Sun 3 Nov, 2013 02:37 am
I recently opened an account with an brokerage firm, TD Ameritrade, and bought a stock for the first time in about 35 years. The process has changed. To explain the question, I have to explain my investment plan. Please don't analyze that, because I'm not asking about it. My plan is to buy relatively small amounts of lots of different companies and never sell the stock in any company no matter what. I am keeping everything I buy no matter how it performs. I presume that some will do well and others poorly. Again, this is not what I am asking about. I have already begun and will continue buying as I get more money. The relevance of this is that there is no issue of whether it will be easy for me to sell the stock, because I won't be selling it.
35 years ago, when you bought a stock, you had a choice between leaving the stock with the broker (keeping it in "street name") or being sent the certificates. Keeping it in "street name" means that the broker is the registered owner. Today, apparently, there isn't really such a choice. Although technically you can get the stocks put in your own name and be sent certificates, in practice, when you suggest it, the broker acts like it's impossible and the fee for getting certificates just went up universally from $50 to $500. This fee doesn't originate with the broker. It originates with the Depository Trust & Clearing Corporation, which now charges that fee. The upshot is that it's not practical for a small investor to be sent the stock certificates any more, because of that fee. It would be nice to have the certificates because I want to feel like I really own my stocks, but I am not about to pay $500 for certificates for each stock I buy. It seems kind of like buying a house and having the bank keep it in their name and never sending you a deed, but telling you that it doesn't matter because you get to live there. I am not saying that there is any practical difference. I'm just saying that I'd rather feel like I'm the owner than to be unable to keep ownership of the stock without having it in the care of a brokerage firm. It's just a feeling. I don't claim that there is much practical difference.
If you look at the SEC Web site, it says that when you buy stock, you can choose among three options - leaving it in street name with the broker the registered owner (my present situation), getting the certificates, or having it in your name but not getting the certificates. The last option is called "direct registration." It says nothing about any difficulty with any of these options or that any of them is more common that the others. I called TD Ameritrade today (Saturday) and asked what was involved in getting direct registration for my stocks (put in my name without getting the certificates). The agent I spoke to said that she didn't know and that the information page on their Web site which explains it seemed not to be there anymore. She said that in her several years with the company, she had never seen anyone do it. She suggested that I call back and ask for the "Transfer Department" on Monday and that they could answer. I told her that I wasn't looking for a technically perfect answer, just the gist of it, but she said she didn't know. I have asked several agents there over the past few months whether billionaires are content to have their investments held in their brokers name, with no way to own them except to keep them in a brokerage account, and they have in each case said, "yes." Monday I will call TD Ameritrade back and ask their Transfer Department what is involved and what are the ramifications of having the stocks put in my name with direct registration. I expect them to tell me that it is more complicated than building a space shuttle.
My question is...well my question is that this doesn't make a lot of sense to me. I cannot believe that every investor in America, including billionaires, are content to be able to own stocks only in a brokerage account and never in their own names. If no one has their stocks in their own name, who are those people who go to company shareholder meetings and vote? Wouldn't most people like to have their name on their possessions?
@Brandon9000,
Come on. Some of you know this kind of stuff. Talk to me. It seems as though they almost won't allow you to put stocks in your own name anymore. Anyone?
@Brandon9000,
Leaving my stocks at TD is like having money at the bank, except they can lose value.
They are in my name and I get a notification to the shareholders meetings. I can also vote by mail.
As I print my monthly statement, I have a proof that the stocks are mine.
Its says which stocks I buy and those I sell.
I've no need for a certificate.
@timur,
Thank you very much for responding. But what do you mean that they are in your name? By default they put them in "street name," in other words, their own name. Do you mean that you use the direct registration system and have the stocks listed with a transfer agent? Every time I ask about this, TD is disingenuous or evasive. So far, I only have one stock. I am just now buying my second, but no one has sent me any statements from the underlying company, and when I have discussed this four or five times with them, no one has told me that I can participate in voting. Again, they have listed my stock in their own name and merely keep track of who owns what. I am only the "beneficiary owner," but not the owner of record.
@Brandon9000,
They are in my account, on street name, but I have the privileges attached to their possession (dividends, vote..)
