Escheatment Process for Investment Accounts: A Step-by-Step Guide

Managing unclaimed property is a vital responsibility for financial institutions - especially when it comes to investment accounts. Whether you're a broker-dealer overseeing brokerage assets, a recordkeeper handling retirement plans, or a transfer agent managing shareholder records, the escheatment process presents complex compliance challenges for securities.

At Eisen, we help institutions protect both client assets and organizational integrity. In this guide, we’ll walk through the escheatment process for investment accounts and show how to manage it with greater accuracy, efficiency, and confidence.

What Does Escheatment Mean for Investment Accounts?

Escheatment is the legal process by which unclaimed or abandoned property is transferred to the state after a period of inactivity. In the context of investment accounts, this often includes:

• Brokerage account balances
• Uncashed dividend or distribution checks
• Unclaimed mutual fund or ETF holdings
• Dormant retirement accounts (e.g., IRAs, 401(k)s)
• Stock or bond positions with no recent activity or contact

Investment assets become subject to escheatment when there’s no owner-initiated activity or confirmed contact within the state’s defined dormancy period. Once that period expires, financial institutions must attempt to contact the owner. If those efforts fail, they are legally obligated to remit the assets to the appropriate state unclaimed property office.

The Escheatment Process for Investment Accounts

Managing escheatment for investment accounts requires a multi-step process to ensure compliance and protect both the institution and the account owner. Here's a step-by-step breakdown:

1. Identify Dormant Accounts

The first step is determining when an account becomes dormant. Common dormancy triggers include:

• No owner-initiated transactions (e.g., trading or transfers)
• No owner-initiated communication (e.g., emails, phone calls)
• Returned mail marked undeliverable
• Uncashed dividend or interest checks

Each state sets its own dormancy period - typically between 3 to 5 years for investment accounts.

2. Perform Due Diligence Outreach

Before remitting assets to the state, institutions must attempt to contact the owner. This usually includes:

• Mailing notices to the last known address
• Sending emails or digital outreach (if permitted)
• Documenting all outreach attempts for audit purposes

Due diligence must be performed within a specific window prior to the escheatment reporting deadline, often 60 to 120 days before filing.

3. Liquidate Eligible Securities

Most states require liquidation of fractional or whole shares before remittance. However, there are exceptions based on the type of account and specific state laws.

Institutions must:

• Sell assets in a commercially reasonable manner
• Record the liquidation date and proceeds
• Retain records for potential owner claims

Delays can lead to market value loss, making timing critical.

4. Report and Remit the Unclaimed Property

After outreach and liquidation, institutions must:

• Prepare and submit a NAUPA-formatted unclaimed property report
• Remit either the securities or cash proceeds, as required by each state

Reporting timelines vary, but most states follow spring or fall deadlines.

5. Maintain Records and Stay Audit-Ready

Holders must retain:

• Owner contact history and activity
• Due diligence documentation
• Liquidation and remittance records
• Copies of submitted reports

Retention requirements often span 10+ years. Staying organized is essential for passing multi-year audits.

Challenges Unique to Investment Account Escheatment

Escheatment for investment accounts is significantly more complex than for standard deposit accounts. Financial institutions must navigate a range of unique challenges, including:

• Tracking and liquidating fractional shares
• Managing dividend reinvestment programs (DRIPs)
• Handling worthless or non-transferable securities
• Ensuring compliance with Required Minimum Distributions (RMDs) for retirement accounts
• Identifying states where returned mail triggers dormancy
• Navigating inconsistent dormancy timelines across jurisdictions
• Balancing ERISA fiduciary obligations with state unclaimed property laws

Failing to address these complexities can result in regulatory penalties, reputational harm, and loss of client trust - particularly since most states require escheated securities to be liquidated, potentially impacting asset value.

How Eisen Simplifies Escheatment for Investment Accounts

At Eisen, we help financial institutions confidently manage the complexities of investment account escheatment. Our platform is purpose-built to reduce risk, streamline operations, and ensure full compliance:

• Escheatment Manager: Automate the full escheatment lifecycle - identifying dormant accounts, performing due diligence, filing state reports, and remitting assets. Say goodbye to spreadsheets and manual errors.
• Disbursement Manager: Enables secure, efficient remittance of cash and securities, with support for multi-state compliance and real-time reconciliation.
• Outreach Manager: Delivers automated, audit-ready communications to maximize owner reactivation and reduce escheatment exposure.

Managing investment accounts requires precision, coordination, and proactive compliance. Eisen turns a burdensome regulatory obligation into a seamless, secure process - protecting your institution, your clients, and your reputation.