People in different countries of the world actively engage in investment activities and turn their eye to stock exchanges. Opening an account with a broker, many people are curious about the legal aspects pertaining to the ownership of their securities: how exactly do the shares, the bonds, and other financial instruments belong to them?
Below we discuss the concept of an omnibus account and the aspects that an investor should be aware of.
An omnibus account is a popular method of keeping the investors’ assets. The essence of an omnibus account is as follows: instead of setting up a personal account with a securities depository, the investor joins other investors by putting his/ her securities in an omnibus account with a broker, a bank or an agent. The latter then administers the account and manages the securities on behalf of all omnibus account holders. The broker, the bank or the agent becomes a nominee account holder, so to say.
The nominee account holder then opens a single account for several investors with a global custodian or a depository. Some more complicated schemes may also involve a sub-custodian.
An obvious advantage of an omnibus account is the lack of need for the broker or the bank to open multiple accounts with depositories and file multiple applications for membership in all the stock exchanges that it uses.
Omnibus accounts allow financial service providers to build a simple and inexpensive scheme that makes it possible to offer brokerage services to customers at lower prices.
The custodians and central depositories also find life easier with omnibus accounts because they can provide services to a group of investors at a time instead of several individual investors. The nominee omnibus account holder, in their turn, has to keep a register of the account co-holders. Custodians and depositories are informed about any changes in the number of investors sharing an omnibus account and national financial regulators make sure that everything is done in accordance with the law.
Notwithstanding the fact that investments are made not in the personal name of the securities owner, legislations of most countries ensure that the property rights of the ultimate owner are well protected. The ultimate securities owner is entitled to receive dividends, to vote at the shareholders’ meeting, and so on.
However, there is also a disadvantage associated with omnibus accounts. In case a sub-custodian, custodian, or depositary ‘loses’ the securities, the losses will have to be proportionally divided between all co-holders of an omnibus account.
If you use the services of a broker, you will have already used omnibus accounts many times in all likelihood. Brokers use international trade platforms and buy international securities by setting up omnibus accounts with custodians. Sometimes sub-custodians are also involved in the process but this fact does not make the scheme overly complicated.
Joint bank accounts
Banks in some countries allow opening joint accounts giving more than one individual to draw on the same account as well as top it up. An omnibus account is also a joint account used by several individuals at a time but it has a different function: it is used for investments. A joint bank account is usually used by families wishing to manage their finances in a more efficient way.
Psychological advantages of joint bank accounts
In 2018, American psychologists conducted two interesting experiments. They wanted to find out if having a joint account had a bearing on the financial decisions of married couples.
In the first experiment, the recipients were asked to choose what card they were going to use: the one linked to an individual account or the one linked to a joint account. Then they were asked to decide what they were going to buy: a coffee mug or a beer glass. Those who were using joint accounts most often licked the coffee mug because this was a more practical buy.
The results of the second experiment showed that if one of the spouses drew on a joint account, he or she felt more pressure to justify his/ her purchase for the other spouse. When people drew on their individual accounts, they did not feel that they had to go into long explanations why they had made a purchase.
Scholars also compared annual expenditures of married couples who had joint accounts and of those who did not. They found out that people using their individual accounts spent more on entertainment while those who had joint accounts spent more on household items. These experiments and analysis show that families with joint accounts spent money more wisely.
How you can set up a joint account
A joint account can be used by several people at a time. Normally, married couples open joint accounts and they are sometimes referred to as ‘family accounts’. At the same time, friends or business partners are also entitled to open joint accounts.
In most countries, the law does not limit the number of people who can share a joint account but banks will always put some restrictions. Often they do not allow more than 4 people to share a bank account.
You have to sign an agreement with the bank when setting up a joint account. After you put some money in it, you will be issued as many bankcards as there are account users. They are going to be regular bankcards that you can use anywhere. All account holders will have equal access to the account details in their online or mobile banking applications. Some banks issue cards for free while some others charge a fee.
The money management schemes can be different but the following two schemes are the most popular ones:
1. Each account holder can spend as much money as he or she has put into the joint account.
A married couple has opened a bank account. The husband has contributed US$ 3,000 and the wife US$ 5,000. These are the sums that each of them can spend.
2. Each account holder can spend a set portion of the money in the joint account.
A married couple has opened a bank account. The husband has contributed US$ 3,000 and the wife US$ 5,000. They have decided to split the account equally (50/50). Now each of the spouses is entitled to spend not more than US$ 4,000.
In conclusion, we would like to note that if one of the spouses makes debts, a joint bank account can be arrested. Moreover, all the money in the account can be arrested even though the second spouse is innocent. To avoid this unpleasant situation, you should make a marriage contract before setting up a joint bank account with your spouse. In this case, only the portion of the ‘guilty’ spouse can be arrested.