24	10/10/24	50.76	2-for-1
SCHJ	Schwab 1-5 Year Corporate Bond ETF	10/9/24	10/10/24	49.69	2-for-1
SCHO	Schwab Short-Term U.S. Treasury ETF	10/9/24	10/10/24	49.06	2-for-1
SCHZ	Schwab U.S. Aggregate Bond ETF	10/9/24	10/10/24	47.66	2-for-1
SCHI	Schwab 5-10 Year Corporate Bond ETF	10/9/24	10/10/24	46.28	2-for-1
SCHF	Schwab International Equity ETF	10/9/24	10/10/24	40.76	2-for-1

GeezerGeek

Well, Schwab screwed this up, not Quicken. Schwab posted the Cash-in-lieu transactions as deposits instead of sales of fractional shares. That means that the shares reported in Quicken will not match the shares held at Schwab if you had any fractional shares created by the split. To get the accounts to balance, you will need to change the deposits into sales but first you have to determine how much of a fractional share was sold. What a PITA! I'm going to call Schwab and complain. If you also had this problem, I would suggest that you also complain to Schwab.

GeezerGeek

I just got off the phone with Schwab. You can see the sales for the fractional shares on Schwab.com but they are not listed under "History", which only shows the cash deposits. If you go to "Positions" page for the account and click on "View Realized Gain/Loss" link, which is on top right side of thepage, you will see the detail for the fractional share sales. To fix the problem in Quicken, you will need to change the Schwab downloaded Cash-in-lieu deposits into fractional share sales using the data shown on the Schwab.com page. Since I had six Schwab accounts with these fractional share deposits, I will have to create 29 sale transactions to get my Quicken share balances to match the Schwab share balances. Still a pain but not as big of a pain as determining the quantity of the fractional shares. [Edited - Language]

Tom Young

@GeezerGeek

"Well, Schwab screwed this up, not Quicken. Schwab posted the Cash-in-lieu transactions as deposits instead of sales of fractional shares."

That's exactly how it will be reported on your 1099. Brokers, as far as I know, have always reported CIL in this fashion. I've never had a CIL reported any other way through various brokers. The onus has always been on the taxpayer to "know" how to handle this sort of event. I'd bet you dollars to doughnuts that most taxpayers simply report CILs as some sort of "income."

GeezerGeek

@Tom Young

Fortunate for me, they were all in tax deferred accounts so I won't get a 1099-B for this. But you are right, a lot of folks will get capital gains generated by the Cash-in-lieu transactions and for some folks it could be a short term gain. One big advantage of ETFs is their tax efficiency but this is one case when an ETF has generated capital gains tax. I don't know why Schwab didn't just post the fractional shares to the account instead of giving cash-in-lieu. They post fractional shares if you reinvest dividends so why not for splits?

Tom Young

@GeezerGeek

All brokers handle the situation in that fashion, as far as I know. The brokers aren't calculating how many shares you should have received. The information they're dealing with is how may shares you did receive and how many dollar you did receive as CIL, so that's what they report.

Bananabowl

For the cash in lieu, I believe the correct entry is to use a "return of capital" not a sale, as no shares were sold. I owned some of the same Schwab ETF shares that you listed and had the same issue last Friday. For the split, instead of putting in 3:1 for FNDB, put in oldshares:newshares. I had 1659.3578 shares prior to the split. They gave me 3318 new shares, and now I have 4977.3578 shares. They don't actual "buy" your old fractional share, they give you cash in lieu of shares for that fractional part. But, you still end up owning your original fractional shares, plus the new shares that they gave you.

Pretty sure that I did this correctly, but if you have thoughts, I'd like to hear them.

GeezerGeek

@Bananabowl

When I accepted the splits last Friday on 10/11, Quicken assumed that the fractional shares split too. It is true that I never owned those fractional shares generated by the split but Quicken reported them in my account, even though they were never reported on Schwab.com. So, when I downloaded the cash-in-lieu transactions Monday on 10/14, Quicken reported that my share balances in Quicken did not match the share balances on Schwab. To get my shares to balance, I created those sales of the fractional shares that I never actually owned just to get the Quicken share balances to match the actual number of shares that I owned. All total, I had to change the 29 downloaded cash transactions into sales transactions to get my share balances to reconcile.

