Derek Pain: Paper deserves its share of the market

No Pain, No Gain

The debate about paper share certificates has resurfaced. Regular readers will know I am opposed to the complete elimination of certificates although the mania for everything electronic captivates cost-conscious financial institutions.

Make no mistake, most City elements want all shareholders to switch to some form of bank account-like share registration statement or hold their shares in nominee accounts, mostly run by stockbrokers. The current debate centres on nominee – or pooled – accounts which not only disenfranchise shareholders but also annihilate the need for certificates. Still, despite an intense campaign, certificates have so far survived. But for how much longer?

It has been estimated nine million individuals – mainly buy and hold investors that regard the stock market as a sideline – are certificated shareholders. They are unlikely to be seduced by the argument that their liking for paper is now ridiculously old-fashioned and they should bow to the alleged merits of this electronic age.

The growth of nominee accounts has been persistent as stockbrokers (as well as companies) have enjoyed the cost savings they present. Many investors have already sacrificed paper and allowed their shareholdings to be placed in such accounts.

But there are obvious benefits from avoiding the nominee route. A reader contacted me a few months ago following my comments about Myhome International's abject failure. He wanted evidence that his Myhome shares had been accorded nil value. Yet accountant Ernst & Young, the administrator, had already confirmed that the shares, for tax purposes, had no value and had written to those whose names appeared on the share register.

The reader was one of those caught in a nominee account and his stockbroker could not be bothered to distribute the administrator's letter relating to the dismal fall of what I once regarded as a promising company.

There are other nominee disadvantages. In effect, the shareholder can be almost completely ignored – not receiving yearly reports, losing the right to vote and attend meetings. And any perks that go with the shareholding are also lost. All relevant communications go to the nominee, named on the share register.

Not all stockbrokers are quite so blatant. A few are prepared to distribute the necessary bumf. But there is no doubt that a nominee involvement can cut investors adrift from their shareholdings. It is also more difficult to change stockbroker once locked into its nominee system.

Some shareholders do not mind being disenfranchised, and pooled accounts are cheaper than allowing individual freedom. Many companies (and stockbrokers) regard small investors as a costly nuisance. Vested interests, keen to cut costs, are happy to promote nominee accounts. And not having to accommodate and answer questions from private shareholders at annual meetings must appeal to the more evasive company chairmen.

Certificated shareholders enjoy proof of ownership and get the benefits of being on a share register. I believe, despite all the high-tech electronic gadgetry, that certificates are the most secure form of ownership.

I have been an investor for more than 50 years and cannot recall any security problems over a certificate.

True, certificates represent the more expensive form of investing but I suggest the extra cost is worthwhile although some stockbrokers are so keen to discourage certificates that they charge unjustifiably high fees to press their case. One investor recently complained his stockbroker added an extra £12 for a certificated transaction. He's lucky. Many demand much more.

Beside the profusion of nominee accounts there is a strong movement advocating that share registrations should be online, or through some form of bank account-like statement or contract note. We all know just how unreliable online transactions can be. Hacking into supposedly safe computer systems does not seem to be much of a problem for the determined crook.

The no pain, no gain portfolio is a certificated exercise. I am happy with most constituents although my three walking wounded – Green CO2, Pubs'n'Bars and Private & Commercial - are creating anxiety. The other dozen members have, I believe, considerable attractions for buy and hold investors who do not spend their time glued to a City computer screen. But it is always advisable to keep an eye on developments – the investment scene at a company can sometimes change quite dramatically.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

A survey carried out by Sainsbury's Finance found 20% of new university students have never washed their own clothes, while 14% cannot even boil an egg
science...and the results are not as pointless as that sounds
politicsIs David Cameron trying to prove he's down with the kids?
Cumberbatch was speaking on US television when he made the comment (Getty)
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Guru Careers: In-House / Internal Recruiter

    £25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Day In a Page

    Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

    Auschwitz liberation 70th anniversary

    Woman sent to three Nazi death camps describes surviving gas chamber
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea