Why a good broker is worth paying for

Make sure your voice is heard at the shareholder meeting

Free markets and capitalism have a simple elegance about them. At heart, a democracy is centred around the idea that we all vote with our money. It’s the ultimate democracy.

It doesn’t matter who you are, how clever your are, or what fancy ideas you may have – everyone gets a say. Despite my protestations, even my four year-old son gets a say, it seems!

And the idea extends to democracy in our investments. Specifically equities, where one share equals one vote. But this shareholder democracy is only useful if we actively use it.

Last week, I made exactly that point: how far too often investors give up their rights to vote, and speak up at shareholder meetings. The management is given free rein to do as they please.

Some readers protested: “My broker usurps my rights by putting me into a nominee account and using my shares to vote as they want to…”

While nobody forces us into nominee accounts (where the shares are registered in the name of the broker, rather than your own), it’s true that it’s mostly cheaper and easier to do so.

But that certainly doesn’t mean you have to forego your shareholder rights – not if you’ve got a decent stockbroker, that is. There’s a lot of information out there for you to build your own opinion.

Today, I want to show you three ways of making sure your voice gets heard at shareholder meetings.

The client is king

Many shareholders are wary of holding shares in a nominee account – after all, ownership passes to the nominee (usually a subsidiary of the broker). There are concerns that should the broker go bust, shareholdings may not be securely ring-fenced.

Personally, I feel confident enough with the regulatory systems in place to allay such fears. And as with cash holdings, you can still spread your eggs over a few different institutions (baskets).

Maybe holding a Sipp with one broker, Isas with another, and a general trading account with a third. That way, you also get to try out different services and see which one suits you best.

If you’re still not convinced, then by all means, request that your stock be registered in your own name. Talk to your broker, and see what the cost and ramifications for share-dealings are.

Some readers complain that by holding their shares in nominee form, they don’t even get the report and accounts. But again, simply ask your broker to register your interest in receiving the accounts, and you should receive them by post in the normal way. If that fails, you can set yourself up to receive reports at the London Stock Exchange’s website.

All you do is type in your stock ticker, then hit the “annual report and accounts” tab and type in your details.

Personally, I prefer to download the accounts to my PC, or just view them online. You can do that at the LSE website too. Or you can simply go to the investor relations area of the company’s website. There you can often download analyst presentations and other graphs and bumpf too.

Three ways to get your voice heard

A nominee account doesn’t mean you have to give up your voting rights and admittance to shareholder meetings. There are three ways you can get involved.

First, your broker can name you as their proxy at the meeting. You’ll need to talk to your broker first, and follow their procedure. It shouldn’t be difficult; just do it in time, as your name will have to be lodged with the registrar a few days before the meeting.

The second solution involves a ‘letter of representation’ from your broker. It states the number of shares of which you are the beneficial owner. In many ways, it works in a similar way to the proxy system (it’s just some brokers prefer to do it this way).

Third, and possibly the best way of keeping your rights, is by registering your vote with the broker itself. Many brokers have set up online systems so that you can vote as you please. After all, mostly these guys don’t have any axe to grind. Why wouldn’t they allow you to vote as you please?

Ask your broker how they intend to allow you to pursue your rights. If they don’t have a mechanism, then it may be worth voting with your feet!

The real value of a stockbroker

As always, a stockbroker should be carefully selected. Going with the cheapest online guys can be a mistake. As well as administration issues, you’re paying for the actual service of getting your trades down in the most efficient manner.

For instance, if you’re dealing in small, illiquid stocks, you could save fortunes by using a broker that really pushes hard for a decent execution price. And bear in mind, you should push them to get you a good price! Sure, a cheap online broker may only cost a tenner, but you could pay hundreds if you get a bad ‘fill’.

Unfortunately, I’m not allowed to advise you directly. But all I can say is ten minutes of research on an internet forum could be ten minutes well invested.

As with so many things in life and the markets: if you don’t ask, you don’t get. Don’t be afraid to push your interests with your broker – get them to work for their money!

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    I trade with a ‘highly rated’ major broker that will only register stocks in a nominee account. One of the reasons apparently is that it makes it easier for brokers to use stocks stocks for short selling or options trading purposes. I strongly believe that the ordinary shareholder has no control over corporate affairs which allows the agents and rent seekers of the City to do as they like with our money, hence the financial crises, the excesses and the corruption in the present system. Until the balance of power is shifted back to the shareholder, things will just get worse and ‘popular capitalism’ will remain a pious illusion.

  • kp1946

    I don’t like nominee accounts because they rely on the honesty of the broker when it comes to paying dividends into the nominee account. Many years ago I felt the broker was not necessarily paying me everything I should have received, but could not get the evidence for this without a great deal of trouble, and I was not the direct recipient of annual reports and corporate information since I was not the owner of the shares. So I changed to a personal CREST account through Brewin and Dolphin. Now the holdings are legally mine, and I receive annual reports, corporate communications and dividends paid directly to me, with statements of tax credits, etc. The cost of a personal CREST account is not high and the service I get is mostly excellent.

  • steveH

    Anybody get his hints towards brokers who get better prices?

    For my 10 pennorth, I’ve had squabbles with sippdeal (youinvest) about limit orders and achieved prices, although generally I think they are ok.

  • This_is_me

    I also use CREST through Brewin and Dolphin – their Stocktrade division. This has the added advantage that you can be sure that your shares can’t be used for shorting and you certainly do not want your shares to be used to drive the price down. This is particularly important with small companies.

  • FR

    Are you sure that the stockbroker can use the shares in a supposed ring-fenced trust to sell short to somebody else ? This looks like completely illegal, but again common sense is not something that is part of the financial institutions.

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