Derek Pain: It might cost a lot but certificates are the best option
No Pain, No Gain
Friday 11 October 2013
Are small shareholders being squeezed out of the stock market? Never before have they felt such relentless pressure and there must be a very real danger a great many will not survive for much longer. With the European Union seemingly intent on abolishing paper share certificates there has also emerged moves within the City to increase charges by so much that investing for the little player will no longer be worthwhile.
A few weeks ago I highlighted that the EU wants to ban new share certificates by 2015 and kill off the whole paper process by 2020.
Now, to add insult to injury, one leading stockbroker has dramatically increased fees as it attempts to push clients into pooled electronic nominee accounts. It blames higher regularity costs and changes introduced by the Crest electronic dealing system. But the new charges are mind boggling, adding hundreds of pounds a year to the outlay small investors will be forced to meet if they stick with the broker concerned.
According to the magazine Investors Chronicle (IC), the higher charges include certification costs, which have risen dramatically. A new account charge of £480 has been introduced and there is a £50 transaction fee as well as a £15 dealing cost. In addition there is commission of 1.85 per cent.
One IC reader complained: "I hold my shares via certificates and deal with all the dividends myself, so an annual service charge of £480 is a charge for doing absolutely nothing."
Shareholders with a certificate are the legal owner of a share and are placed on a company's share register.
One drawback from such exposure is cold telephone calls as home details are easily obtainable. Still, the advantages are considerable compared to the situation if the shares are held in a nominee account. Then it's the nominee stockbroker who is the named holder so the investor is not eligible to attend shareholder meetings and has no say in any takeover action that may occur unless the stockbroker, out of the goodness of his heart, redirects the paperwork. In addition, dividends and perks go to the stockbroker. In many cases perks are not forwarded and sometimes dividends are accumulated and distributed only once or twice a year.
The row at hibu, the collapsed Yellow Pages publisher, highlights the fragility of small shareholders stuck in nominee accounts. Some accounts, it seems, have refused to hand on the necessary information for calling a special meeting.
Holding shares in certificated form is probably the most expensive avenue open to small investors. The stockbrokers accommodating such an allegedly old-fashioned method of trading, must, judging by their charges, make a decent return. There is little doubt that sacrificing one's rights and holding shares and trading via a nominee account is the cheaper option. But certification is, I feel, the best bet.
On a different note, small shareholders have welcomed the arrival of individual savings accounts (Isas) on Aim. In the first two months since shares qualified for Isa inclusion, the Aim share index has outperformed Footsie by 11.5 per cent and even the small-cap measurement by 5.5 per cent. Researcher Equity Development, drawing attention to the Isa impact, says the "immediacy and magnitude" of the upsurge has surprised many.
The Aim re-rating, it says, has started and points to next year's planned abolition of stamp duty on the market's stocks.
Finally an Aim share in the no-pain, no-gain portfolio. Home shopping and education group Findel has reported a 5.2 per cent six-month sales increase and is confident about the year's outcome. The shares have performed well since recruited nearly a year ago, climbing from 142p to, as I write, 243p.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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