Nominee Accounts
Nominee accounts are accounts set up by advisers for the purpose of administering assets held on behalf of their clients. There is no requirement for these nominee companies to be authorised under the Financial Services Act, so strictly speaking funds held in nominee accounts would not be covered by the Investors Compensation Scheme (ICS).
In practice however, the investment adviser would almost certainly be responsible. If you are considering investing with an investment adviser who intends to hold investments, like shares, for you in a nominee account, you should find out:
- What is the formal relationship between the investment adviser (usually a stockbroker) and the nominee company?
In short, if the investment adviser takes responsibility for the nominee account (check the wording of the documentation), the Investors Compensation scheme will cover you.
Many private investors have been setting up nominee accounts with stockbrokers following the introduction of the Crest system for share settlement. If you're in this position, you need to be sure that by transferring your shares into a nominee account, you'll still be receiving the sort of service you expect.
Proshare, the private investors pressure group, has produced guidelines of best practice which it'd like to see stockbrokers adopting. For example, does your broker ensure that your voting rights and perks are safeguarded? Do you receive dividends promply and are you receiving Reports & Accounts for the companies your invest in?