Investors are being warned of

the dangers related to nominee accounts. The alert follows the collapse of private client stockbroker Pacific Continental Securities, which held its customers’ shares in nominee accounts.

Having gone into administration on 20 June, Pacific’s administrators Smith & Williamson are yet to work out customers’ individual holdings within the nominees. Until this process is complete, currently on course for the end of October, shares are frozen.

Roger Lawson, communications director of the UK Shareholders’ Association (UKSA), which represents private shareholders, says: ‘If Pacific’s customers had held their shares as paper certificates, their name would be on the share register with clear legal title and they could have traded those shares through another broker.’

Used to pool investors’ shares, nominee accounts facilitate quick settlement of T+3. One side effect is that the name of the broker’s nominee appears on the company’s share register rather than yours and the direct ownership link between you and your holding is lost.

Smith & Williamson has found an Excel spreadsheet with details of underlying holdings. The administrator had been unable to access an IT system the sheet was taken from – the system is supplied by one of Pacific’s creditors, which is not handing over the password – but it was downloaded on 19 June, so is quite current.

But Lawson warns if there is a shortfall in shareholdings, investors may lose out: ‘Even one of the major UK stockbrokers excludes liabilities for any shortfall. There is a major risk that even if a shortfall is identified there may be no legal redress.’

Nominee accounts do have the benefit of allowing the broker to hold your shares electronically in ‘book entry form’ in the Crest settlement system. This means settlement time is reduced from around T+10 to T+3 compared to settling paper certificates, which you have to post to your broker to prove ownership.

Investors can opt for Crest personal membership. As with nominee accounts, your shares are held electronically in Crest but under your name, which appears on the share register. Not all brokers offer Crest membership and those that do charge a fee.