It sounds like your experience with the split was different than mine. If your experience was the same as mine, Quicken would have reported you with 4978.0734 shares after the split. On Monday, when you downloaded the cash-in-lieu transactions, Quicken would have reported that your share balance was off by -0.7156. To get your shares to balance, you then could of created a sale of those partial shares and reported the cash-in-lieu as the proceeds from that sale.

I have no idea why my experience with the split was different than yours. It surprized me that more people didn't report a Schwab share discrepancy problem after the splits. Maybe that was because most people had the same experience with the split as you did. The only reason I can think of that may have caused my experiece to be different is that on 10/10, the day before the splits posted, I had to manually move shares from one Schwab account to another because of an Schwab Intelligent Portfolio problem. Maybe for some odd reason, that messed up the splits.

GeezerGeek

@Bananabowl

It sounds like your experience with the split was different than mine. If your experience was the same as mine, Quicken would have reported you with 4978.0734 shares after the splits. On Monday, when you downloaded the cash-in-lieu transactions, Quicken would have reported that your share balance was off by -0.7156. To get your shares to balance, you then could of created a sale of those partial shares and reported the cash-in-lieu as the proceeds from that sale.

I have no idea why my experience with the splits was different than yours. It surprised me that more people didn't report a Schwab share discrepancy problem after the splits. Maybe that was because most people had the same experience with the split as you did. The only reason I can think of that may have caused my experience to be different is that on 10/10, the day before the splits posted, I had to manually move shares from one Schwab account to another because of a Schwab Intelligent Portfolio problem. Maybe for some odd reason, that messed up the splits.

Tom Young

There's a real "sale" behind the cash in lieu you receive. The issuing company gathers together all the fractional shares and sells them on the open market, then distributes those dollars to individuals based on the fractional shares that they legally were eligible to receive, but didn't.

Treating the CIL as "proceeds" from the sale of those fractional shares is the correct way of going here.

____________________________________________________________________________

https://www.fool.com/knowledge-center/how-to-report-cash-in-lieu-on-schedule-d.aspx

Technically, you'll have cost basis in whatever fractional shares produced the cash in lieu, and so you won't owe taxes on the full amount of the cash you received. You'll report both the cash and the basis on Schedule D, noting the sale of whatever fractional share resulted from the transaction.

____________________________________________________________________________

q_lurker

@Bananabowl

For the cash in lieu, I believe the correct entry is to use a "return of capital" not a sale, as no shares were sold.

Not in my experience. Don't know why an ETF would be different. Cash-in-lieu is receiving cash instead of receiving the fractional share. You are effectively getting the fractional share (not buying it, you already owned it) and then selling it for that amount of cash. You can bet on it showing up on your 1099-B next year if this is a taxable account. Even if it is not a taxable account, the transactions get recorded the same way.

Bananabowl

The reason I don't see it as a sale is because they didn't take away the fractional shares that I already owned. They just didn't give me new shares proportional to those fractional shares. They only gave me new shares to match my full shares that I already owned. Then they gave me cash instead of shares for the fractional shares I already owned. Introducing sales transactions at this point seems like it would screw things up.

Tom Young

"The reason I don't see it as a sale is because they didn't take away the fractional shares that I already owned."

That's completely irrelevant. The number of additional shares you should have received if the company was issuing fractional shares is simple math: the number of shares you own times a number. Whether the number of shares you own before the split is "round" or includes fractions just doesn't matter.

"They only gave me new shares to match my full shares that I already owned."

That is simply wrong. That's not how the math works. They did the math as indicated above and if the math resulted in a new fractional share needing to be issued, they lopped off that fraction, sold it for you, and gave you cash instead.

"Then they gave me cash instead of shares for the fractional shares I already owned."

No, they gave you cash instead of the new fractional share you should have received. That's why it's a sale, not a return of capital.

Here's a real-world example. In my case I owned 630.4202 of Schwab's International Equity ETF prior to the split. The split ratio was 2 for 1 meaning that I should have received 630.4202 additional shares and owned 1,280.8404 shares after the split. But I only received 630 additional shares as they "lopped off" the additional .4202 shares I should have received, and I ended with a final position of 1,280.4202 shares. They sold that missing .4202 fractional share and sent me money instead. So I had to enter a sale of the missing shares in order to get my Quicken position in line with what Schwab reported.

"Introducing sales transactions at this point seems like it would screw things up."

