Is there a reason to keep paper share certificates? and is it easy to change platform with them?

isayhello

I was helping a relative setup an online account at Equiniti for some shares they have had for a long time just as paper share certificates. While speaking with someone on the platform to help setup the account, I was told that keeping the paper certificates makes it easier to change share platform.

I haven't come across paper certificates before so wondered why do some companies give them? what's their benefit?

Also what's the process of moving shares from one platform to another as Equniti selling charges are a bit high. Do paper certificates make a difference when changing platform?

melbury

I have always held my shares in certificates, although I know it is very old fashioned, I like having them

refluxer

I'm guessing what the advisor means is that there may be a time delay and possibly even fees incurred when transferring 'electronic' shares from one online share dealing nominee account to one with another provider which you would avoid if you simply held the paper certificates at home, but the downside to selling paper shares is that you're likely to end up paying much higher dealing fees when doing that type of deal.

In order to avoid this issue myself, I've just set up a new share-dealing account with the Halifax who I used without any issues some years ago. I'll be posting some paper certificates to them (along with the appropriate transfer forms) in order for them to be transferred electronically into whats called a 'nominee' account. That way they can be sold immediately for a flat online dealing fee of £12.50. Compare that with a charge of 1.25% (minimum of £25) for selling and posting paper shares to the Halifax. Equiniti's charges are greater still, at 1.5% with a minimum of £45.

The Halifax were actually one of the few online share-dealing sites I could find who were both offering a low dealing rate and accepting paper certificate transfers. Many of the advertised online share dealing sites don't accept paper certificates at all these days and some of those that do (eg Hargreaves Lansdown) aren't accepting paper certificates at the moment due to the current coronavirus situation. Paper shares are due to be phased out in the near future, so it's only a matter of time before you'll have to do something about this anyway I suspect.

I guess the only risk with holding shares in a nominee account is that the provider might increase their fees in the future, but the Halifax have had pretty much the same rate for at least 8 years now so I'm not concerned about this, personally. 

bowlhead99

refluxer said:

I guess the only risk with holding shares in a nominee account is that the provider might increase their fees in the future, but the Halifax have had pretty much the same rate for at least 8 years now so I'm not concerned about this, personally. 

An alternative is Jarvis's execution only service branded as https://www.x-o.co.uk, a little cheaper than Halifax. Likewise they have been running for years without major issues for simple and cost effective UK share dealing.  Not as fully-featured as Halifax sharedealing who also offer open-ended collective investment funds (OEICs and unit trusts) which x-o don't. 

You can transfer paper shares from your own personal name into their electronic account where they will hold it as nominee for you for free and you can sell when you like. If you eventually want to put the shares back onto a paper certificate and take them away again they would charge you £15 to arrange that transfer back to paper, or you could transfer them electronically to some other broker.

refluxer

bowlhead99 said:

An alternative is Jarvis's execution only service branded as https://www.x-o.co.uk, a little cheaper than Halifax. Likewise they have been running for years without major issues for simple and cost effective UK share dealing.  Not as fully-featured as Halifax sharedealing who also offer open-ended collective investment funds (OEICs and unit trusts) which x-o don't. 

You can transfer paper shares from your own personal name into their electronic account where they will hold it as nominee for you for free and you can sell when you like. If you eventually want to put the shares back onto a paper certificate and take them away again they would charge you £15 to arrange that transfer back to paper, or you could transfer them electronically to some other broker.

Damn - they were on my radar so I'm not sure how I missed that ! Good to know there's another option though, as I haven't posted anything off yet. Thanks.

isayhello

melbury said:

I have always held my shares in certificates, although I know it is very old fashioned, I like having them

How do you do this @melbury I haven't got involed in shares much myself before but I thought it's all done electronically when you buy through a platform?

isayhello

bowlhead99 said:

refluxer said:

I guess the only risk with holding shares in a nominee account is that the provider might increase their fees in the future, but the Halifax have had pretty much the same rate for at least 8 years now so I'm not concerned about this, personally. 

An alternative is Jarvis's execution only service branded as https://www.x-o.co.uk, a little cheaper than Halifax. Likewise they have been running for years without major issues for simple and cost effective UK share dealing.  Not as fully-featured as Halifax sharedealing who also offer open-ended collective investment funds (OEICs and unit trusts) which x-o don't. 

You can transfer paper shares from your own personal name into their electronic account where they will hold it as nominee for you for free and you can sell when you like. If you eventually want to put the shares back onto a paper certificate and take them away again they would charge you £15 to arrange that transfer back to paper, or you could transfer them electronically to some other broker.

