Saturday 25 January 2020

Get rid of assets that don't suit you

If you're an 'accidental' investor, take any chance you can to get out of that game

Tom Halliday
Tom Halliday

John Cradden

If you've ever bought or sold a small number of shares in a publicly quoted company, or even seriously thought about it, the chances are you will know just how costly it can be. So much so that in many cases it feels like it's simply not worth it - especially if you only have a handful of them.

But if you're determined to get rid of them or you want to engage in a once-off trade without losing too much in the way of monster fees and charges, what are your options?

Online trading has helped reduce the costs of trading on an 'execution-only' basis, which is where the stockbroker firm offers no advice on the shares you want to buy and simply buys the shares on your behalf.

With an online execution-only service, you can normally expect to pay a commission rate of anything from €10 or more per transaction, plus additional charges such as for foreign transactions and fees for account management.

However, a Dutch broker that recently entered the Irish market, Degiro, claims it will save you an average of 90pc on the commission rates charged by other Irish dealers, including specialist or discount firms.

The broker charges a fee of €2 plus 0.04pc of the value of the transaction for trades on the Irish Stock Exchange, and €4 plus 0.04pc for the UK.

So for example, to trade €1,000 worth of Bank of Ireland shares on the ISEQ for instance, will cost just €2.40 compared with an average price of €26.40 across competitors like Davy Select (€14.99), Goodbody (€32.00), TD Waterhouse (€15), Cantor Fitzgerald (€55) and Sommerville Advisory Markets (€15).

If you had £5,000 worth of Vodafone shares to trade on the London FTSE index, the Degiro charge would be €6.82 compared with €15 for the online discount brokers TD Waterhouse and Sommerville, but rising to €35.32 for Davy, €88.30 for Goodbody and €105.96 for Cantor Fitzgerald.

Spread betting firm IG Markets also offers an execution-only online share trading service, charging 0.1pc commission per transaction with a minimum charge of €10 for ISEQ trades, and £8 for trades in the UK.

In general, the best deals on fees and charges tend to be aimed at those who trade more frequently. For example, the €15 flat commission fee charged by TD Waterhouse would usually be €20 if you do fewer than 10 or more trades in a three-month period.

But, of course, given that the advice is to buy and hold rather than chop and change, frequent-trader offers are unlikely to be of much interest to 'accidental' or apathetic investors.

Accidental investors

If you are one of the over 334,000 Irish retail shareholders in Vodafone, you will probably have been sent a letter informing you of a temporary online share trading scheme that will enable you to offload your stock at low cost, or even for free until May 24.

The move is aimed at cleaning up its share register in Ireland, where Vodafone has five times as many retail shareholders as in Britain. Nearly all of these shareholders are 'accidental' ones who invested in the original 1999 flotation of Eircom (or Telecom Eireann), who later acquired Vodafone shares when Eircom (now Eir) sold off its original mobile phone business Eircell to the British telecoms giant back in 2001.

The scheme is available only to Irish shareholders with up to 1,000 shares, and the roughly 103,000 who hold between one and 50 shares will be able to sell them for free. Those owning between 51 and 1,000 shares can sell them for a reduced commission of 35 cent a share if they have share certificates, or 21 cent a share if they have electronic holdings in a Vodafone Share Account. In both cases, charges are capped at €42. Most shareholders own less than 200.

Before now, if using Computershare's normal service, you would have had to fork out a commission of 1pc of the transaction value plus a charge of €60 if you had a share certificate. So for a shareholder with 30 shares selling at £2.18 (€2.76) each would face a cost of €60.83, which amounts to over three quarters of the face value of the shares.

Likely loss

And if you were one of the original investors in Telecom Eireann, the chances are you won't have to pay CGT tax as you'll be selling at a loss. The Irish Revenue has determined that investors would need to get a price of €4.58 a share to make a profit on their Vodafone shares, which are currently trading at £2.18 (€2.76).

The bad news is that, unless you have already acted, you may still have some shares in a US telecoms firm named Verizon arising from its takeover of Vodafone in early 2014. It also offered a temporary low-cost share trading scheme - but this scheme closed last February, so if you still have these shares you will have to pay higher commission and administration costs if you want to sell these too.

Of the 200,000-odd Verizon shareholders here, the vast majority hold less than 10 shares, which are currently trading at around $53 (€47) each, with some 35,000 holding just one share.

"The special deal cost was €17 - but the cost is now €25 plus $0.12 per share and a huge amount of hassle whenever you do decide to sell, with other considerations including exchange rate risk, US withholding tax, charges for the Computershare US office registrar, etc," said John Lowe of The Money Doctor. "My advice is to sell and be done with it."

He says hundreds of thousands of Verizon shares are still not sold. "In some cases, it's not just apathy, many shareholders may have moved home and may not have known about the deal."

Eoin McGee of Dublin-based financial advisors Prosperous Financial says that if you're an accidental investor in Vodafone only as a result of having bought into the hype around that infamous 1999 public flotation of Telecom Eireann, you should cut your losses.

"If you haven't, I don't see why you should hold on to them for the future. There is a chance, if you sell off the shares and then company does really, really well, you lose out, but there's also a good chance that they'll plummet."

Betting, not investing

He says it makes even less sense to hold them if you only have a handful of shares in either Vodafone or Verizon.

"If you're an accidental investor like that and you've less than five shares, that's much closer to betting than it is investing - because without any diversification, without spreading your risk across different companies, you might as well take that cash out to Fairyhouse and put it on a horse - because you haven't brought in any of the other dynamics around investing. You're just taking a punt on one stock and hoping that you do well."

Furthermore, any dividends Verizon shareholders might receive are likely to be in the form of US dollars cheques for insignificant amounts, which means that, between the currency exchange charges and fees for cashing a cheque, many end up in a drawer and are never cashed.

Mr McGee says they could instead invest in a telecoms investment fund with up to 100 shares in different telecom firms if you believe that these kinds of companies will do well, but the reality is that most small Irish shareholders in Vodafone would "probably run a mile" simply because they have no appetite for the risk.

If, on the other hand, you do have a range of other investments and individual stocks and shares to provide some balance for your overall investment portfolio, then keeping them might make more sense, said Mr McGee.

"If you have a really well-balanced portfolio or stocks, the reality is you are probably being charged by a broker to manage that portfolio so that's the first person you talk to about getting rid of those shares if they don't provide diversification to your portfolio."

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