Dividends: While your shares are on loan, you’ll receive a cash substitute payment, i.e. a cash payment in lieu of the actual dividend. These are taxed as ordinary income (Box 3 on your 1099-MISC), which, depending on your marginal tax rate, and the account your shares are coming from (taxable or tax-advantaged), may be at a higher rate than dividends. Betterment Securities’ system is designed to lend securities when Betterment estimates that your earnings will exceed incremental tax costs, based on your self-reported financial profile information. Neither Betterment nor Betterment Securities guarantees that earnings from lent shares will offset tax impact.
Voting Rights: You temporarily lose voting rights for any shares on loan. Voting rights are transferred to the borrower for the duration of the loan.
SIPC Coverage: Loaned shares are not SIPC-protected, but borrowers must pledge cash collateral—at least 100% of the loaned shares’ value—to secure the loan and reduce risk.
Related Articles