Active Equity Funds Underperform – But What About Passive Funds?

Last Monday (21/3/2016) there was a front page story in the FTfm supplement which was headlined “86% of active equity funds underperform“. The article said that a study by S&P Dow Jones Indices showed that “almost every actively managed fund in Europe investing in global, emerging and US markets has failed to beat its benchmark over the past decade….”. The article went on to question the value added by stockpicking fund managers at some length

Now it immediately struck me that the authors of this study might be keen to promote the use of indices and index tracking funds so they might not be totally unbiased. But the real elephant in the room that the article did not even mention was the question of how many passive funds underperform the market. I was intending to write to the FT and publish a blog article on this subject but never got around to it. However, it did not pass unnoticed by another reader and the FT have published a letter from him today.

Mr St. John Mound pointed out in the letter that logically since passive funds are designed to match the benchmark as closely as possible, but also charge fees, the percentage beating their benchmark after fees will be even lower than that for active funds. To put it another way, it is likely that 100% of passive funds will underperform their benchmark. That is ignoring the fact that few passive funds perfectly match their benchmark and that indices might overstate the likely performance you will achieve simply because of companies dropping out of an index and being replaced (the “survivor bias” problem).

What needs to be examined is the relative performance of active and passive funds, and the relative fees they charge. Active funds may charge more on average than passive funds, although there are some low cost active funds just as there low cost passive funds.

Perhaps the headline in the FT should have read something like “14% of active equity fund managers overcome the drag of high fund management fees”. Whether that is by skill or luck is another debate worth having though. But the original article was certainly sloppy journalism no doubt prompted by an organisation keen to promote the merits of index tracking.

Before anyone jumps to conclusions about whether this writer favours active or passive funds, let me just say that I consider this more a question of what the investor wants and whether they have the judgement to select good active funds or not. Index tracking funds are a “no-brainer” kind of choice to some extent which might relieve the investor of giving the choice much thought, although even here unless you are tracking a global index rather than some more specific index there can still be dangers.

One type of fund manager to avoid is of course the “closet index trackers” who charge high fees while achieving only index matching performance. These are more common than you may think and they have been getting some negative publicity of late.

Even better perhaps might be to avoid paying management fees altogether and pick your own investments because management fees can seriously erode your long term returns. There is a chapter in Terry Smith’s latest book (entitled “Celebrating five years of investing in decades of success”) which spells it out. Part 5 of the book explains why minimising fund management fees and other intermediary costs are so important because they can easily consume all the income that is being generated from the underlying businesses. It’s well worth a read even if Mr Smith might have a certain stance as he runs an active fund (Fundsmith).

In the investment game, even just a little thought about these matters can help you sort the wheat from the chaff.

Roger Lawson

Lakehouse and Tungsten

To follow up on my previous report on a presentation by Lakehouse directors following a requisition submitted to remove three of the non-executive directors, the company has now published a 21 page document giving their reasons why shareholders should support the board. As is customary in these battles, the board “unanimously recommends you vote against the resolutions” to remove the three new directors and appoint new ones.

I said in my previous note that it was “all still a puzzle” as it was not clear why the requisitions had been made (the directors of Lakehouse seemed oddly ignorant on that subject), and the requisitioners (Slater Investments and company founder Steve Rawlings) had not yet published their arguments to inform shareholders – and they still have not. This note published by Lakehouse does not provide further explanation in essence so it is still a puzzle.

It does provide some reasons why shareholders should support the board. In summary these are:

The requisitioners have not provided any information in relation to their strategic vision for the company. Comment: We may yet see this from the requisitioners of course, but it might instead be about operational and tactical performance in any case.

An independent Lakehouse board, without any significant shareholder representation, represents the best corporate governance structure for Lakehouse shareholder. Comment: It is certainly advisable to have a majority of independent non-executives on the boards of fully listed companies. Even taking that into account there can be exceptions under the UK Corporate Governance Code if explanations are provided and it is not unusual when a company is in difficulties.  But it is also not unreasonable to have a nominee of a large shareholder (Rolls-Royce recently appointed a non-exec director on that basis). The two can often be combined and we will see no doubt in due course what the requisitioners have to say on that subject. But to suggest that there should be no significant shareholder representation is surely misconceived. Large shareholders have a very strong interest in the success of the company and hence their interests are likely to be aligned with other shareholders. Investors are reminded that under UK Company Law, all directors must act in the interests of the company, not in their personal interests or of the person or organisation who has nominated them as a director.

