Direct stock purchase plans allow investors to buy stocks without using a brokerage firm, saving on commission fees. Not all companies offer DSP plans, but more have started to in recent years. Investors can work directly with the company or transfer agent, but there may be separate fees for the service. DSP plans are a money-saving alternative for those who plan to do their own research on which stocks to buy.
A direct stock purchase plan is a method that allows people to buy stocks without using a brokerage firm. When purchased through a brokerage firm, the investor pays a commission based on the purchase price of the stock. When shares are purchased through a direct share purchase plan, this fee is not required. Many new investors choose a direct share purchase plan, or DSP, to save money.
Not all companies offer DSP plans. In the 1990s, the SEC relaxed existing regulations for the sale of stocks. The relaxation of restrictions on this SEC-regulated activity allowed more companies to offer shares to the general public. Companies often prefer their shares to be held by nominee investors rather than in bulk by companies. By offering a direct share purchase plan, a company is more attractive to the individual investor.
The number of companies offering direct share purchase plans has increased considerably in recent years, but not all companies offer DSP plans. Companies that offer direct purchase of shares sometimes have restrictions. Some companies only offer direct share purchases to their employees, and others only offer dividend reinvestment plans. In dividend reinvestment plans, the initial shares are purchased through a brokerage firm, but the dividends, instead of being paid, are used to purchase additional shares.
People who are interested in purchasing shares through a direct share purchase plan should expect to work directly through the company’s corporate office or through what is known as a transfer agent. A transfer agent, which is often a bank or trust company, handles a variety of duties for the company. They issue and cancel stock certificates as sales are made, deal with stock certificates that are lost or stolen by the investor, and are responsible for paying dividends. The transfer agent may also record the stock for the buyer. This eliminates the need for the investor to physically hold the share certificates.
When a company uses a transfer agent to handle the issuance of stock certificates, there is often a separate fee for the service when you purchase shares. However, this fee is per service, not commission-based, and is not as high as a brokerage firm’s commission-based fees.
Purchasing shares through a direct share purchase plan allows investment dollars to spread out even further. For people who plan to do their own research on which stocks to buy, a DSP is a money-saving alternative to brokerage firms. For the investor who wants guidance when making investments, a traditional brokerage relationship makes sense.
Smart Asset.
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