Top shareholder perks worth their salt and those to avoid

In the 21st-century world of electronic trading, buying and selling shares is literally at the fingertips of anyone with an internet connection.

Most private investors today enlist the services of a middleman - an investment broker such as Hargreaves Lansdown or Interactive Investor, our sister company - to access the stock market. Shares are held in nominee accounts via the broker, rather than being issued as 'old-fashioned' paper certificates.

Technological innovation has helped drive costs down, as well as giving private investors greater control over their investments. It has also, for better or worse, led to more investors trading much more frequently, buying shares one day and then selling the next.

As a consequence shareholder perks, which were historically aimed at private investors with a long-term mindset, have become much less common.

NEW PERKS ON THE BLOCK

Long gone, for example, are the days of Eurotunnel generously giving shareholders unlimited lifetime travel through the Channel Tunnel for just £1 per trip.

Other firms offered discounts on holidays, flights and ferry crossings; brewery businesses even offered free lunch and unlimited booze at annual general meetings.

Some companies can no longer afford such generous incentives, while others have simply decided - quite sensibly perhaps in the modern world of frequent trading - to prioritise dividend and earnings growth. But there are still some shareholder perks worth considering.

Mini-bond issues, which are typically targeted at loyal customers of the brand, often offer perks as well as attractive interest rates on the bonds themselves.

Over the years there have been various examples, including Hotel Chocolat, which tempted private investors with a 'free' box of chocolates every two months, while John Lewis provided vouchers.

The Jockey Club - owner of Aintree racecourse, home to the Grand National - offered horse racing-related perks. Of the 7.75 per cent return on the bond, 3 per cent had to be spent on racing or food and drink at one of the club's racecourses.

In a similar vein, crowdfunding ventures dangle perks in an attempt to persuade private investors to get involved. Perks give a potential shareholder a flavour of the business - quite literally in the case of Brewdog, which offered 5 per cent off drinks in BrewDog bars around the world in its latest fund-raise.

Tossed, the salad bar chain, which has won a celebrity backer in tennis star Andy Murray, offered a generous 50 per cent off every purchase for life, provided investors parted with £5,000.

Ventures currently seeking investment at the time of writing (end of October) include Beelivery, listed on Crowdcube, one of the leading crowdfunding websites. The firm provides a 90-minute grocery delivery service, and is seeking money to bring the delivery time down to just half an hour.

Those who stake £200 will receive goodies for a movie night in, while those who stump up £2,000 will receive a 'champagne night in' kit. For £5,000, investors are able to meet the team for drinks at the firm's office.

EXERCISE CAUTION

Another currently listed on Crowdcube is ArtAttack, an app that offers access to artwork at less than gallery prices. Those who invest £200 are invited with a partner to an evening with the ArtAttack team and selected artists from the firm's Christmas show.

A £1,000 investment will yield a 10 per cent discount on a piece of artwork purchased through the app, while £20,000 offers a 'reward' of a free art consultancy.

Meanwhile on the Seedrs crowdfunding website, Cranes, a firm that makes fruit-flavoured alcoholic drinks, recently raised nearly £195,000 - more than double its original fundraising target. Those who invested £500 receive a 20 per cent discount on Cranes drinks.

However, in the case of perks offered by both mini-bonds and crowdfunding ventures, experts urge caution. Remember, firms are seeking to raise money from private investors because they cannot secure funding through banks or on the capital markets.

Fidelity spokesman Tom Stevenson says: 'The general principle is that you should not base your investment decisions on a side benefit, no matter how good the perk is. Investors need to question why the perk is being offered; is it because the underlying investment case is not a solid story?'

When weighing up whether to put money into a mini-bond, investors are essentially taking a view on whether the issuer will grow as hoped, in order to pay the interest payments. If the issuer fails, investors face the prospect of losing all their capital.

Unlike retail bonds, which tend not to offer perks, mini-bonds cannot be traded, so investors are locked in until maturity. There have been a couple of mini-bond disasters so far, which serves as a reminder of the risks involved.

Crowdfunding, described by the Financial Conduct Authority as a 'high-risk investment activity', has to date only seen one firm realise a return for investors - E-Car Club, bought by Europcar.

According to Seedrs, which recently published its first portfolio update, covering the deals done from launch in July 2012 to the end of 2015, the average annual paper return, based on notional valuations, is 14 per cent.

But there have been many failures, with just under 20 per cent of the 253 deals covered by the report coming unstuck.

To mitigate risk, crowdfunding fans are advised to cast their nets wide, and to hold no more than 10 per cent of an overall portfolio in these enterprises. Stevenson says private investors would be better off sticking to venture capital trusts, which similarly provide backing to start-up firms.

'Rather than buy a suite of crowdfunding ventures and hope for a big winner, a more prudent approach is to pay someone who is an expert at investing in startups to do all the hard analysis.'

STOCKING FILLERS

When it comes to the older generation of stock market perks, many seem hardly worth the paper they are written on. Telecom Plus, for example, offers the perk of a 10 per cent discount on broadband and landlines. But to qualify you need 1,500 shares, costing around £18,000.

Retailer Next also looks poor value, offering a one-off 25 per cent discount against full-priced merchandise, providing 100 shares are held; but they'll cost £4,900.

However, others appear good value, even if the investment case doesn't quite stack up. Some, including Moss Bros, Bloomsbury, Mitchells & Butlers, Johnson Services Group, Marks & Spencer and Legal & General, offer perks for just one share.

Indeed some, such as 20 per cent off clothing merchandise at Moss Bros, could go towards Christmas gifts - perhaps the annual tradition of buying a scarf or socks for a loved one. One Moss Bros share costs 102p.

Similarly, £1.50 spent on a share in Bloomsbury, the Harry Potter publisher, yields a 35 per cent discount off all its books. This is a steal, even if you buy just one book.

Struggling to think of the perfect gift for your mother-in-law? Well, with a share in Johnson Services Group for just 108p, you can get your hands on 10 dry-cleaning discounts worth £5 each.

Alternatively, if you are feeling a bit more generous, Marks & Spencer offer discount vouchers for a £3.55 share. Elsewhere, Mitchells & Butlers knocks money off for shareholders at its various restaurants, including Harvester and All Bar One. One share costs £2.82.

The majority of perks, including all those mentioned above, can be obtained indirectly, through shareholdings in broker nominee accounts, but a few - including BT, which offers discounts on various products or services - can only be claimed by those listed on the shareholder register.

Ultimately however, to borrow an old tax-planning saying, don't let the perk wag the investment dog.

PICK OF THE REST

There are various other perks available, but in most cases the outlay outweighs the perk.

For example Merlin Entertainments, the owner of Legoland, Alton Towers, Chessington, Thorpe Park and Madame Tussaud's, offers a discount of up to 40 per cent off one Family Merlin Annual Pass, which costs £556 for a family of four.

The pass is essentially a season ticket for all of Merlin's attractions, but with some restrictions. To receive the perk £1,461 worth of shares need to be purchased. The 40 per cent discount saving works out at a maximum £222.

Euro Disney also has special offers and discounts for shareholders holding a minimum of 1,000 shares. The share price is currently €1.14, so in sterling terms a stake of £1,261 is required.

arious discounts are available, including a 15 per cent discount on annual passports. But the discounts are token gestures, saving around £20.

Restaurant Group, the owner of various food chains, including Chiquito and Frankie & Benny's, offers 12 vouchers that knock 25 per cent off the total bill. But at a cost of £947.50, the total bill would need to be over £300 each time for the perk savings to cover the cost of the share.

Brewers, including Greene King and Fuller Smith & Turner, offer similar discounts on food and drink, although the costs involved differ markedly. Greene King's perks require an outlay of £730, but Fuller and Smith & Turner's minimum investment level is much steeper at just over £5,000.