– Steve Rawlings’ lack of involvement in the Group and track record as a director since 2012, together with his lack of experience as a director of listed companies, does not suggest he has the necessary skill set to be able to provide a meaningful contribution to the Board or the Group going forward. Comment: This is the kind of personal attack one often sees in such battles. It goes on to say that “Although nominally ‘Chief Executive’ Steve Rawlings did not attend a single board meeting during the three years prior to the IPO…..” which is a rather odd statement. But if you look at the prospectus for the IPO he is not listed as either a director or a member of the senior management so there is probably more to this than meets the eye. Indeed it is obvious from later comments in the document that Mr Rawlings had been dropping out from active involvement in the company some time previously. To have one non-executive director who does not have a lot of experience of listed public companies is hardly a major difficulty and his knowledge of the business and the market in which it operates might counterbalance that surely.

– The Requisitonists’ actions have caused unnecessary disruption to, and uncertainty within, the operations of the business at a time when the Board wants to focus on the trading performance of the Group. Comment: That may well be the case, but shareholders who requisition EGMs usually do so in the belief that there are serious problems that need rectifying and that it is in the interests of investors to suffer some short term disruption for longer term benefit. One cannot make an omelette without breaking eggs as the saying goes.

So in summary, this document is not a wholly convincing one even without seeing what Slater and Rawlings have to say.

Tungsten and Founders Coming Back

Now it might just be that the battle at Lakehouse is about a founder of a company who still has a major stake in the shares becoming unhappy with the performance of his “baby” under new management. This can be a common feeling (look at Easyjet and Sir Stelios Haji-Ioannou as a good example). Another recent case was probably that of Tungsten Corporation (TUNG) an electronic invoicing and business exchange business. This company was led by Ed Truell as Executive Chairman who listed it on AIM in 2013 when it was valued at £225m. It’s now valued at £65m and that’s after somewhat of a recovery from its market lows after Mr Truell was demoted and became only a non-executive director. Consistent lack of profitability was one possible cause of the management revolution and having seen Mr Truell present in the past I cannot say that this writer was particularly surprised by the company’s disappointing progress. Breakeven kept drifting out and losses rose as Mr Truell kept spending money.

Now it seems that he wishes to make a comeback. He has stepped down from the board and the company have issued an announcement regarding a proposal that they have received from him to “combine certain assets”. It is not an offer for the company. This is what the announcement says: “The resulting effect of this conceived combination would be that Tungsten’s primary asset would be a minority stake in an enlarged group of disparate, illiquid assets controlled by Mr. Truell and Tungsten itself would be transformed into an investment vehicle.   The Board of Tungsten has spent considerable time reviewing these suggestions, including the most recent proposal, and found them to date to be universally without merit for shareholders.”

As a small holder of shares in Tungsten, recently acquired, let me say that I completely agree with the board and I would not wish to have Mr Truell back and involved with this business. One of his bright ideas for developing Tungsten was the acquisition of a bank to provide invoice finance but there were always doubts as the benefit of that and it has now been sold. Tungsten is a business with great potential but it has been consistently loss making. It surely just needs competent operational management in the short term to get it to longer term viability and like all “network” businesses the jam will then come.

But Mr Truell may not be easily deterred from making a comeback. That’s the problem with those who feel they have been personally prejudiced or their past efforts discounted. Founders need to forget and move on, but that does not mean that their advice as non-executive directors and shareholders might not be helpful.

Roger Lawson

The Trouble with LTIPs…

It was with some consternation that I read this announcement today from one of my investee companies, Gulf Marine Services (LSE:GMS), in which LTIP awards are granted to several directors.

Superficially, the awards seem fairly reasonable and, though I haven’t checked, I’m sure they are in compliance with the company’s remuneration policy. But, there is a fundamental problem with nil-cost option awards such as these…

The announcement states that (for example) the CEO’s award for 2016 represents a maximum of 150% of his salary, subject to performance conditions over the vesting period. This figure, however, is based on the current share price, which I believe to be highly depressed, due to current dire market conditions in the oilfield services industry GMS operates in.

It is not hard for me to envisage that, if there is some recovery in the industry, and in market perceptions of the business, the shares could easily (say) triple over the time period of the award (which is why I remain invested!). Under those circumstances a) the awards would be likely to vest fully, due to good performance by the company over the performance period; b) the value of the awards would similarly triple.

