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.

Do you own the securities in your brokerage account? The advantages of direct registration.

Do you own the securities in your stock brokerage account?  Probably not.

If you read your stock brokerage account agreement closely you know that you do not really own the stocks in your account.  Stocks are held in 'street name'.  What you own is essentially a claim for a specific number of shares in the pool of those shares administered by your broker.  The broker has title to all the shares in the pool in their 'street name'.  This facilitates trading by enabling quick transfer of stocks from one account to another at the same broker and bundling of shares for purchase and sale.

There are two alternatives: direct registration and holding paper certificates.  Unfortunately most companies stopped issuing paper certificates several years ago.  

In summary, the relative advantages of holding securities at a brokerage in street name or as direct registration are:

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.

In my situation the decision whether to direct register shares comes down to:
- do I want to keep track of yet another account, password, etc. at the transfer agent?
- how often and easily do I need to trade this security?
- what are the chances that my broker misappropriates shares in my account?

I do not need securities in my brokerage account as collateral for margin debt.  I have little confidence in SIPC insurance. 

More background and my sources can be read at http://rikgreeninvestorforum.blogspot.com/p/precious-metals.html

At this point, I am planning to direct register about half the shares in my core holding.  

Holding securities at brokerage firms can be risky.  Ask a former MF Global account holder.  All the brokers that I use also have banking businesses.  Who knows what the assets on the banking side are invested in.  Back in 2007, one popular internet broker had significant investments in subprime mortgages, for example.  Fortunately, this broker had more ethics and discipline than MF Global.