This point indicates to me that you're relying on "downloads" from Schwab to Quicken to "do your accounting for you" and the absolute fact of the matter is that while that works for most plain-vanilla transactions it very, very frequently simply doesn't work reliably for corporate actions. Using Quicken's stock-split "wizard" here would, initially, indicate you owned more shares that Schwab was indicating you owned (as shown in the example above) and introducing the sale of the missing fractional share (at a gain or loss) is exactly what fixes the situation.

GeezerGeek

As I mentioned earlier, Schwab doesn't post the sales of the partial shares in "History" on their website but if you go to "Positions" page for the account and click on "View Realized Gain/Loss" link, which is on top right side of the page, you will see the detail for the fractional share sales. Here is the sales data for the fractional shares in one of my accounts:

q_lurker

And previously @GeezerGeek wrote:

Fortunate for me, they were all in tax deferred accounts so I won't get a 1099-B for this.

So even though his example is (apparently) a tax-deferred account, the fractional share cash-in-lieu transactions are reporting with small long term gains (in his case). That means they are effectively sales and should be treated as such in Quicken to be fully accurate. Naturally, any one user can decide on their own how to manage their own Quicken transactions to suit their own needs.

Bananabowl

Thanks for the feedback. I decided to go back and recode the transactions related to the splits where I owned fractional shares, based on the comments in this thread. Luckily, I avoided the worst case because most of my ETF shares are in my taxable account, and I did not select dividend or capital gains reinvestment on those because I didn't want to take a chance on dealing with this type of a scenario in the event of a split. It's less of an issue with a tax exempt account becuase you don't really need to account for cost basis in the same way, unless you want to. But, I'd like my records to be as accurate as possible, so this was a good discussion.

GeezerGeek

@Bananabowl

I agree. I never reinvest dividends/cap-gains in my taxable accounts. It just makes figuring out the taxable gains too messy. The brokers now provide that information on the 1099's (if the transactions were after 2011) but I'd rather know what the taxable gains are before the end of the year for tax planning purposes and I rather calculate the cap gains myself than to rely on Quicken to tell me what they are.

GeezerGeek

One final consequence of the split that you may find in your price history of these ETF splits that @Tom Young referred to earlier. The prices of the ETFs from 10/04/2024 to 10/10/2024 in your Quicken price history may have been adjusted for the split even though the split didn't happen until 10/11/2024. That caused my net worth to be under reported for those 6 days. I thought that I could fix the problem by Updating Historical Prices in the Quicken Investing tab but that didn't fix the problem. Instead, I had to delete the price history quotes from 10/04/2024 to 10/10/2024 for each of the ETFs and then Update Historical prices. That fixed the problem. So, I learned that Updating Historical prices does not fix any bad quotes unless you first manually delete the bad quotes.

Tom Young

@GeezerGeek

" The prices of the ETFs from 10/04/2024 to 10/10/2024 in your Quicken price history may have been adjusted for the split even though the split didn't happen until 10/11/2024. That caused my net worth to be under reported for those 6 days."

That does typically happen within Quicken for stock splits, but in my case the downloaded quotes for the ETFs I owned were not adjusted until the actual split date. Seems quite odd that we'd have different experiences here.

jefforum

https://community.quicken.com/discussion/comment/20459244#Comment_20459244

I had the same experience as @GeezerGeek and appreciate his post so that I could correct my prices for 10/4 to 10/10 as well.

GeezerGeek

@Tom Young I don't know when Quicken updated the prices for the ETFs for the date range 10/4 to 10/10 but if they were updated before 10/11, I think I would have noticed the drop in my net worth. It seems likely to me that the prices for that date range were retroactively adjusted on 10/11 when the splits were reported. That is just a guess based on my recollection.

q_lurker

There is a defined hierarchy as to how the sources for quotes are prioritized.

Hierarchy for prices entered

Manual price entry
Current Price (Quote)
Historical Price (Quote)
Price downloaded with broker data through One Step Update or Update Now
Import Price (CSV)
Transaction Price entered when manually entering a transaction in the brokerage account list.

Each entry method overrides the price(s) received by the method just below it. This means that the price displayed after entering a Buy transaction (for example) would be replaced by the price imported from a CSV downloaded from an investing site (such as Yahoo! Finance), which would be replaced by the price transmitted by the broker when performing One Step Update, and so forth.

ref: https://www.quicken.com/support/how-update-security-prices/

While I believe that to be substantially reliable, I do wonder if for unusual circumstances, it does not get properly followed. I have not been able to prove any missteps at this point.

