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

i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
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

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower