The end of paper share certificates?

wmb194

gt94sss2 said:

I hadn't realised the way the BBC site had described it when I copied it into the original post.

On Moneybox, there were two specific issues raised.

a) that shareholders may need to pay for nominee services ( I know free ones are available)

b) the potential loss of voting rights, company updates (and I presume shareholder perks though some companies allow this).

I haven't looked recently but think that you can't attend ATMs or vote etc with most nominees.

There is also the fact that you become a beneficial owner in a nominee account and could be at risk of broker failure/FSCS compensation limits.

Then their are some other things which you can't really do with nominee accounts but can with paper certificates such as:

a) transferring ownership of shares without payment, both between family members; and

b) donating shares to a charity; 

The Aberdeen (abrdn) case study on engagement with its shareholders is a bit of an eye opener: essentially, it sees barely any engagement from the 900,000(!) shareholders* to whom it sent an AGM notice. Oh, and it costs £0.5m to post these to the people who insist on paper notifications or who haven't communicated a preference.

*No doubt a great many will relate to Standard Life's demutualisation in 2006.

GeoffTF

gt94sss2 said:

There is also the fact that you become a beneficial owner in a nominee account and could be at risk of broker failure/FSCS compensation limits.
...
b) donating shares to a charity;

Nominee accounts are not necessarily less safe. There are risks with certificates too. Investments have to be ring fenced and should not go missing. For investments, FSCS covers any LOSS that occurs nonetheless up to the £85K limit. If you have a big account, place it with a safe broker.

You can donate shares (and holdings in funds) to charity from a nominee account. The easiest way is to write to the charity telling them what you are planning to donate, and ask if they would like you to sell them and send them the proceeds. The charity then writes back and says yes. Your donation is then free of capital gains tax and gets tax relief. You have to be able to prove to HMRC that you intended to donate the proceeds before you sold the shares.

Rollinghome

It very much depends on how it's done.

Already there's a massive disconnect between the beneficial owners of stocks and the companies they're invested in. Governments have long voiced concerns while doing little to improve the situation.

It's suggested that one of the problems that flow from that is the surge in boardroom and CEO pay.  According to the High Pay Centre, the average CEO of a FTSE 100 company received a 16% pay rise last year, equal to around half million.  That took their average salary to £3.9 million per annum.

The disconnect was made more widespread with the introduction of PEPs and ISAs, that must be held through a  nominee, and a huge proportion of stocks are held by retail investors using collective investments. No-one gets to vote on executive pay in Tesla or how it's run just by putting their lifetime savings in a global tracker. 

So any change should go hand in hand with an attempt to increase investor participation, including ensuring that they have every opportunity to vote. Some brokers are better than others in that regard.

Whatever happens, what I wouldn't like to see is the big registrar outfits like Equinity and Computerserve getting a bigger share without some control of their fees and terms.  Small investors with shares held by registrars will regularly receive encouragement to sell their share for extortionate fees, very often on a price per share basis. Those offers need to be accompanied by an offer to transfer shares to a broker of choice without charge.

Servicing the requirements of retail share-holders is expensive and inconvenient for companies so it needs to be more efficient, but that has to be done with consideration for share-holders rights and corporate governance.

IanManc

boingy said:

I won't miss them either. On behalf of my wife I recently sorted out two paper share holdings of FTSE 100 companies, each of which had been held for well over 20 years and each of which had been enrolled into DRiP schemes so several times per year an extra certificate was issued for a very small number of shares. We could see the total holdings on Shareview but they wanted a king's ransom to sell them and a smaller ransom to convert them to electronic copies so I set out to collect the certificates together - over 100 individual bits of paper. One holding worked out fine, the other had me scratching my head until I realised that the company had done a consolidation some years ago so the older certificates were no longer valid and some of the new certificates had not made it into our filing system Several hours searching and a spreadsheet later and they were in the post to X-O for a free transfer inwards and later sold - total fees £11.90. The things you do to save a few quid (but thanks X-O !) 

I fell out of love with share certificates about 20 years ago. My Dad had BP shares, and his dividends were used to buy new shares under their DRIP scheme.

He was getting older and had stopped taking a close interest in his shareholdings, so didn't notice when one of his quarterly share certificates didn't turn up. I worked it out a couple of years later when he found that the total number of shares he owned as shown on his dividend slip didn't match the number that you got when you added up the holdings on his numerous BP share certificates, and the indemnity fee payable before they'd issue a replacement certificate was only a few quid less than the value of the shares the certificate had represented.

