There is a great letter from a reader in this weeks Investors Chronicle on the subject of nominee accounts. Under the title “Broken Brokers”, Jonathan Crozier says he used to work for Pritchard Stockbrokers who are one the brokers that went bust covered in previous articles. He complains about the low level of compensation under the Financial Services Compensation Scheme (currently £50,000) which he says is a ludicrously low figure for Mr Average.
But this is the paragraph that made the most impact: “Ask any of Pritchard’s ex-client little old ladies what they think of nominee accounts and the FSCS. Find me one who does not now wish that they had never heard of nominee accounts. Indeed, if they had insisted on keeping their shareholdings in their own-name (certificated) form, they would have lost none of their capital in Pritchard’s administration – and would have saved themselves so much time, energy, stress and distress. Nearly four years after the event, I believe there are still ex-clients who have not recovered their money”.
This is why we need a better alternative to nominee accounts that is readily available and a good electronic form of holding shares to replace paper share certificates, as ShareSoc has been campaigning for (see https://www.sharesoc.org/shareholder-rights.html). Plus of course why ISAs and SIPPs should not require the use of nominee accounts.
Roger Lawson
I had a Pritchard client; we sued and made a full recovery. The FSA/FCA rules on client assets and money should mean that the failure of the firm does not affect client assets, although I recognise these rules are not adequately policed. The FSCS limit is, of course, far too low. There is no reason why it should not be 90% of debt, as in the case for insurance policies. More important than all this, however, is the need to properly police PI insurance for financial firms. The minimum cover is fixed, ludicrously, on the basis of the firm’s fees, not the value of the business it undertakes.
Robert Morfee
An interesting comment, but why was it necessary to sue? Expecting all the clients of a stockbroker to sue to recover assets in such situations is somewhat mind boggling.
Roger Lawson
It is necessary to take steps to enforce the law because not everyone is law abiding. It is is simple as that. Civil litigation is just private law enforcement.
Pritchards’ business practices were not as they should have been. In my case their insurers chose to defend the indefensiibe, and lost. It was obvious from the outset that they would, but they nevertheless made my client go through the mill. They should have simply paid on my first asking.
Robert Morfee