Smart Investor: Getting Started, December 2012

Smart Investor, December 2012

In a previous column, we looked at how to buy shares. But how do you sell them? It might seem an obvious question, but it’s not if you didn’t buy your shares in the first place.

This situation applies to more Australians than you might think. When the NRMA and AMP were demutualised, they issued shares to their customers (in the case of NRMA, the shares are in the insurance company IAG).  Those customers may well still be holding those shares, and receiving dividends and reports from them periodically, without ever having appointed a broker or bought a share. Similarly, people who have bought into big IPOs like Telstra or the Commonwealth Bank, may have shares but no brokerage account, as may people who have received shares through staff allocation from the company they work for.

Firstly, let’s look at how to sell if you do already have a broker. Most Australians these days do their broking online through people like CommSec and E*Trade, and for them, the process is extremely easy. In the trading screen, or in the screen showing your portfolio, click the ‘sell’ button. Input the ASX code of the stock you want to sell, and the number of shares you want to sell.

Most brokers give you a choice of how exactly you sell. You can usually opt to sell at the market rate – so whatever the selling price on the market is that minute – or set a minimum price at which you are prepared to sell, and wait until that price is achieved. In some brokers you can also specify how long you want to wait for that price to be achieved: you may want the order to expire at the end of the day, or longer.

Naturally, it’s important to make sure you’re not selling more shares than you already own. There is a process of selling shares you don’t have, called shorting, but that’s a topic for another day.

Your broker will notify you when the trade is completed, and then you have to wait for settlement. This takes three days after your trade, after which funds are usually transferred directly back to whatever bank account your broker account is linked to.

OK. Now, what if you have share, but no broker? Again, many online brokers can help you with this, without you having to sign up for an account with them.  For an example, go to www.etrade.com.au and click on the tab called ‘visitor trade’. This is designed for exactly people in this situation. You click on a link to a visitor trade sell order form. You will need to put in various personal info – name, address, date of birth, occupation, phone – and then add the sell order information. To do this, you will need the shareholder reference number which should be on documentation you received with the shares. It usually begins with the letter I and is followed by up to 11 numbers.  Then, put in the name of the holding, the ASX code, and the number of shares you want to sell, and sign it. Like everything else in the world these days you’ll also need to provide some certified proof of identification.

Once that’s done, the broker puts your order in the market, sends you an email saying it’s done so, and then another to say when the sale is completed. After that, the broker pays you a cheque, mailing it on the day of settlement, minus a brokerage fee of A$49.50 in E*Trade’s case (or 0.132% for very big orders over $37,500).

One other possibility is that you may have inherited shares. These can be sold like any other shares, but financial professionals recommend that you get some advice on how these shares might fit into your portfolio, and whether selling them (or selling them later) makes sense. For this, you may want a full-service broker – the sort that offers not just cheap efficiency, but advice too.

Finally, remember that selling shares raises issues around capital gains tax. With a demutualization, the company should advise you what the cost base is for CGT purposes at the time they issue the shares.

BOX: How NOT to sell shares

You may occasionally hear from a company offering to buy your shares. These are no longer as prevalent as they were a few years ago – many have been outlawed or discredited in the press – but it’s still possible you will hear from them.

There is one very simple thing you should do when you receive such a letter. Look at the price it offers for your shares, then get on to the ASX website and check what the market price is. Don’t be surprised to find that the letter offers a much lower rate than the market. That’s why many of these companies developed a terrible name: they were seen as scams to take advantage of inexperienced shareholders. Selling on the market through a broker will always be a better outcome.