Share certs/Crest Account/Nominee Account?

I have always recommended Share Certificates for long term buy and hold investors, but I think it's time to review this.

Update 16 September 2003 - The ruling in the Morrogh's case confirms the vulnerability of nominee accounts. I am researching the status of Crest accounts

Share Certs
The advantage of share certs is that you need have no further dealings with the broker who bought the shares for you. You can sell them through a different broker if you wish. There is no annual fee for holding share certs.

One disadvantage is that they are awkward to replace if you lose them. You must make sure to keep them in a safe place, e.g. your bank's safe.

Another disadvantage is that you cannot buy shares online and get certs. Stockbrokers may charge you a fee for providing share certificates.

Crest Personal Member Account
A stockbroker opens a Crest Account for you in your name. You get the dividends and reports directly to your home address. If the stockbroker goes to the wall, it has no effect on you. Crest itself is the largest custodian of share certs in Europe and is rock solid.

Brokers charge €50 to set an account up for you and €50 a year admin fee.

There is a bit of admin in setting up the account, but you don't have the risk of losing and the cost of replacing the certs. It's also quicker to sell your shares.

Stockbrokers' commissions may be cheaper.

If you want to sell your shares through a different broker, you must pay a transfer fee - Fexco charge €15 per stock.

I don't know if online stockbrokers insist on dealing through nominee accounts or if they allow you use your Crest account.

Nominee Accounts
Your stockbroker holds the shares for you. They collect all the dividends and deal with the annual reports, etc.

If the stockbroker goes to the wall, your investments are at risk. Morroghs stockbrokers in Cork went to the wall and the [broken link removed] ruled that the shares in nominee accounts could be sold to pay the costs of the receiver.

I don't see why anyone would take this risk, unless they don't want your name to appear on the company's share register.

There is also administrative hasse e.g. if there is a problem with a dividend or a corporate action you have to chase the stockbroker to chase the company to sort it out.

Re: Crest

I spoke to Crest in the UK

A Crest Personal Member is the beneficial and registered owner of the stock. Their name appears on the share register in the company. They are at no risk if the stockbroker gets into financial trouble.

There is a risk if the stockbroker does not put the message into Crest on your behalf. So if your stockbroker tells you that they have bought €5,000 worth of shares in AIB and they haven't , then you could be in trouble. I don't think that there is any way to check out independently if your name is on the register.

Another risk is that the stockbroker could sell your shares without telling you and keep the money. You would have no way of knowing.

If a stockbroker goes to the wall, their membership of Crest is suspended immediately. There could be a short delay for shareholders to transfer their shares to a Crest account sponsored by another broker.

Brendan

Re: Bonded?

In the Morrogh's case, the Judge ruled:

Electronically held shares should be treated the same as certificated shares held in the name of the broker.

The Receiver was entitled to recover his costs from the clients' assets.

The issue of Crest Personal Members' Accounts did not arise, but would shares held in a Crest PMA be regarded as clients' assets. Probably not, but as they are under the control of the stockbroker, a Receiver or Liquidator could argue this point.

Brendan

In today's [broken link removed], Conor Keane reports that IFSRA has said that investors with shares held in trust by stockbrokers should get their hands on share certificates to avoid their assets being seized in a default situation. He quotes Patrick Neary, IFSRA Prudential Director:

If you want absolute security you should get share certificates and put them under the mattress

Click to expand...

IFSRA is examining the advice they give to investors and stockbrokers following the judgement.

Conor Keane will have further articles on the Morrogh issue later this week.

Brendan

Certificates

Thanks Brendan,
It seems the way to go is by having certificates. Could the list be updated to show charges for those stockbrokers that will supply certs vs nominee/crest accounts.
Also having purchased a few shares recently I was pleasantly surprised to see that some UK shares were not as expensive to buy......something to do with reduced stamp duty? Could this be explained.
Also while respecting the posting guidelines could anyone expand on the difference between high yield shares and high capital shares without reference to specific shares.