When you accept to use nominee services offered by your investment firm, your investments would be legally owned by your financial entity.
While the entity would become the legal owner of the investments, you would still remain the beneficial owner, meaning that you have rights over them. Your entity will keep records of which client is the beneficial owner of all the investments held under nominee.
When you receive the contract note, which is a document issued by your intermediary indicating the price at which the investment has been purchased and any charges incurred, you are most likely to notice – along with your name and address - a reference such as “[name of the financial entity] nominee Account (or a/c)”. That means that your holdings are held under nominee. Nevertheless, the financial entity cannot trade the investments without your prior written consent (or as agreed in the terms and conditions by yourself and the entity).
Let’s assume that this is the first time that you will be buying an investment through a firm which offers nominee services. First, you need to sign a nominee agreement with your intermediary which lays out how it will conduct its business with you whenever you want to buy or sell investments using its services.
Before buying or selling an investment, the entity would normally require your confirmation in writing (especially if your instructions were first given verbally, such as by phone). This can be done by e-mail (if an e-mail indemnity is in force) or through other means acceptable by the financial entity.
When you pay for the transaction, the financial entity will deposit the amount in a Clients’ Account. This is a bank account which the firm uses to channel all funds relating to investments belonging to investors. It is normally a pooled account – that is, all investors’ monies would be placed in such an account. However, the financial entity will also have an investment account in your name and at least once yearly, the firm is obliged to give you a breakdown of any incoming or outgoing funds specifically related to your transactions as the beneficial owner of the investments.
Any income from investments will be sent to the financial entity, which will then be distributed to the beneficial owners by cheque, credited to an account or reinvested, depending on the beneficial owner’s instructions.
Nominee accounts are designed to facilitate trading of investments as entities can conduct transactions electronically. This means that investments held in nominee accounts can be processed much more efficiently.
Many entities now provide their clients with an online trading system which gives the beneficial owner the opportunity to trade outside the opening hours of their entity in the comfort of their own home.