Just to take a step back @bowlhead99 and understand, how do you get paper shares in the first place? in this case my relative was given them over 20 years ago by their company but is it still something that you can get these days? do you have to request it specifically from the platform you use?

I don't understand the benefit of them so far or their purpose but it seems they are more expensive when it comes to selling.

Is your suggestion to transfer them into a nominee account with a company like x-o, because they're cheaper to sell in the end? 

Currently the shares pay dividends, would that process change at all when transferring to another platform like x-o or Halifax?

You also mentioned transferring back the shares to paper certificates, why would someone want to do this? it just seems more hassle to keep them in this way.

isayhello

refluxer said:

I'm guessing what the advisor means is that there may be a time delay and possibly even fees incurred when transferring 'electronic' shares from one online share dealing nominee account to one with another provider which you would avoid if you simply held the paper certificates at home, but the downside to selling paper shares is that you're likely to end up paying much higher dealing fees when doing that type of deal.

In order to avoid this issue myself, I've just set up a new share-dealing account with the Halifax who I used without any issues some years ago. I'll be posting some paper certificates to them (along with the appropriate transfer forms) in order for them to be transferred electronically into whats called a 'nominee' account. That way they can be sold immediately for a flat online dealing fee of £12.50. Compare that with a charge of 1.25% (minimum of £25) for selling and posting paper shares to the Halifax. Equiniti's charges are greater still, at 1.5% with a minimum of £45.

Thanks @refluxer when you post them to Halifax do you use recorded delivery? How long does the process take from when you sent the shares to be able to see them electronically in your Halifax account?

I did think the Equniti sale price is high, so Halifax at £12.50 would be much cheaper, especially if there are no other charges for keeping the shares with them and transferring in.

bowlhead99

isayhello said:

bowlhead99 said:

refluxer said:

I guess the only risk with holding shares in a nominee account is that the provider might increase their fees in the future, but the Halifax have had pretty much the same rate for at least 8 years now so I'm not concerned about this, personally. 

An alternative is Jarvis's execution only service branded as https://www.x-o.co.uk, a little cheaper than Halifax. Likewise they have been running for years without major issues for simple and cost effective UK share dealing.  Not as fully-featured as Halifax sharedealing who also offer open-ended collective investment funds (OEICs and unit trusts) which x-o don't. 

You can transfer paper shares from your own personal name into their electronic account where they will hold it as nominee for you for free and you can sell when you like. If you eventually want to put the shares back onto a paper certificate and take them away again they would charge you £15 to arrange that transfer back to paper, or you could transfer them electronically to some other broker.

Just to take a step back @bowlhead99 and understand, how do you get paper shares in the first place? in this case my relative was given them over 20 years ago by their company but is it still something that you can get these days? do you have to request it specifically from the platform you use?

A share certificate is a certification which is designed to show that at the time the certificate was printed, your name appeared against that number of shares on the register of members of the company which is maintained by the company's registrar.  If your relative's employer issued shares to them twenty years ago, and they didn't want to immediately cash them in, a common process would be for the shareholder to simply be given that certificate.

If the shareholder later wanted to sell, they could go to a broker and place an order to sell that amount (or fewer than that amount, if you wanted to keep some) and the broker would place the trade and arrange for them to be issued with a new certificate as required. 

Obviously the broker would have to somewhat trust that you really did still own the shares and had not already sold or pledged them to someone else, and settlement times (for a seller to produce the share certificates, relinquish ownership and the buyer to hand over the cash in consideration for the trade) could be a bit longer than the minimum T+2 that they typically are today for electronic trading.

However, throughout the 80s and 90s and 00s it was getting more and more common that people entrusted stock brokers or share custodians / nominees to hold the shares legally in the name of the broker or nominee, rather than the individual beneficial owner, and then the broker could simply register its ownership of the shares in a central depositary system and maintain its own electronic register showing on whose behalf clients it was holding the shares. Then if there is a sale or further purchase to be done, the client simply instructs the broker to do it, the broker is already holding the shares in its own name, so can quickly and easily sell the shares to another broker who represents the buyer, and both brokers just update the central settlement system and their own registers of beneficial ownership within their respective nominee companies' accounting systems to show that the seller now has fewer shares and more cash being held on its behalf by the broker. 

These days it is not very common for people to want to have the shares of a company registered in their own name on the company's register of members and have bits of paper to prove it. It's simply less hassle to have an electronic record of your beneficial ownership with a broker being the legal owner of the investment in the company while you are the beneficial owner of it and still have the rights to the dividends and voting rights and allowed to attend the AGM etc.

