Thursday, November 7, 2013

Direct Registering Shares - Update on My Experience

Many months ago I researched the pros and cons of direct registering shares instead of holding them at my broker in street name <How to 'Own' Securities>.  The table below is a summary.  In order to gain more experience with it, I transferred some of my long term investments to direct registration.  It was the right move.  Once discovered the process was very straight forward and no cost.  

In order to direct register shares, the shares must be transferred to the company's transfer agent.  Chevron (CVX) and their transfer agent ComputerShare are an example.  Frustratingly, ComputerShare will not create a new account unless they already have your shares.  Their service is aimed at company (e.g. Chevron) employees who may want to start a Dividend Reinvestment Plan (DRIP) or direct purchase more shares.  This was especially frustrating because in order to transfer shares out of my brokerage accounts the instruction forms require that an account name and number be provide for the 'transfer to'.  The name must be the same owner/beneficiary as on the brokerage account.  The transfer instruction forms are typically used to transfer securities from one broker to another.  

Fortunately, one of my three online brokers knew that ComputerShare would create a new account if we submitted the paperwork without a ComputerShare personal account number.  Instructing my broker to transfer my shares out into the ether without a specific destination was a little worrisome.  But, as promised within 2 weeks ComputerShare sent my new account information and password.  The correct amount of shares were in the account.  On the next quarterly dividend date the correct amount was paid to my bank account as instructed.  

ComputerShare could be much more helpful.  Their phone help did not understand the concept of direct registration in relation to street-name.  They couldn't tell me how to instruct my broker to transfer shares to CompuShare without an account.  And, then they wouldn't create a new account.  None of this information is available on their website.

One can understand why my brokers obscure the process for transferring assets out of their domain.  Two of my three brokers even charge a fee.  The broker that successfully transferred my CVX shares to ComputerShare for no cost is now doing most of my businesses including trading. Transferring shares to my now preferred broker from the other two was very straight forward via standard forms on the brokers websites.

Hopefully my experience will help you decide how to best protect your assets.


Ownership Model
Street Name
(Brokerage)
Direct Registration
(Transfer Agent)
Insurance
SIPC up to $500k
No SIPC.  No FDIC.  Investee’s discretion
Fungibility
High: ownership transferred by broker
Medium:  must instruct broker to use Direct Registration System (DRS)
Investee-Investor communication
Administered by broker
Direct
Pledging securities as collateral
Medium
High
Creating a margin account
Easy
Not available
Receiving interest and dividend payments
Broker is added step in payment chain - delays possible
No delays
Administration regulated by
SEC
SEC
Record keeping
Book entry.  No paper.
Investee's Register.  No paper.
Corporate governance
Easier for investee to go dark with fewer registered owners.
More difficult to avoid mandatory disclosures.







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