So, in that scenario, the awards would not be worth 150% of 2016 base salary but 450% – a figure that I (and, I suspect, many other shareholders) would consider excessive.

For that reason, ShareSoc considers the whole concept of nil-cost LTIP option awards problematic. We will soon be releasing some draft remuneration guidance for review and comment and following that process we will press for its adoption by the companies we invest in.

Mark Bentley

Lakehouse – All Still a Puzzle

I attended a presentation by Lakehouse (LAKE) last night at Mello. I was keen to learn more about this company, and why a requisition to remove directors had been made recently which is a somewhat unusual event. The public announcements and national media comments on it left a lot of questions unanswered which I hoped might be supplied. Here are some notes on the meeting.

First some background. Lakehouse is an asset and energy support services group that constructs, improves, maintains and provides services to homes, schools, public and commercial buildings with a focus on the UK public sector and regulated markets – to quote the company. It listed on the main market in March 2015, but on the 1st February this year it issued a profit warning in a Trading Statement. This caused the share price to drop 60% on the day, resulting no doubt in some very disgruntled shareholders. The statement was somewhat unspecific in many regards but it did indicate that profits would be less than last year when they were forecast by analysts to be substantially higher.

A somewhat stormy Annual General Meeting followed where both Stuart Black, Executive Chairman, and Sean Birrane, CEO got 28% of votes against their re-election and there were similar votes against other non-execs, against the Remuneration Report/Policy, and even larger votes against other resolutions. That included the market share buy back resolution effectively blocking the company from doing that.

Subsequently Sean Birrane resigned without much explanation and Stuart Black became CEO with one of the non-execs taking the Chairman’s job.

On the 9th March, a requisition was submitted to the company by Slater Investments and Steve Rawlings (founder and major shareholder) for an EGM to remove the three current non-executive directors and replace them with Mr Rawlings and two other new directors (Ric Piper and Robert Legget). No explanation of the reasons for the requisition was given in the announcement but Mark Slater who manages Slater Investments was quoted on Citywire as saying that change was needed and that the company’s problems could not be solely attributed to the wider pressures in the social housing market and that “there may well be some business specific pressures, but there have also been some unforced errors”. It was also mentioned that he considered the existing non-executive directors had not done a good enough job in guiding management. Mark Slater is a well respected small cap fund manager and son of Jim Slater, and he has not historically been a particularly “activist” investor.

Stuart Black spoke at the Mello meeting, supported by the CFO, Jeremy Simpson. I have only attempted to cover the key questions and answers from a long meeting. I have summarised and paraphrased for the sake of brevity.

Stuart commenced by giving an overview of the business. He said they had opportunities to grow both geographically and organically. Each business had growth opportunities he noted. They made 5 acquisitions last year. He said the profit warning was given because they had to reduce market expectations by 20%.

He was asked why Sean Birrane left. He said he resigned and many people tried to persuade him to stay. Apparently he did not find running a public company “was for him”. This was the first of several rather peculiar and unrevealing answers.

There were several questions regarding the wording of the profit warning statement which shareholders obviously considered was poorly done. But Stuart felt they could go no further at the time. Peel Hunt, the company’s broker, forecast a 20% drop in revenue. Jeremy Simpson said they had extensive conversations with the broker before they formed their view. He then covered some of the reasons why customers are reducing orders and the problems (i.e. delays) in order timing. Comment: the reasons seemed to be numerous and made it clear that although they often had “framework” agreements in place these did not guarantee any actual business. In essence the company seemed to have little visibility on future orders and revenues.

A question was asked whether the dividend was under threat. The answer given was that the absolute level of dividend was adjusted down based on the profit warning. Note: the company was already giving a high dividend yield, and this was forecast to grow substantially, but obviously now will not do so.

Rather than keep going over old ground, at this point I asked the simple question as to why the requisition to remove the three directors was made. The answer given by Stuart was in essence that they did not know. There had been three conversations and all they had learned was that there were some concerns about the dividend.

Note: the requisitioners will no doubt be issuing a multi-page explanation for why shareholders should support them, as is normal practice in such cases. The company will then issue a similar length defence document. These will probably say a lot more, but it does seem somewhat unbelievable that Stuart does not know more than he was willing or able to reveal.

I then asked how much they intended to spend defending against the requisition. This is an important issue because this dispute is very similar to the recent case of Alliance Trust where a requisition to remove/replace non-execs was made and where I and ShareSoc got involved and backed the requisitioners. Alliance conceded defeat shortly before their AGM and agreed a compromise solution but spent £3 million in trying to defeat the requisition. It is very clear from the comments made here that the usual crowd of lawyers, proxy advisors and others are involved so the costs will not be cheap. I did not of course get a simple answer to my question but they do have a budget in mind apparently.

Jeremy made it clear why they opposed the requisition. In essence they did not want one guy with 6% taking control of the company (Slater I think he was meaning, although the driver might actually be Steve Rawlings).

There were some questions as to why the company had not gone into the market to support the share price (they appear to have plenty of cash in the balance sheet although that is of course historic data), but it was made clear they could not do that because Steve Rawlings had voted against the resolution to enable that at the AGM.

Comment: There is obviously more to this than meets the eye and it is simply not credible that the directors do not know more specifically at this point in time as to the reasons for the requisition. There was some suggestion that having three new non-executives nominated by outsiders would give control to someone else, but it is worth reminding readers that all directors must act in the best interests of the company and not be beholden to anyone else. The shareholders appoint directors in their votes at general meetings.

It might be of course that the executive directors see the appointment of three new non-execs to the board as a way to subsequently remove them or completely change the strategy of the company. In other words it is a threat to their current power. But if that is what the majority of shareholders want, and they can probably figure out that before the formal vote takes place, then the shareholders should get their way. The current directors should not be spending a lot of the company’s money in fighting off such a requisition. They should surely be attempting to reach a compromise solution – perhaps accept replacement of the current non-execs by new ones, including possibly one or more of the suggested nominees if not all. It makes no sense to dig in their heels and fight it out, although no doubt their advisors are quite happy to help them run up the bills in doing so.

At the end of the meeting, David Stredder offered to act as mediator which would seem a very good idea. It is unfortunately the case that when lawyers are involved, dialogue and compromise tends to fly out of the window.

That just leaves the question of what shareholders should do in such circumstances. They should probably wait for the full documents yet to be issued before deciding how to vote, while in the meantime encouraging some compromise. Note that requisitions can be easily withdrawn if the parties agree to do so. The longer this battle goes on the more damaging to the business of the company it can be. Another similar case was Victoria and look what happened there. Share price stayed very low until it was all resolved because no new investor would touch the company while the board was fighting battles over who controlled the company. It is certainly the case that the sooner this matter is resolved the better and it unfortunately might not be resolved cleanly at one general meeting.

As to whether there is value in this business is difficult to say until it is clear what the financial outcome for the current year might be and whether there is something more fundamentally going awry with the underlying business. So in the meantime, surely only one for speculators until the picture is a lot clearer.

Roger Lawson

FAMR and Advice Services

Just before the Budget was announced, the Final Report of the Financial Advice Market Review (FAMR) was published. That Review was the latest examination of the financial advice market.

To put it in some historic perspective, the Retail Distribution Review (RDR) was introduced to improve the quality of financial advice provided and remove obvious bias. So financial advisors had to stop bundling, and effectively hiding, the cost of advice when selling financial products but had to declare it. This certainly improved the quality of advice to wealthy investors, but has often scared off those less wealthy from taking such advice – which can cost £150 per hour or more. Together with the impact of the more litigious society and growth in complaints, the result has been a substantial fall in the number of financial advisors, and a large gap in the market where those with less than several hundreds of thousands of pounds to invest cannot easily find an advisor. The FAMR calls this an “advice gap”.

The main recommendations by FAMR are that a framework should be developed to enable firms to offer “streamlined advice” that would focus on simple consumer needs, there should be more guidance on how firms can offer services without giving personal recommendations and the FCA should support “automated advice models” (or “robo-advisors” as they are now called).

Two further recommendations in the FAMR report were implemented in the Budget. Namely that employer arranged pension advice of up to £500 will be tax free from April 2017 (i.e. not be seen as a benefit in kind), and that it is proposed to introduce a Pension Advice Allowance from summer 2016 that will allow people to withdraw £500 tax free from defined contribution pension schemes to pay for advice.

Other announcements that were slipped into the Budget were the withdrawal or restructuring of the Money Advice Service. Pensions Advisory Service and Pension Wise service which are to be replaced by a new pensions guidance body and “slimmed down money guidance body” which will commission providers to fill gaps identified in the advice available to consumers. The exact implications of this are not made clear but it rather sounds like “privatisation” of these services does it not, which will no doubt please the finance industry. The Money Advice Service was designed to provide basic and unbiased advice to consumers but has not been greatly used. Those most likely to benefit from it are mostly unaware of its availability, hence the low usage. But the Money Advice Service did spend £100 million developing and promoting its web site, cost £80 million a year to run and the directors alone got paid over £1 million in the year to April 2015. It was financed by a levy on banks who perhaps did not appreciate having to pay for it and it certainly sounds like reform was overdue – there are surely more cost effective ways to provide basic financial information and advice. The Money Advice Service is a poodle of the FCA who appoint its board and arranges its finance.

Comment: One of the big problems is that the general public are woefully ignorant on financial matters. Hence their need for financial advice when their circumstances change or they have money to invest. The Financial Advisory firms may prefer to keep it that way so that they can charge for services when they are needed, although many would argue that the typical person does not like to “think about money”. But the old concept of providing individual investment advice on a personal basis simply led to very high costs and is not viable for most people in the modern world. The Money Advice Service was actually an attempt to provide some simple advice to cover most common situations and actually is quite good at doing that if you look at their web site. But it is so bland in an attempt to be neutral and unbiased that it probably deterred users.

To this writer the problem seems to arise at an early age. People grow up with little education on financial matters and changing the cultural perception that finance is boring is not easy. But it need not be. For example Martin Lewis of Money Saving Expert has made a career out of making it exciting on TV and Radio.

Of course the more complex finance becomes (and the Chancellor just made it more so), the more specialist advice tends to be needed. The FAMR seems more to play to the wishes of the finance industry than meet the simple problems of finance consumers.

Roger Lawson

Budget Spring 2016 – You Won’t Need Sugar to Sweeten this Pill

The Chancellor appeared to be in a buoyant mood delivering his budget speech today even though he noted that the global economy is weak and financial markets are turbulent. He reported a fast growing UK economy and lots of personal tax cuts. Indeed he emphasised that with 1% of the richest taxpayers contributing 28% of all income tax, this was proof “that we are all in this together” in case you did not realise it! But the wealthy certainly won’t be suffering as a result of this budget.

Here’s some brief notes on the content of his speech before there is time for a more extensive analysis:

As forecast there will be a limit of 30% on the deductibility of debt interest against earnings for large companies. He will also be strengthening withholding tax regulations, restrict past loss allowances for larger companies and in other ways tackle the problems of companies evading tax. He expects to raise £9bn in extra taxes in this way.

To offset that, Corporation Tax will be reduced by April 2020 to a rate of 17%. “Let the rest of the world catch up”, he said. But he will be taking steps to stop foreign internet sellers who stock and deliver goods into the UK from avoiding VAT.

Small business rate relief will be increased. Some 600,000 businesses will pay nothing in future, and 250,000 will see a reduction. He said this was a “£7bn tax cut for a nation of shopkeepers”. London will also be able to keep business rates paid in the capital.

Commercial stamp duty will be made more progressive (i.e. in staggered “slices” rather than abrupt changes) and 90% will pay less. But large property companies will be hit by the increase in the top rate of stamp duty from 4% to 5%.This theoretically could reduce the value of large properties by 1% although the reality might be different. Note though that most listed property companies are unlikely to be impacted by the change in deductibility of interest mentioned above – see the latest ShareSoc Informer Newsletter for an examination of that issue.

The oil/gas industry will be helped by the Supplementary Charge being halved to 10% and Petroleum Revenue Tax will be abolished.

There will be more Government investment in transport projects including HS3 and Crossrail2.

Fuel duty will be frozen, and duties on beer/cider frozen to help pubs. Whisky and other spirits will also be frozen but all other alcohol duties will rise with inflation.

There will be a new “sugar levy” on the soft drinks industry to begin in 2 years time to combat obesity particularly in children, although natural fruit juices and milk based drinks will be exempt. Shares in AG Barr, Britvic and Nicholls might be affected as a result. This tax will apply to manufacturers apparently so what will stop people simply importing such drinks to get around this tax? The detail announcement says that the levy will also apply to “importers” of soft drinks, but how can that be reconciled with Common Market law one wonders where the free movement of goods is a paramount principle? Although it is claimed it will raise over £500 million each year, it seems likely to turn into one of those political gestures rather than a serious attempt to improve the nations health as there may be many ways to avoid it. The producers of such products suggested consumers could find an easy way around it – just eat chocolate and sweets instead.

Class 2 National Insurance contributions paid by the 3 million self employed will be abolished.

The headline rate of Capital Gains tax will fall from 28% to 20%, and the rate paid by basic rate taxpayers will fall from 18% to 10%, from April this year. There will be a new rate of 10% for long term investments in unlisted companies. However the existing rates will be retained for properties and for “carried interest” – yes the Chancellor is still discouraging buy-to-let investors and hedge funds.

Annual ISA contribution limits will rise from £15,240 to £20,000 in April 2017, and young people under 40 will be able to take out a new “Lifetime ISA”. Up to £4,000 per year can be contributed to such an ISA up to the age of 50 and the Government will add £1 to every £4 put in. This is designed to encourage long term saving. Existing ISAs can be rolled into the new Lifetime ISA. As forecast, the Chancellor seems to have backed off from more wholesale reforms to pension/ISA arrangements. Though older investors might wish to complain about the age discrimination aspect of this proposal.

Tax free personal allowance will rise to £11,500 and the higher tax rate band will rise to £45,000 from April 2017.

Some initial comments: The reduction in Capital Gains Taxes and increase in ISA limits will be greatly appreciated by wealthy investors so it may well please many Members of ShareSoc, but relatively few people nationally either pay capital gains tax or will be able to take full advantage of the new ISA limits. The impact on tax take may therefore be relatively small and lower capital gains tax rates might actually encourage more payment of that tax. For example, long standing holders of assets may be more willing to sell them and there may be less temptation to invest in tax relief schemes such as EIS to avoid tax. But the reduction in Corporation Tax and Business Rates will have a wider positive impact. Likewise the abolition of Class 2 National Insurance contributions and freezing of fuel and some alcohol duties may have wider appeal to middle England. The “Lifetime ISA” will also be very attractive to “millenials” no doubt.

Stock market investors might see some impact from the attempt to recoup more tax from large, multinational corporations. But surely on the whole investors will be pleased with this budget. Perhaps the only slight negative is the addition of yet more complexity to the tax system. Yes the Chancellor and his advisors could not refrain from “tinkering” as forecast in my editorial in the latest ShareSoc Newsletter which is just being published.

Postscript: The budget was criticised by some as diverting money from disabled people to finance tax cuts for the wealthy. Indeed Ian Duncan-Smith, Work & Pensions Secretary, resigned soon after while indicating he had been pressured into excessive cuts to welfare benefits. But the exact position is not entirely clear. The controversy seems to surround the introduction of Personal Independence Payments (PIPs) which replace Disability Living Allowances. The Chancellor in his budget speech said that the “disability budget will still rise by more than £1bn”, but when you look at the details of the budget announcement you find that there is a claimed reduction “from previously announced measures” of over £1bn per annum in Government expenditure from 2018 onwards on PIPs. This arises from changes to the PIPs proposals after consultation. The exact impact on those receiving such benefits is not at all clear at this point in time.

Roger Lawson

How to Hold Shares – Investors Chronicle Article

Friday (11/3/2016) saw the publication of a sound article by Investors Chronicle under the headline “Choose the right way to hold your shares”. It reported on the recently published BIS research paper on shareholding in the UK upon which we have previously commented. It quotes me extensively on the subject including these comments:

“The UK Individual Shareholders Society (ShareSoc) said the report showed “the need for reform”. Roger Lawson, deputy chairman of ShareSoc, says brokers have an incentive to keep investors ignorant of alternatives to the pooled nominee account system as it is in their commercial interest to do so. ‘Stockbrokers are really keen on nominee accounts because if you’re on the share register the dividends go directly to you, but if you’re in the nominee account, they go into the nominee account and typically they stay and the broker gets interest on them,’ he says. ‘People keep a large amount of cash in their stockbroker’s account typically. The other big commercial reason they have is locking the clients in and making it difficult for them to move elsewhere.’

Stockbrokers are reported as saying their clients are not interested in receiving shareholder rights and that nominee accounts are cheaper to run – which incidentally is not true. But it quoted me as responding: “But Mr Lawson believes the low take-up is due to a lack of investor awareness not demand. ‘The problem is that they don’t know what they’re missing because stockbrokers aren’t telling them that they’re losing the rights to vote and have a say in the way the companies they’re investing in are run,’ he says. ‘And they’re also losing the right to receive information or attend an AGM, and they don’t know this.'”

This will no doubt not improve my standing in the eyes of some stockbrokers but the truth must be revealed on why we have got into the current dubious situation where private investors are effectively disenfranchised.

The full article is well worth reading and Investors Chronicle subscribers can read it on-line here:

Roger Lawson