After that all my certificated shareholdings went to IWeb and, although he didn't want to open a broker account, he stopped all the scrips and DRIPs he'd signed up to so that no more certificates went astray and he didn't ever have to go through the process, or bear the cost, of replacing a certificate ever again. 

I think share certificates are an anachronism and welcome their demise.

Malthusian

Rollinghome said:

The disconnect was made more widespread with the introduction of PEPs and ISAs, that must be held through a  nominee, and a huge proportion of stocks are held by retail investors using collective investments. No-one gets to vote on executive pay in Tesla or how it's run just by putting their lifetime savings in a global tracker. 

So any change should go hand in hand with an attempt to increase investor participation, including ensuring that they have every opportunity to vote. Some brokers are better than others in that regard.

Nobody is ever going to bother with shareholder votes regardless of how they hold shares - paper, electronic or via funds. Adrbn's figures are illuminating - 4% of shareholders voted on the AGM resolutions and 0.01% attended the AGM. Imagine if a general election or a council election had a turnout of 4%.
If you are invested in a tracker fund it is more likely that you have some degree of participation, because there are tracker fund managers that make a big deal of participating in company votes - Legal & General springs to mind. 
People who have small shareholdings in a pubicly-listed company and don't agree with the way it's run sell them. 

Rollinghome

Malthusian said:

Rollinghome said:

The disconnect was made more widespread with the introduction of PEPs and ISAs, that must be held through a  nominee, and a huge proportion of stocks are held by retail investors using collective investments. No-one gets to vote on executive pay in Tesla or how it's run just by putting their lifetime savings in a global tracker. 

So any change should go hand in hand with an attempt to increase investor participation, including ensuring that they have every opportunity to vote. Some brokers are better than others in that regard.

Nobody is ever going to bother with shareholder votes regardless of how they hold shares - paper, electronic or via funds. Adrbn's figures are illuminating - 4% of shareholders voted on the AGM resolutions and 0.01% attended the AGM. Imagine if a general election or a council election had a turnout of 4%.
If you are invested in a tracker fund it is more likely that you have some degree of participation, because there are tracker fund managers that make a big deal of participating in company votes - Legal & General springs to mind. 
People who have small shareholdings in a pubicly-listed company and don't agree with the way it's run sell them. 

I don't know how many AGMs you attend, but you may be a little pessimistic. Boards do take notice of shareholder votes, but rarely those of private shareholders or the views of mere beneficial owners, and never of those who don't bother to vote.  

That is, unless the votes are from shareholders of an investment trust (or those with a letter of representation), when the board will always hope to have them on-side.   That's what those tasty lunches at AGMs are about.

Boards of all companies prefer not to have questions that are awkward at AGMs, especially if they are picked up by the media.  It's not simply about returns, ESG has become increasing important to many investors.  Which is why the representatives of various pressure groups are often sent to attend.

It's a bit odd for abrdn to complain about low AGM attendance when their meeting is held in Edinburgh and most of their shareholders are likely to be south of the border. Do they want them to attend? A few large companies do see benefits in attracting retail investors, not least because they can dilute the power of large institutional investors with unaligned interests.

Malthusian

Rollinghome said:

I don't know how many AGMs you attend

You could have made a fairly safe guess that I don't, given that a) nobody attends AGMs and b) I made a negative comment about attending AGMs, which means the chance that I do is less than the average

Boards do take notice of shareholder votes, but rarely those of private shareholders or the views of mere beneficial owners, and never of those who don't bother to vote.  

I feel like we're agreeing at each other here. Nobody on this forum is going to represent an investment trust so there doesn't seem much reason for an ordinary small shareholder to attend other than the free lunch. (And if retail participation in the AGM substantially increased, the tasty lunches would end anyway, or be replaced with generic cardboard sandwiches while the investment trust managers were lunched backstage.)
For a retail investor, the question is: if you believe that the company is being run into the ground, or is harmful to society, why are you still investing in it?

It's a bit odd for abrdn to complain about low AGM attendance when their meeting is held in Edinburgh and most of their shareholders are likely to be south of the border. Do they want them to attend?

