Directly Held Stock Versus a Brokerage Account: Questions & Answers

Do you receive mail from a company that holds shares of only one specific stock on your behalf and don’t know what to do with it? Most likely these shares are directly held stocks and the good news about that is…you have options!

Q) What are directly held stocks?

A) Directly held stocks—also referred to as “book shares”—are shares of a company that are registered in the purchaser’s name, but held in an account at a transfer agent. The stock from each company in which you own shares is kept in its own separate account. It does have some benefits, such as no cost to hold and no cost to purchase additional shares with dividends.

Q) What can I do with it?

A) First, there’s nothing wrong with keeping stock in the transfer agent’s account. But you should be aware that large, discount brokerage firms such as Charles Schwab and Fidelity now offer benefits that used to be unique to transfer agents, such as the ability to reinvest dividends at no cost and very competitive costs to trade stocks. As a result, transfer agents no longer enjoy the advantages they once had over discount brokerage firms. Furthermore, it’s very simple to transfer stock to a brokerage firm and you can most likely do it electronically. Typically you start the process by contacting the receiving institution and following its guidelines. Make sure to report your cost basis to the new institution.

Q) What are the advantages of holding stock at a brokerage firm?

A) Since each directly held stock of a specific company must be held in a separate account and cannot be co-mingled, you’ll receive statements and tax forms (1099s) for each stock. With a brokerage account at Schwab or Fidelity, you can hold multiple stocks in the same account. This could mean a big reduction in paperwork! Also, you have more options for how dividends are paid. Dividends from a company at a brokerage firm can be reinvested, deposited directly into your brokerage account or sent to you via a check or electronically. With dividends from a directly held stock, you have only two options: they can be reinvested or a check can be sent to you. Furthermore, you can sell your shares at a brokerage firm much quicker than you can directly held stock at a transfer agent.

Consolidating at a brokerage firm could help simplify your financial life. Plus, and perhaps the best of all, you’ll no longer receive stray dividend checks in the mail and all that additional paperwork during tax season!

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