YES, says Roger Lawson:
"Nominee accounts do disenfranchise shareholders, and they leave you at legal risk of being unable to recover your assets if the stockbroker or its trustee gets into difficulties. Lehman Brothers was a high-profile example of this; beneficial owners could not easily and quickly reclaim their stock, and the administrators are still trying to sort out who owns what and who is owed what.
That's not the only example. Pacific Continental, a UK stockbroker that failed in June 2007, operated nominee accounts and investors using its services faced a nightmare trying to get their money back., partly because the broker's bookkeeping was so poor.
This points to a key weakness of the nominee system. Most nominee accounts are "pooled accounts" and there is no regular reconciliation between the total shares supposedly held by clients and the holdings in a company's share register.
The system of nominee accounts has grown up by accident, but it leaves an enormous legal gap and lots of practical issues too. If someone wanted to come up with an efficient electronic system for trading shares, recognising ownership and enabling shareholder democracy, this would not be it.
Although the 2006 Companies Act enabled nominee operators to provide information and voting rights to their beneficial owners, in reality that has not resulted in widespread enfranchisement of shareholders because most brokers do not support it. As a result, most shareholders in nominee accounts have no rights.
We think the nominee system should be replaced by one where everyone is on the share register, in designated accounts which the Crest settlement system can already support. Some brokers already offer personal Crest membership, but not all do, the costs are very variable, and what's more, private investors cannot hold Isa-wrapped shares in a personal Crest account. That absurd limitation should be removed, and in the meantime, the Financial Services Authority should also mandate that brokers give investors a 'health warning' about the risks of nominee accounts."
Roger Lawson is Communications Director of the UK Shareholders Association, www.uksa.org.uk
NO, says Angus Rigby:
Private investors that hold assets in nominee accounts are typically concerned by three factors: the security of their assets, access to company information, and their voting rights.
How secure are assets in a nominee account? Assets are held within a nominee account in accordance with the FSA Client Asset Rules (CASS), which stipulates that a broker hold their private-client assets in an account that is ring-fenced from their own, providing peace of mind and security to shareholders.
One of the main benefits of holding shares in a nominee account is that it cuts out the need for a paper certificate, which cost more to trade and can be lost or damaged, resulting in additional costs (registrars typically charge £30 for a replacement). It also reduces the risk of mis-selling a share holding that has become invalid following a corporate action, which can result in a costly buy-back process.
Can nominee account customers accept a corporate action; vote or receive company information?
While shares held in a broker's nominee account will appear on the company register in the name of the broker, rather than the underlying shareholder, in some cases brokers can still vote on the shareholders behalf and pass on benefits (such as shareholder discounts), while company reports are easily available from the internet.
In the next few months TD Waterhouse is launching an online service that will give our customers access to company information, which saves the customer having to obtain the information themselves while also giving them the option to vote on decisions relating to their UK listed nominee share holdings.
This should reassure investors that in this increasingly competitive market, where security and efficiency of transactions are key, a nominee account is an excellent solution that offers greater flexibility and security than paper certificates.
Angus Rigby is chief executive officer of TD Waterhouse.