The option to attend via webcast spoils the "nobody could get over Hadrian's Wall" argument. Only 41 people did.
Arbdn is a Scottish company, the clue is in the... actually never mind. But if as a retail investor you want to be able to participate in shareholder meetings in the flesh (which, sensible idea or not, is entirely your right), the onus is on you to make sure you can attend those meetings, or remove the share from your research process if you can't. 

Rollinghome

Malthusian said:

Nobody on this forum is going to represent an investment trust so there doesn't seem much reason for an ordinary small shareholder to attend other than the free lunch.

You might think differently if you went to a few.  If you want to understand the IT you're invested in, then there's no better way than turning up for the AGM.  Then you'd know there can be no comparison with a "webcast".

You'll usually find people there who are far better informed than most on any internet forum. You'll usually be able to speak directly to the fund managers, the directors, professional and semi-professional investors, and sometimes former managers who are now private shareholders. Many will have professional experience and have gone through the annual report with a fine toothed comb, and can point you to things you'd never notice.   And there'll be those who came along just for the canapés too.  Questions from the floor can have an effect surprisingly often.

For a retail investor, the question is: if you believe that the company is being run into the ground, or is harmful to society, why are you still investing in it?

I tend to agree, but those in that position can see it differently, especially over ESG concerns.  Selling won't change practices they object to. Some will buy a share or two just to have their voice heard.

It was long held to be good practice for investors to have voting rights in the companies they invest in.  That's now largely broken down for various reasons. If you think voting rights are desirable, then we need to see the system work better while making it more efficient.

Arbdn is a Scottish company, the clue is in the...

abrdn is a national company, registered in Scotland, with investors throughout the UK. The clue is that they've dropped the name of a Scottish city for one that many people can't spell.   Many companies have AGMs in a different part of the country each year.   AGMs held in Scotland inevitably have low attendance; it seems a bit daft for a company that does to then complain.

Malthusian

All good points. My own view is that there is no evidence that anyone can consistently beat the market, regardless of how many AGMs they attend. But if people feel they gain value by going to the AGM as part of their share-picking then all power to them.

Selling won't change practices they object to. Some will buy a share or two just to have their voice heard.

Which also isn't going to change any practices, but more expensively. If it's a pressure group temporarily buying a share or two with other people's money to bring a bedsheet and a bucket of orange powder to the AGM, that's fair enough and part of their job. If it's a private individual it seems rather quixotic.

AGMs held in Scotland inevitably have low attendance; it seems a bit daft for a company that does to then complain.

Drbna (the artist formerly known as Standard Life) has been headquartered in Edinburgh since it was founded in 1825. I still maintain that it makes no sense to buy part-ownership of a Scottish company and complain when it holds its AGM in Scotland. If other firms take their AGM on tour, good for them, but it's equally reasonable to hold it in the city where the company is headquartered - and therefore where the largest group of attendees (company employees) will be travelling from.

If you think the performance of your portfolio depends on your physical preference at AGMs, the onus is on you to take that into account in your research process.

I wouldn't buy shares in BHP Billiton and complain that it should hold the AGM in Kazakhstan in order to minimise the average distance that all shareholders need to travel. "But that's different because Australia is a different country." Not for Sassenach shareholders invested in a Scottish company it isn't.

Rollinghome

Malthusian said: ...

Hmm. I think you may be reading what hasn't been said. I haven't seen any complaint about abrdn holding its AGM in Edinburgh. Rather it is abrdn complaining of the low attendance at their AGMs and lack of shareholder engagement that I find surprising. It shouldn't be difficult for them to understand why. Other public companies of similar size can have huge turnouts. abrdn is not a stock I've ever wanted to hold.

I look on AGMs as an additional tool to be used as required when available.

As for the effectiveness of pressure groups, I'll leave that to you, as you seem to be more knowledgeable about such things than I am. I've only seen representatives politely asking questions, as is their right.

Out of interest, if you are saying you only buy index trackers, how did you invest before trackers? The first one I can remember, and held, was Gartmore about 1992, followed by L&G, also held, a couple of years later.  So not so long ago and then with a very limited range - just UK and Europe iirc.

I've held a big slice of trackers ever since, but have a less absolutist view than you.  My experience has been that direct and managed investments can do well, but it's more work and time-consuming than plonking money into a passive fund. Very few investors invest entirely passively.