No Pain, No Gain: Greedy brokers get tough on small investors

Life is getting more difficult for small investors. The stock market may be performing relatively well, with small-caps taking the honours, but conditions are still deteriorating for accommodating the modest requirements of the private investor.

This column is not aimed at professional operators and day traders, even if they do consider themselves small-time. It is dedicated to the occasional player who follows the stock market avidly, but probably deals only half-a-dozen or so times a year.

TD Waterhouse, the major execution-only stockbroker, is the latest to punish the real small-time investor. This week, Timothy Pinnington, Waterhouse's chief executive for European Investor Services, singled out those who want paper share certificates, invariably the bit-part investor, for higher charges.

The new rates represent the sort of inflation-busting increase no rail operator would dare impose. Waterhouse has doubled its charge to £10 for each certificated trade. With the minimum phone commission at £17.50, the extra payment is onerous. On-line dealing is cheaper, with a £12.50 minimum charge. But if you want a certificate to prove your ownership, you pay £10 more.

I realise Waterhouse is simply joining the crowd: others have charged £10 for share certificates since electronic trading arrived. I am not aware of any charging more, but I would not be surprised to hear of such greed.

Nevertheless, for such a powerful execution-only stockbroker as Waterhouse to jump on the £10 bandwagon is disconcerting. Providing share certificates is a paper chase, more expensive than electronic registering, when a shareholder has to be content with an occasional document, not dissimilar to a bank statement. But it does not cost anywhere near £10 to provide a certificate. A tenner is taking the mickey. An increase of a couple of pounds would be more reasonable, and, in addition, demonstrate Waterhouse's commitment to small shareholders.

I favour what some regard as old-fashioned share certificates. They are indisputable proof of ownership. There is always the danger that the postman, or the shareholder, can mislay a vital document. Fire and the occasional unlawful act must also be considered.

But paper is still infinitely preferable to electronic registration when the shareholder disappears in a Crest account. After an investor is enrolled into a stockbroker-sponsored account it can be difficult to keep abreast of developments. Some stockbrokers are not prepared to forward documents. There must be occasions when shareholders miss out on, say, rights issues because the stockbroker running their Crest account does not provide documents or is late doing so.

Indeed, the shareholder becomes so divorced from the company he part-owns that he is unlikely to be able to attend the yearly shareholders' meeting. And perks? They are lost. To add to the remoteness, some stockbrokers insist on waiting until dividend payments reach a certain level before sending a cheque to the client who, of course, is so far removed from the action that the company they have shares in is probably unaware of his involvement. It is always possible to become a personal Crest member but the cost can be high; it depends on the attitude of your stockbroker.

All small investors, whether frequent or occasional traders, suffer from the City's less-than-charming habits. Normally, the only time they can meet directors of their company is at yearly meetings. Yet major City investors often enjoy a direct line to companies. And selective briefings occur regularly, with many companies happy to have cosy meetings with fund managers and analysts. Nudges and winks - and clear guidance - from such get-togethers may filter down to small investors, but too late to be of much use.

Even the dissemination of company news at one time favoured those in the City who had the facilities, then expensive, to pick up announcements. But the advent of the likes of advfn.com, the financial website which has witnessed its shares joining in the small-cap merry- making, means the small investor can get City information at the same time as top fund managers. Of course, many readers do not sit glued to their screens. But small-time players should object to the way they are squeezed by electronic trading, which is highly advantageous to institutions and stockbrokers, and the questionable privileges bestowed on big investors.