Derek Pain: Paper deserves its share of the market
No Pain, No Gain
Saturday 10 October 2009
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; request a free guide on NISAs from Hargreaves Lansdown
It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959
Actors star in Woody Allen's 'Magic in the Moonlight'
Olympic diver has made his modelling debut for Adidas
...and the perfect time to visit them
Newcastle winger reveals he has testicular cancer - and is losing his trademark long hair as a result
- 1 iPhone 6 review: bigger, thinner, faster, brighter - Apple proves you can make the best better
- 2 Sports Direct security guard allegedly banned Jewish schoolboys and told them: 'No Jews, no Jews'
- 3 Watch a man race the Circle line - and win
- 4 Pakistani passenger power forces two politicians off plane
- 5 Kanye West halts concert after two fans don't stand up - doesn't realise one is in wheelchair and the other disabled
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
Day In a Page
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony