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Fidelity shows Shell how giants can care for small investors

Daily Telegraph: Fidelity shows Shell how giants can care for small investors

“Any complacency about rising standards in the City would, however, be misplaced. Shell’s half-hearted climbdown this week demonstrates that many boardroom fat cats continue to regard individual shareholders with disdain.”

(Filed: 24/09/2005)

By Ian Cowie, Personal Finance Editor

Small investors are often treated shabbily by big institutions but, as our award-winning consumer champion Jessica Gorst-Williams observes, “sometimes the power of the press can help.” Her painstaking work reminds us that there is more to journalism than persecuting drug-addled pop stars and their model girlfriends.

Any complacency about rising standards in the City would, however, be misplaced. Shell’s half-hearted climbdown this week demonstrates that many boardroom fat cats continue to regard individual shareholders with disdain.

Like the directors who destroyed Equitable Life, these bigwigs seem to think that, because they have more lawyers than God, they can do what they like. Fortunately, relentless publicity can bring them down from the clouds with a bump.

For example, when The Daily Telegraph pointed out in June that the merger of Shell Transport & Trading with Royal Dutch Petroleum would hit 3,000 shareholders with an unnecessary tax bill, the men at the helm of this £130 billion supertanker refused to change course.

When Business Correspondent Christopher Hope explained how capital gains tax (CGT) would hammer long-term shareholders, Shell’s Chief Executive Jeroen van der Veer could only burble: “We are sorry to say our toolkit to help is empty.”

That was never credible, bearing in mind the number of accountants and merchant bankers swarming over this deal. They are said to have swallowed more than £60 million in fees between them. Such grandees could hardly be expected to care about a 92-year-old shareholder facing a £21,000 CGT bill on her £76,000 gain. But Hope springs eternal, and Christopher just would not let it go.

Perhaps the only trick he missed was the chance to sting the oil giant with the City joke which ran: “How many people work in Shell’s head office? Oh, about half of them.” Then, on Tuesday, Shell admitted it could, after all, issue loan notes – as many companies have done before. These may be sold during more than one tax year, enabling individual shareholders to minimise CGT liabilities.

Sadly, Shell obdurately refuses to do anything to help the individual shareholders who have already been steamrollered into accepting its original offer. As things stand, they are lumbered with totally unnecessary CGT bills. When these demands do arrive, it would serve Shell right if shareholders forward them to head office. It will certainly make for an interesting annual meeting.

Two morals may be drawn from this sorry saga. First, it often pays to question initial offers – even if they are described as ‘final’. Patience and persistence often reap substantial rewards. Second, direct share ownership can lead to trials and tribulations which investors in pooled funds – such as unit and investment trusts – avoid. Tax efficiency, convenience and economies of scale are advantages of pooled funds which rarely get mentioned.

Another is that fund managers are forced to treat individual investors with respect. They are the customers, after all. By contrast, individual shareholders may be deemed an irritating distraction by the directors of many trading companies, who only seem to be interested in the views of institutional shareholders, such as pension funds.

Compare and contrast, for example, Shell’s treatment of its shareholders with Fidelity’s boon for unitholders this week. The biggest fund manager in the world is slashing the annual charge on its £280 million Moneybuilder Index Fund from 0.5pc to 0.1pc. The total expense ratio falls from 0.7pc to 0.3pc. That makes it the cheapest unit trust to track the All Share index.

Fidelity recognises that many investors’ confidence remains battered by the stock market slump which ended in March, 2003. Although the index has risen by nearly two thirds since then, some sugar-coating is needed to tempt buyers back and a price cut is a good way to do that. Fidelity’s move will be followed by others in a competitive market and goes to show that big is not necessarily bad. Shell should take note and help its shareholders.

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