Nominee accounts: what you need to know

You might be surprised to learn you are not the legal owner of the assets held in your investing platform account. That’s because brokers funnel most of their customers into nominee accounts.

Legally that means you are the beneficiary of the assets you buy – but you are not the registered owner.

It’s a convoluted arrangement that benefits your platform, but that can have unfortunate side-effects for ordinary investors if things go wrong.

Given your broker probably hasn’t clearly flagged the risks, read on to find out what they neglected to mention about nominee accounts. (At least, outside of disquieting small print in a dark and dingy T&Cs PDF.)

What is a nominee account?

A nominee account is a legal structure that enables your assets to be held in trust for you by a custodian.

In the case of a broker, it appoints a nominee company to act on your behalf, and that company is charged with the safekeeping of your investments.

The nominee company is the legal owner of the assets. You are the beneficial owner and are thus entitled to the economic benefits – namely income payments and proceeds of sales.

The custodian should be a separate entity from the broker. This is important because that legally segregates your assets from the broker’s. Thus creditors aren’t allowed to lay their greasy paws on your investments if the broker runs into trouble.

So far, so not terrible. In reality, the arrangement isn’t nearly so neat and that’s why it’s worth understanding the deal you’re making when your friendly investing platform ushers you into a nominee account with a “don’t worry” pat on the head.

Why are nominee accounts the rule?

Nominee accounts are the ultimate in low-cost convenience – especially for your broker.

With them, your broker can trade and move securities on your behalf without generating more paperwork than Wernham Hogg.

Your broker doesn’t, for example, have to contact the administrator of a company’s share register when you sell your stake. The company has never heard of you!

It’s the nominee company’s name that appears on the share register. That saves a lot of paper-trail hassle.

In practice, you don’t even get your own nominee account. Most brokers lob everyone’s securities into one pot – known as a pooled nominee account (or an omnibus account).

If ten customers wish to sell 1,000 Apple shares each, then the broker can just fish out any old 10,000 shares from the tank, rather than worry about administrating ten separate accounts.

Records on who owns what are kept by your broker, but the system is far from perfect…

Are nominee accounts safe?

The primary weakness of nominee accounts is they are open to abuse and mistakes.

Brokers know this which is why their Terms and Conditions document typically contains a clause like this (bolding is mine):

Any investments held on your behalf may be pooled with those investments of other customers. This means that your entitlement may not be individually identifiable on the relevant company register, by separate certificates or electronic records (other than ours, where they will be identifiable) and, in the event of an unreconciled shortfall caused by the default of a custodian, you may share proportionately in that shortfall

In other words, if the records don’t match the funds available then all customers will be liable, whether the reason be fraud, mismanagement, or anything else.

You can check your own broker’s T&Cs for similar small print by searching for words like ‘pooled’, ‘nominee’, ‘omnibus’, and ‘custody’.

The concern is that the ring-fence around your nominee account is only as good as the broker’s records.

And those records can be too easily altered or swatted aside if – for example – management are tempted to solve a cashflow problem by dipping into customer accounts.

Or perhaps employees neglect to keep the books updated as a company slides into crisis? Due diligence can be an early casualty on a sinking ship.

Can the worst happen?

It’s relatively rare, but yes it can. A US brokerage firm called MF Global is the poster child for this kind of mess. The firm went bankrupt after executives – ahem – ‘borrowed’ customers’ funds to cover company overdrafts.

In the UK, Beaufort Securities collapsed in 2018 after an FBI sting operation.

And SVS Securities was brought down in 2019 by an FCA probe into the broker’s dubious high-risk, high-fee investment products.

In Beaufort’s case, it was actually the insolvency administrator, PwC, who went after customers’ cash in order to settle its bill of £55 million.

Thankfully the UK’s Financial Services Compensation Scheme (FSCS) stepped in to prevent most of Beaufort’s clients losing out.

What protection do I have?

UK investors should be protected against broker fraud and insolvency by the FSCS Scheme mentioned above. Check your investment platform is covered.

But even if you are eligible for compensation, you’re only shielded against losses up to £85,000.

