The Case of the Missing Quarterly Financial Report

The securities industry and corporate America are staging a convoluted, jargon-filled battle over a rather arcane detail related to the mailing of quarterly financial statements.

But before you dismiss this as an issue of marginal importance, take a closer look. Money is at the heart of the matter. And, if you’re an investor, it might just cost you.

Here’s what’s happening: An increasing number of big companies are refusing to send quarterly financial statements to stock brokers, who then pass them on to their “street name” customers--those who can’t, won’t or don’t register securities in their own names. That group includes those who hold shares in retirement and margin accounts, those who don’t want others to know their stock holdings, and those who prefer the convenience and savings of having dividends automatically credited to their accounts.

Instead, the companies say they’ll send the reports only to “registered” share owners--those whose stock is registered in their own names--and individuals who specifically ask to be added to the mailing list.

*

Other companies will provide the reports to brokers, but won’t reimburse the broker for forwarding them to the appropriate shareholders. Brokers maintain that’s the same as not sending the reports at all because the brokerage firms cannot afford to play post office for free.

Companies routinely reimbursed brokers for postage and handling when sending these reports on to their street name customers in the past. (It’s important to note that they still reimburse brokers for sending out annual reports--as required by the Securities and Exchange Commission. It is quarterly financial reports involved in this controversy.)

But companies say the new practice is simply practical.

AT&T;, which is credited with starting the no-send trend in 1987, estimates that eliminating automatic shipments--and reimbursements--for street name customers has saved the company about $800,000 annually. Admittedly, that’s a drop in the bucket by AT&T;’s big-budget standards. But since AT&T; says investor objections have been minimal, many companies see this as an easy thing to trim in an era of accelerated corporate cost-cutting.

Now, 12 of the 30 big companies that make up the Dow Jones industrial average--including American Express, Walt Disney, IBM, McDonald’s, Texaco and Westinghouse--have followed suit.

Meanwhile, a growing number of investors are holding their securities in street names, industry experts say. (Not sure if your shares are in a street name? If you don’t personally sign your dividend checks or turn in your stock certificates when you sell, you’re a street name customer. Indeed, if you don’t specifically ask to have your shares registered in your own name, the brokerage probably holds them in its street name account.)

About 75% of the individuals who invest in the U.S. stock and bond markets are street name customers, and that percentage continues to escalate, industry experts say.

This trend has financial roots too.

Brokers are pushing street name accounts because it’s cheaper for the broker. Registering securities in individual names requires a substantial amount of time and paperwork when buying and selling. It’s far more cost-efficient to transfer shares by computer keystroke, as is done with street name holders.

Most investment houses encourage street name accounts simply by making them more convenient and advertising this convenience to holders.

But a few are charging investors when they deviate from this preferred path.

Merrill Lynch, for example, charges $15 each time investors register stock certificates in their own names. (Merrill, by the way, maintains that the charge is insufficient to cover the cost of the transaction.)

Other investment houses charge “safekeeping” and “custodial” fees when registered shareholders keep their stock in the broker’s vault. Meanwhile, some brokerage firms that have not yet instituted these fees acknowledge that they are actively considering them.

In other words, these two corporate cost-saving trends are costing individuals either in time, information or money.

What’s an investor to do?

*

Some suggest that you avoid buying stock in companies that “discriminate” against street name holders. Others maintain you should register your stock with a brokerage firm that doesn’t charge extra for such service.

But the best advice may be to simply be aware of the trend and pay more attention to how much financial information you’re getting. Make sure to call the company or your broker if you need something that you haven’t got.

In the end, Wall Street helps those who help themselves.