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Share certificates give shareholder rights, nominee accounts do not
The Sunday Times, on April 26, has quoted Hargreaves Lansdown as claiming that private investors “have the same rights and benefits under a nominee service” as those holding shares in certificated form. This is incorrect and seriously misleading.
Some nominee account providers provide additional services which go some way towards compensating investors for the shareholder rights they do not have, but these are not the legal rights enjoyed by investors who have their own names and addresses on the relevant share registers. Not only are investors using nominee accounts not the legal owners of the shares bought with their money, they have only minimal protection if a nominee account provider fails to keep proper records and stay solvent and such situations are not unknown. These significant differences are not spelled out to investors when offered inducements to transfer to a nominee service and this is something which the UK Shareholders’ Association condemns.
Nominee accounts can be of benefit to some investors and it is not possible to invest through an ISA or SIPP in any other way (although this should not prevent an investor’s name and address being placed on the register with the nominee’s), but how such investors are treated depends on each nominee’s terms of business which can be changed arbitrarily at any time, leaving such investors trapped.