In the cases recently cited above, there was likely a "current price", #2, in place. Only after that price was deleted was the "historical price", #3, allowed to fill in that data.

I have seen inconsistency as to when "current quotes" and "historical quotes" adjust prices for splits (and some other corporate actions).

GeezerGeek

@q_lurker Thanks! However, I can't figure out what the source is for #2, Current Price (Quote). It can't be from Investing, Portfolio, Update, Quotes because that could be updated during the trading day so that could be a transient price, not a closing price, which you would not think would have a precedence as high as #2.

According to the precedence, the historical price I downloaded should have replaced the price in the price history unless it was a (1.) Manual entry price (which it wasn't) or (2.) Current Price (Quote), whatever that is. The only other option would be that it was also a Historical Price, and the precedence rules don't allow a Historical Price to replace a Historical Price, even though I would think that the latest Historical Price should replace an earlier Historical Price if the values are different.

Then again, maybe this just another "inconsistency", like some others you have seen with associated with "splits (and some other corporate actions)".

q_lurker

It can't be from Investing, Portfolio, Update, Quotes because that could be updated during the trading day so that could be a transient price, not a closing price, which you would not think would have a precedence as high as #2.

That is exactly the source - or the other similar access points.

from a Investment portfolio view, or this selection

from the One-Step update setting, or similar options.

Of course it is a transient price during the day. That source includes the current intra-day prices (delayed 15 or so minutes unless Real-time quotes are applicable), and the prior 4 days closing, high, and low prices and the trading volumes. The transient price is only a consideration for that one particular day and eventually gets overridden by the closing price for that day.

So #2 Current Price (Quote) is a bit of a misnomer. It is the set of information from the data supplier they contract with for 'current' prices. That hierarchy is not saying today's intraday price overrides the closing price yesterday or three days ago.

I believe a newer download from any of the 6 sources will override an older download from the same level source. So a #2 Quotes would provide a current intraday price at noon on Tuesday with hi, lo, vol as of noon. The same #2 Quotes downloaded on Thursday would override the Tuesday values with closing price, Hi, lo, and volume while adding in Wednesday's closing data and Thursday's data.

I believe that 5-day window for 'current' quotes dates back long-long ago when it was more common for users to update their information once a week. One could do that Friday evening or during the weekend and get the full week-long picture of prices. (I actually paid Intuit $2.95/month for that service back in the day.)

the precedence rules don't allow a Historical Price to replace a Historical Price,

Not clear where you are coming up with that interpretation. My explanation above takes the opposite (more reasonable?) view.

GeezerGeek

"the precedence rules don't allow a Historical Price to replace a Historical Price,"

"Not clear where you are coming up with that interpretation. My explanation above takes the opposite (more reasonable?) view."

@q_lurker The reason I stated that "a Historical Price (doesn't seem) to replace a Historical Price" is that I could not get the prices to update when I downloaded Historical Prices. Since I knew that the existing price wasn't precedence 1 and didn't seem at that time to be precedence 2, I thought that it was a case of a historical price trying to update a historical price, which didn't happen. Now that you have clarified what the Current Price is, it seems likely that the old incorrect price history was from Current Price.

It also seems that the Current Price process on 10/11 applied the split to prices five days back. I didn't know that Quicken updated prices four days prior but that could explain why the pre-split prices changed. Odd that Historical Price had the right prices, but Current Price applied the split to the pre-split prices. Do you know if there are different data suppliers for Historical Price versus Current Price?

In days of old, I used to do weekly price updates. I didn't remember the "$2.95/month" download service, but that's probably because I was too cheap to pay for it. Everything was manual entry for me. However, I did download price data with Prodigy and import it into Quicken. Things have changed a bit since then.

Thanks again for the detailed explanation.

q_lurker

Do you know if there are different data suppliers for Historical Price versus Current Price?

I believe they are different suppliers for some reason. I do not have reliable information on who the parties are. I do think the Quotes supplier also provides the additional security information.

I am pretty sure I have seen both Quotes and Historical price data adjusted for splits. It is something I've learned to be alert to. I also find if I keep up with downloading prices, the split adjustments on prices before the split are minimized.