Pressure on private investors to move into pooled nominee accounts has intensified with the introduction of hefty new charges at broker
Charles Stanley advisory clients who trade using a sponsored personal Crest account now face an annual Crest bill of £240 plus an annual account charge of £480 in addition to transaction charges. Execution only clients with a Crest account will be charged £240 a year plus a £180 account charge. The previous charge for a Crest membership was £24 with no annual account fee.
Certificated charges have risen steeply too with a new annual charge of £480, a £50 per transaction charge and increased dealing fee per trade of £15. That's on top of a dealing commission of 1.85 per cent. One IC reader complained: "I hold my shares via certificates and deal with all the dividends myself so an annual service charge of £480 is a charge for doing absolutely nothing."
Mac Anderson, head of operations at Charles Stanley, said the new Crest fees were partly "a commercial decision" and partly because of rule changes introduced by Crest. He said: "Previously Crest participants were responsible for handling corporate actions, for example, rights issues, but now the client's replies have to be input electronically by us the broker and that increases our risk and admin costs."
Charles Stanley clients in nominee accounts will also have to pay the new account charge - £180 for execution only investors - but other charges such as those for dividend collection will be scrapped. Gary Teper, a director of Charles Stanley Plc, said regulatory costs for stockbrokers had risen exponentially in recent years, particularly with regard to advisory clients and that while the broker was happy to provide whatever services clients wanted, charges had to reflect the cost to the broker.
Nominee accounts are routinely pushed in front of investors, with brokers citing their advantages of faster settlement and lower commissions compared with certificated deals. But because the shares are held in the name of the stockbroker, that's where all the dividends, company perks, reports and other paper work are sent. Failure to pass these on has been one of the major complaints against nominee accounts. Personal Crest accounts however overcome these issues as the investor remains the direct owner of the shares and is recorded on the register of shareholders.
There are additional problems with a nominee account, which clients of the now defunct Pritchard Stockbrokers found to their cost. The broker was shut down by the Financial Services Authority in 2012 and its 11,000-strong client list was sold to WH Ireland. However, when client assets were being transferred a number of errors came to light on nominee accounts, and around £3m had to be reimbursed through the Financial Services Compensation Scheme (FSCS) to the clients affected.
In fact it would be possible for a broker to make unauthorised or fraudulent trades on your Crest account as your broker will have the same access to your Crest account as they would to a nominee account. Your investments would of course be protected by the FSCS up to a value of £50,000 should this happen. But Crest accounts offer an extra protection: should your broker collapse your name will be listed as the legal owner of your shares, not the broker.
Not all stockbrokers offer sponsored Personal Crest accounts but stockbrokers association Apcims lists 13 brokers which do, and 36 brokers which allow certificated dealing. Redmayne Bentley is one broker which offers both Crest accounts and paper-based dealing. Redmayne deosn't apply any annual or joining fees for its Crest account, although an inactivity fee of £40 will be charged if at least one trade a year is not made. Tim Archer, head of operations at Redmayne Bentley, said: "We currently have no plans to change or alter our charging structures."
The charges proposed by Charles Stanley will clearly act as a deterrent to investors who wish to avoid nominee accounts and remain the legal owners of their shares. Higher charges for certificated dealing are hard to avoid - all the cheapest trading deals are attached to nominee accounts - but if you are willing to adopt paperless trading, a Crest personal account is an ideal solution and there are still brokers offering reasonable deals. Don't allow yourself to be pushed into a nominee account if it's not what you want.