I understand what you mean but here are the reasons I don't need to physically possess them:
Investopedia wrote:Convenience - It is much more convenient for brokers to carry securities in their name as the securities can be easily and readily transferred between parties. Imagine the amount of work that would occur if your broker held stocks in your name. Every time you needed to sell stocks, the broker would have to find the exact stocks you own and deliver them to the buying party, who would then have to send the stocks back to the company to have the name on the certificates changed to the new owners' names. This would take a great deal of time and effort, not to mention the fact that you wouldn't collect payment until the stocks were physically received by the purchasing party. By holding the securities "in street name", the broker can avoid most delays associated with the transfer of ownership and quickly settle trades.
Safety - If brokers were to hold the physical securities, there would be a possibility of physical damage, loss and theft of the certificates. By holding them in street name, brokerages are able to retain the securities electronically, effectively reducing the probability of anything negative occurring. This safety is also extended to the safety of payment. By holding the securities in street name, the broker is ensuring that a security will be delivered promptly when a transaction occurs. This removes any uncertainty that would exist if the customer were responsible for delivering the security every time a transaction occurred.
Thank you for your intelligent and well considered answer. Our name appears on the reports, but they are registered as belonging to TD. In the several times I discussed this with TD agents, they never told me that I would be notified of shareholder meetings or could vote. I don't really want to vote, but it would give me a sense that the stocks belong to me. I do, of course, get dividends, but not from the underlying company, since they think the stock belongs to TD. TD receives that dividends and deposits them in my account.
As I said, I do not intend to sell anything I buy, so, in my case, convenience of transfer is not an issue. As for the risk of damaging the certificates, it is, of course, true. However, as I wrote above, they seem almost not to know what I'm talking about when I ask them even about direct registration, which would merely list the stock in my name instead of theirs, but not involve printing a physical certificate. The agent I spoke to Saturday (yesterday) said she had never seen it done and that I would have to call back Monday and ask for the Transfer Department to get any question at all about it answered.
So, what you're basically saying is that it doesn't make a difference. I just don't like to be permanently dependent on someone else to hold what is supposed to be my property. At least having it listed in my name so that the underlying company communicated with me directly would be more satisfactory.
@Brandon9000,
You've got the gist of it. You own the stock and Ameritrade is the custodian for holding it. You get to vote, you get the dividends. By holding it in street name, the brokerage does get the ability to loan out shares for shorts much like a bank has the ability to use your cash, but the brokerage has to be able to complete your transactions on demand (also like a bank). For you, it is a lot safer to hold stocks in street name and dramatically easier to sell or transfer them between your accounts. Some advantages I've personally experienced from having shares in street name are transfer to beneficiaries after death (not yet my death) and transfer of shares as a charitable gift. Selling a stock that is held in street name takes a fraction of a second compared to days if you hold the certificate. Having stock in street name also allows you to designate a beneficiary so that if something happens to you, your holdings will not be tied up in probate.
@engineer,
engineer wrote:
You've got the gist of it. You own the stock and Ameritrade is the custodian for holding it. You get to vote, you get the dividends. By holding it in street name, the brokerage does get the ability to loan out shares for shorts much like a bank has the ability to use your cash, but the brokerage has to be able to complete your transactions on demand (also like a bank). For you, it is a lot safer to hold stocks in street name and dramatically easier to sell or transfer them between your accounts. Some advantages I've personally experienced from having shares in street name are transfer to beneficiaries after death (not yet my death) and transfer of shares as a charitable gift. Selling a stock that is held in street name takes a fraction of a second compared to days if you hold the certificate. Having stock in street name also allows you to designate a beneficiary so that if something happens to you, your holdings will not be tied up in probate.
In my post, I specified very clearly that I will never sell any of these stocks, so ease of transfer is not a consideration for me. I will hold them as long as I live and then bequeath them to a relative. How would my life be worse if I used direct registration to put them in my own name? Also, are billionaires like Gates and Trump also content to have their investments in a brokerage account in the name of the broker?
@engineer,
engineer wrote:
Having stock in street name also allows you to designate a beneficiary so that if something happens to you, your holdings will not be tied up in probate.
Sounds like an important consideration. You really don't want any more in your probate estate than absolutely necessary. Depending on your state and size of estate, it can be tied up for a very long time, and your executor is going to get a bigger fee as complexity increases.
But are the really rich people, people with, say, hundreds of millions, satisfied with having their investments inseparable from their broker and not in their own name? What would you say if a bank said that they would never give you the deed to your house, even after it was paid off, but continue to list themselves as owners forever?
