No Pain, No Gain: Shareholder democracy is being priced into oblivion

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The Independent Online

Small investors often get a raw deal. I think it is fair to say that the City establishment regards them as a necessary evil that has to be tolerated to provide an illusion of democracy.

I have in the past banged on about the seemingly inevitable annihilation of paper share certificates. Influential forces want to abolish them. The Government and the Institute of Chartered Secretaries and Administrators have come out against certificates, and even that alleged bastion of the small shareholder, the UK Shareholders Association, is working to get rid of them. Many investment houses are also on the abolitionist bandwagon.

In my view, replacing certificates with some form of statement would be a retrograde step. But it would be in keeping with this frenetic age, with various forms of computerisation arbitrarily destroying so many aspects of what was once everyday life.

I am an old man. Happily, I am not entirely computer illiterate, but many old-timers are completely baffled. Computers and other forms of electronic wizardry are beyond them, not from choice but from an inability to accommodate the intricate skills required. When trading shares, they use the telephone and the postal service. And they want to continue to do so. It is typical of this uncaring society that their needs are completely ignored by an insidious campaign to force them online.

Still, in spite of the weight of opposition to a time-honoured institution, certificates are still being issued. But for how much longer? On top of the concerted endeavours to abolish them, shareholders who like paper proof of their investment have a new factor to contend with – escalating costs.

The small investor has always had to absorb relatively higher charges than bigger players. For a long while, many stockbrokers have demanded extra for what they like to pretend is the tiresome and expensive exercise of collecting and distributing certificates. The extra charge for paper has usually been around the £5, possibly £10, level.

Now, the cost for investors dealing through the execution-only stockbroker TD Waterhouse is about to soar. Next month, it is increasing its certificate surcharge from an already expensive £10 a deal to – wait for it – £25.

The new Waterhouse rates mean that any investor undertaking a telephoned execution-only transaction for, say, £1,000 worth of shares (with a certificate), will be charged £50 – commission of £25 and £25 to have a certificate posted. Stamp duty would also be payable.

The stockbroker denies it is making deals more expensive to deter investors. A spokesman said it did not wish to "discourage" certification. "We still have customers who want certificates; we are adjusting our pricing structure to reflect they are a smaller part of the market," he said.

Significantly, there was no attempt to justify such a staggering increase on higher costs. Perhaps Waterhouse no longer needs the small investor who wants a certificate (still regarded as the most reliable proof of ownership). And, rather than refusing to trade for them, it is pricing them out of its orbit.

Such a stinging cost can only alienate small investors. If others introduce such astronomical charges, the small buy-and-hold investor who probably deals a few times a year and, for peace of mind, likes a paper certificate to lock away, will disappear. What Waterhouse and others fail to appreciate is that there are around nine million certificated shareholders. They are a small part of the stock market in volume terms. But if they give up, even the most myopic members of the City hierarchy will find it difficult to pretend that any kind of shareholder democracy still exists.

Progress, of course, is commendable, but it should not come at the expense ofso many people. Small shareholders are facing a not very subtle campaign to drive them online, where fraud is prevalent.

Still, the small player should welcome the creation of a powerful share-dealing platform. The signalled reverse takeover of Plus (the old Ofex) by a facility being set up by seven investment banks can only increase City competition.

Under Simon Brickles, Plus has mounted a determined challenge to the London Stock Exchange. He will probably run the new share show.

I have supported Plus from its earliest days. It provides a much-needed service. And – who knows – perhaps this rival to the LSE will support certificates. But I doubt it.

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