Why won't brokers let you legally own your shares?

ATS bought Stocktrade in May this year and has withdrawn support for the most direct form of share ownership from Stocktrade customers. Stocktrade customers who have been trading via personal Crest accounts will now have four options. They can:

■ Convert to a nominee account with Alliance Trust, in which the broker is named as the share owner;

■ Turn their holdings into paper certificates - due to be phased out by European legislation;

■ Liquidate their holdings; or

■ Move to another broker for free.

Both the UK Individual Shareholders Society (ShareSoc) and UK Shareholders Association (UKSA) have criticised the decision saying it is bad for private investors. Eric Chalker, policy co-ordinator at UKSA, says: "We condemn the fact that brokers will not offer sponsored crest accounts, particularly when they have had them, and they are now being taken away."

Without Crest membership you lose legal ownership of your shares and the rights provided by the Shareholder Act. In a nominee account those rights are replaced by contractual arrangements with your broker. You cannot trade via personal Crest accounts with self-invested personal pensions (Sipps) and individual savings accounts (Isas), but for other share dealing accounts Crest gives you the most direct relationship with a share issuer.

Mr Chalker says: "Brokers can provide compensatory arrangements, for which they may charge, and which are less easy to exercise than the rights you receive by having your name on the share register."

Those key rights include the ability to vote in annual general meetings, and receive dividends directly and company information. Hargreaves Lansdown was forced to scrap a charge for shareholder voting last year in response to public outcry, and now most brokers do not make you pay for this. But some may still charge to send you company accounts.

You also have an added layer of protection with Crest membership in the unlikely event that your broker or platform lands in financial trouble. If you do not appear on the share register it will be harder to get back your cash in a disaster, although you will be entitled to up to £50,000 in compensation under the Financial Services Compensation Scheme.

ATS said in a statement: "ATS has never offered Personal Crest Accounts. For those customers who have Personal Crest Accounts with Stocktrade, we believe our nominee or certificated service provides a viable alternative, and we have already welcomed a number of customers who have chosen to take this route."

Very few brokers sponsor personal Crest accounts and none of the major platforms does. Charles Stanley Direct has agreed to let Stocktrade customers move to it and keep their Crest accounts, but stopped offering it to new customers in 2013.

Although new customers cannot open Crest accounts with the broker, it will continue to support clients who already use them. It is also one of the most expensive options, following its high-profile decision to ramp up bills 10-fold two years ago. Charles Stanley Direct charges Crest members £240 and added an annual account charge of £480, in addition to transaction charges, up from the flat £24 a year it previously charged. Execution only clients with a Crest account are now charged £240 a year plus a £180 account fee.

According to Crest, the actual fee charged to brokers for each sponsored member is just £10 a year. But Charles Stanley Direct argues that the increase in administration connected with personal Crest accounts justifies the increased bill.

Other brokers, including Fidelity Personal Investing, Blangstone Sington and Redmayne Bentley do not charge any fee for personal Crest accounts, but transaction costs can be higher with them than for other accounts. Fidelity is one of the lowest-cost options. It automatically registers customers signing up to its share dealing account ShareNetwork with Crest, and the charges are the same for all its share dealing clients: a monthly fee of £5.10 and flat £9 online trading fee (£18 for phone trading).

Redmayne Bentley does not charge a fee for trading using Crest; however, it charges an inactivity fee of £40 if no trades are conducted for a full year. It also charges £15 per line of stock to transfer out of holdings.

Blankstone Sington charges the same commission rates as for all its discretionary management clients, which start at £25 on the first £250 invested, 1.75 per cent on the next £9,750, 0.5 per cent on the next £10,000 and 0.4 per cent on amounts of over £20,000. It also charges annual management fees.

Killik & Co does charge for Crest membership - a flat charge of £30 per quarter regardless of the number of holdings a client has.

Many brokers still sponsor personal Crest accounts for existing clients but refuse to take on new business. These include TD Direct, which says it passes on shareholder rights to investors via a free service. WH Ireland supports personal Crest accounts for current execution-only clients but has closed the service to new clients. The company refused to give out details of the costs for existing clients using sponsored personal Crest accounts.

Why don’t brokers offer it?

Brokers claim that personal Crest membership is time consuming and expensive to run as each account requires a dedicated bank account. Correspondence also goes straight to customers and brokers say they are not updated on clients' decisions, and have to spend time tracking them down to update accounts.

Roger Lawson, deputy chairman at ShareSoc, says it is in brokers' interest to push customers towards nominee accounts. He says: "Opening an account with Crest can take a week or two whereas a nominee account can be opened immediately. And brokers can make substantial profits from the interest on dividend cash they're holding for clients."

Mr Lawson also says brokers prefer nominees because they help to lock in clients.

But brokers and platforms argue that the issue is not that they are unwilling to sponsor Crest accounts but rather that there is a lack of demand for it. Magnus Wheatley, managing director of Charles Stanley Direct, says: "Charles Stanley is one of the biggest users of Crest personal membership. It was first designed as a way of getting paper clients to be paperless, however it's debatable as to whether that has been successful. Non-web, we now only have just over a thousand Crest memberships while on the web we have just over two thousand, largely legacy, clients."

Meanwhile David Scrivens, director at ClubFinance, said he was "not aware there was much demand for it at the moment" and said: "We do not currently offer personal Crest membership. However, if enough clients (or prospective clients) wanted it, we could potentially consider introducing it."

But Mr Chalker and Mr Lawson argue that a lack of education and understanding of shareholder rights and the options available to investors is the reason for low take-up.

Getting the most of your rights in a nominee account

The principal ways of voting if your shares are held in a nominee account are:

■ Being appointed as the proxy by your broker for the shares you hold;

■ Obtaining a 'letter of representation' from the broker in respect of the number of shares you have; and

■ Via proxy forms submitted to the share issuer via your broker.

For all of these, you would need to contact your broker and be aware of upcoming meetings and votes. Very few offer the services free of charge or automatically.

However, Killik & Co was one of the first to launch a free service enabling beneficial shareholders the same level of rights as shareholders. Clients can opt in to receive shareholder materials and be notified of upcoming votes via email, and are able to vote online for the UK shares they own via a special website.

TD Direct Investing and The Share Centre also offer similar free opt-ins that enable investors to receive information and take part in votes like shareholders.

Will my broker or platform let me legally own my own shares?

Source: Providers/ Investors Chronicle research