@Brandon9000,
Keeping your stocks in street name is a lot like keeping your money in a bank. Really rich people absolutely invest this way. Who would keep 100,000 shares of Apple in their desk drawer? I can look at my entire stock portfolio in a glance through my brokerage account instead of manually tracking all those certificates the same way my bank statement shows me all the money in my account instead of me pulling out the bills and counting them. I'm not concerned that a fire will destroy all my stock certificates and require that I have them reissued. If a company is purchased, splits, reverse splits, etc. everything is taken care of. When all those stocks pay dividends, my broker tabulates them all up and sends me a 1099-div at tax time so I don't have to bother with it. I occasionally buy preferred stocks and real estate investment trusts that put out "dividends" that actually include some return of interest so they are tax preferred. The broker keeps track of all of that for me also. Just about all my standard stocks have easy dividend reinvestment programs that the broker handles for me at no charge. You know that the really rich would pay someone to do this if it wasn't already being done. There is no penalty to keeping your stocks in street name, especially if your goal is to keep them forever and bequeath them to your heirs. Your management effort is significantly reduced and their paperwork on your death is also much lower.
All that said and I know you didn't ask this, but have you considered buying an
ETF instead of individual stocks? You could buy the entire S&P 500 by purchasing SPDR's. The symbol
SDY is a popular choice if you want to go that direction.
@engineer,
engineer wrote:
Keeping your stocks in street name is a lot like keeping your money in a bank. Really rich people absolutely invest this way. Who would keep 100,000 shares of Apple in their desk drawer? I can look at my entire stock portfolio in a glance through my brokerage account instead of manually tracking all those certificates the same way my bank statement shows me all the money in my account instead of me pulling out the bills and counting them. I'm not concerned that a fire will destroy all my stock certificates and require that I have them reissued. If a company is purchased, splits, reverse splits, etc. everything is taken care of. When all those stocks pay dividends, my broker tabulates them all up and sends me a 1099-div at tax time so I don't have to bother with it. I occasionally buy preferred stocks and real estate investment trusts that put out "dividends" that actually include some return of interest so they are tax preferred. The broker keeps track of all of that for me also. Just about all my standard stocks have easy dividend reinvestment programs that the broker handles for me at no charge. You know that the really rich would pay someone to do this if it wasn't already being done. There is no penalty to keeping your stocks in street name, especially if your goal is to keep them forever and bequeath them to your heirs. Your management effort is significantly reduced and their paperwork on your death is also much lower.
All that said and I know you didn't ask this, but have you considered buying an
ETF instead of individual stocks? You could buy the entire S&P 500 by purchasing SPDR's. The symbol
SDY is a popular choice if you want to go that direction.
I'm in the middle of something, so I must answer quickly. Your answer is well informed and well considered, and I thank you. One thing, though. I am not talking about being issued paper certificates. I am talking about having the stocks put in my own name through the direct registration system. What is the down side of that?
@Brandon9000,
You have to talk to Ameritrade to be sure, but except for the fire burning the certificates, it's the same. The broker does all sorts of things for you around dividends, taxes and administration that you would have to take on yourself. Since the stock is in their name, they can process your dividends and do your accounting for you. Once you own more than a few different companies, that can become very burdensome for you and very complicated for your heirs.
And you think the super rich are doing this too rather than having more direct ownership? I would have thought they would want something more tangible for their hundreds of millions, some direct association with their name.
@Brandon9000,
The brokerage account is in their name and they have full rights to vote their shares. Actually, the super rich hire firms like Bain management to do all the investing with Bain holding all the stock and their customers holding shares in Bain. Other than people who build up their companies, take them public and maintain a significant holding for themselves, I doubt very many of the very rich bother to take stands in specific companies. Why take all the time to build a portfolio of well researched stocks when you can pay someone to put one together for you?
@engineer,
engineer wrote:
The brokerage account is in their name and they have full rights to vote their shares. Actually, the super rich hire firms like Bain management to do all the investing with Bain holding all the stock and their customers holding shares in Bain. Other than people who build up their companies, take them public and maintain a significant holding for themselves, I doubt very many of the very rich bother to take stands in specific companies. Why take all the time to build a portfolio of well researched stocks when you can pay someone to put one together for you?
Very interesting. You know much. Then who does do direct name registration (DRS)? Again, direct name registration is not paper share ownership. They wouldn't offer it unless someone was doing it. Again, the issue is not voting. The issue is who is the owner of record of the stock.
Stumble It!
Tweet This
Bookmark on Delicious
Share on Facebook
Share on MySpace