There is a way to avoid all those broker’s commissions and fees when purchasing stock. There are hundreds of companies that offer direct stock purchase plans (DSPPs). You buy shares directly from these companies, but a separate party, called a transfer agent, must handle the transaction as the Securities and Exchange Commission rules require this. However, transfer agent fees are a lot lower than even discount brokers – and some companies even pay purchase fees for you.
Identify companies with DSPPs. If you look on the “Investor Relations” website of a company, you will find contact information for the company’s transfer agent, plus information about the DSPP if there is one. Firms that act as transfer agents often list the DSPP plans they manage. For example, ComputerShare provides complete online information about hundreds of companies with DSPPs.
Obtain a copy of the DSPP prospectus; sometimes this is called a brochure. The prospectus states the plan terms and conditions. It also describes special options and the plan’s investment requirements and fees. Most DSPPs call for an initial investment of just $250 to $500, plus a one-time set up fee of $10 to $15. Transaction fees as of 2010 were usually $1 to $3 plus 5 to 12 cents per share.
Decide if you want to arrange for automatic debiting of your bank account each month. This has two advantages. First, it is a great way to get in the habit of saving and investing on a regular basis. Second, most companies waive the initial investment requirement. You can actually start buying stock with as little as $25 to $50 each month.
Choose other plan features you want. In most cases, a DSPP includes free dividend reinvestment, free storage of stock certificates and the option of setting the plan up as an IRA.
Obtain and complete the DSPP enrollment form. You can usually download the form from the transfer agent website. Alternatively, call or write the transfer agent. You’ll need to provide your Social Security number and employment information. If you choose the automatic debiting option, you will have to fill out an authorization form and supply your bank account information. Finally, include a check or money order for the set up fee and the initial investment, if required. Sign the form and mail it to the address provided.
Items you will need
- DSPP prospectus
- DSPP enrollment form
- DSPPs are great way to buy stock without paying a broker’s fee, but they have their limits. You must have a separate account for each company in which you invest. Also, DSPPs are designed for the investor who wants to buy and hold shares as a long-term investment. Transaction fees for sales are higher than purchase fees to discourage frequent sales. If your trading strategy involves short-term stock trading, a DSPP is probably not for you.