I don't understand the benefit of them so far or their purpose but it seems they are more expensive when it comes to selling.

They are an old fashioned way of proving who owns what. If the company is private and not listed on the stock exchange they are the most common way of showing ownership. However if the company is listed on a mainstream stock exchange with the shares able to be bought and sold on demand, it's worthwhile putting a depositary / nominee system in place to facilitate trading. Some stock exchanges have all the shares completely dematerialised with nobody having any paper and everything needing to be  done as electronic ownership records maintained by a central depositary.

It is more expensive to sell from a certificate because there is more rigmarole involved.  If the shares were already owned by a broker on your behalf and being transmitted to another broker (or even another account at the same broker) as part of a buy or sell it would be nice and quick and easy to click a button and have your order transmitted straight through to the market, a deal done, and the shares updated, without putting stuff in the post or having someone fill out transfer forms.

An advantage of having them on paper is if for some reason your broker has a major failure and goes out of business it will be a hassle if he had your shares electronically and you couldn't access them for a while until someone came in and took over his records and let you trade them again. Also, some brokers may charge you an ongoing fee to maintain an account and the nominee service - which some will see as a price of convenience and others resent paying. 

Everything else  about the paper method is a disadvantage. For example if there is an official stock split or consolidation or redesignation or name change, your certificates won't auto update with the correct numbers or company name and when you locate them in a box some years  later you may struggle to establish what you actually have 'in today's money'.  If they get stolen or lost in a fire or a house move you will need to buy indemnity insurance for any broker to want to take on the risk of dealing for you on the shares you allegedly own but can't prove you own, on top of the basic cost of selling them through the slowly slowly expensive method.

Is your suggestion to transfer them into a nominee account with a company like x-o, because they're cheaper to sell in the end? 

Yes, as the service is free to maintain an account and you can instantly sell them (or buy more) cheaply on a whim.

Currently the shares pay dividends, would that process change at all when transferring to another platform like x-o or Halifax?

The dividend would just be sent to the broker (x-o or Halifax) who would give you an electronic tax voucher and credit your cash to your cash account on his system (which you could withdraw to your bank account if you want)

You also mentioned transferring back the shares to paper certificates, why would someone want to do this? it just seems more hassle to keep them in this way.

Most would not. Some like Melbury just like to keep their own bits of paper. In my case, I have some shares in VCTs which are issued on paper and won't be traded for a long time (need to keep them for several years to get the tax benefits) so they are not registered with a broker yet. However, once I had registered with the broker it's unlikely I would take them back to paper. 

I do deliberately have some shares I would keep on paper, for example Mitchells & Butlers usually issue voucher books each year to registered shareholders, and if you are not actually the registered shareholder (because your low-cost broker of choice is the registered shareholder) and the low-cost broker doesn't want the hassle of dealing with your shareholder perks of getting you a voucher book each December, you might miss out. 

Likewise some brokers charge an admin fee to put you on the guest list for the company's annual general meeting (which you might fancy attending in person to show up and cast your own votes, especially if there is going to be be a goody bag of company freebies handed out at the end), whereas if the shares are held on paper in your own name and the company had your address they would have written to you and invited you directly. Of course with lockdown at the moment, companies are not doing in-person AGMs and perhaps a voucher book for a hospitality chain is not very useful if going to the pub is outlawed.

isayhello

Thanks @bowlhead99 that helps to understand the context of them a bit more. A few follow up questions on your answer, if you have the paper shares and want to put them into a nominee account with a broker e.g. x-o, I presume you have to securely send the papers over to the broker as proof so you no longer have paper shares? When setting this up with Equiniti on the phone the other day, they went through the process of setting up an online account but didn't ask for the share paperwork to be sent to them though. Why would that be?

Does this mean if I wanted to now use x-o I can still do it directly and just ignore Equiniti, or the transfer process needs to go between broker to broker now?

bowlhead99

I don't know what you were 'setting up' with Equiniti on the phone.

If you were just registering for an account with them so that they can give you a handy list of the shares they think *you* hold from time to time (and as they are the registrar of a lot of companies they may already have your details in their core records and know the quantities to be correct at present unless proven otherwise later)... then they are not literally holding the shares on your behalf, they are just able to tell you what they think *you* own. In that case the shares are still legally yours - so if you actually wanted to deal in them you may still need to provide the certificates to Equiniti as the selling broker;  meanwhile you could give them to another broker instead (such as x-o or Halifax and sell through those brokers instead).