Consider diversifying your investment platforms if you hold substantially more than that amount with a single broker.

Also note that the FSCS scheme may not apply if your broker is based overseas, or if you hold non-UK securities.

For example, your holdings may be lodged with an overseas custodian. If so, then that custodian may be held to lower standards when the grit hits the fan.

My own broker sums up the situation in this hair-raising clause:

There may be different settlement, legal and regulatory requirements and different practices for the separate identification of investments from those applying in the UK […] We will not be liable for the insolvency, acts or omissions of any third-party referred to in this sub-clause except where we have acted negligently, fraudulently or in wilful default in relation to the appointment of the third party.

This clause could apply to you if you hold international shares or funds domiciled outside the UK.

It gets worse. A later clause cheerfully explains that my nominee investments may be recorded in the name of my broker or its custodian in certain overseas markets. And if this happens then (bold emphasis is mine):

the Nominee investments may not be segregated and separately identifiable from the designated investments of the person in whose name they are registered; and as a consequence, in the event of a failure, the Nominee investment may not be as well protected from claims made on behalf of our general creditors.

This suggests that my overseas securities could be used to settle the claims of creditors if my broker failed. That wouldn’t happen to UK securities.

Nominee accounts and shareholder rights

Because your name isn’t linked to your share holdings, you don’t gain the automatic right to vote at annual general meetings, or even to attend. Nor will you automatically be sent company reports and notifications.

If these rights are important to you then ask your broker to pass them back. Many brokers will, although they may charge a fee, and be more or less enthusiastic in how they facilitate your request.

If you love a company report then they’re generally available on a firm’s corporate website.

Are there any alternatives to nominee accounts?

Yes, but the perfect solution does not exist:

Certificates – In the old days your broker would send you a rectangle made from a now-obsolete material called ‘paper’. The kids would never believe it, but it would confirm your ownership of the securities and you could use it to sell through any broker you liked. Even today you can use this arcane papery system, but it’s slow and expensive.

Designated or sole nominee accounts – Your securities are registered in the name of the nominee but this time your assets are walled off in your own account rather than thrown into the pooled nominee pit. Only a minority of brokers offer this service and they don’t like to shout about it. Enquire if you’re interested.

CREST personal accounts – Theoretically CREST1 is the best of both worlds for shareholders. Your name is recorded on the company register, you retain your voting rights, your shares aren’t mixed up with everyone else’s, and you can still deal electronically without any paper certificate faff. In reality, it costs quite a lot extra, few brokers support the system, and CREST personal membership isn’t compatible with ISAs or SIPPs.

Unlike the last two alternatives, paper certificates do protect you from fraud and negligence because no naughty nominee or rogue record-keeper can spirit away your holdings.

Sadly though, paper is susceptible to fire, theft, the vagaries of the postal service, and being mislaid in the same place where the orphaned socks go.

The digital tech barons of the future also keep threatening to consign paper to history. Beware your share certificates going the way of the cheque book.


Any system that enables us to buy and sell at the press of a button is inevitably open to some element of error or abuse. That’s the price of speed.

In an age of conspiracy theories it’s all too easy to overstate the danger so I should be plain: I’m not losing any sleep about my own nominee accounts.

But I am shocked that brokers don’t think they should explain how the system works – warts ‘n’ all.

Sadly, transparent customer service is too often seen as a competitive disadvantage. Explanations of the nominee account system are generally buried in arcane small print or glossed over in brochure-speak accompanied by big ticks and smiley faces.

Best practice:

Diversify your holdings among two or three brokers to reduce your risk once you’re over the £85,000 FSCS compensation threshold.
Understand your right to compensation.
Review whether the safeguards apply to your overseas investments. There may be UK equivalents that help you to sleep more soundly.
Keep your own records. Download a portfolio valuation from your accounts regularly. At least once a month.

Then, move on with your life.

Take it steady,

The Accumulator

The central securities depository and settlement system.

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Did you know that the shares you own are unlikely to be held in your own name? If not, then this piece tells you what you need to know.
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