I have an Individual Retirement Account (IRA) in a mutual fund in my name. What is the advantage of holding securities in "street name"?
FPA member Carl Irico, CFP®, a senior financial adviser with Ameriprise, said the following:
“Street name only means you don't have the actual stock certificates in your personal possession. You still own it, but someone else is responsible for keeping up with it. In fact, in an IRA, the IRA Custodian has your mutual fund — if you had it the Internal Revenue Service (IRS) would consider it a distribution of your IRA and tax you accordingly. So, your IRA mutual fund is already in ‘street name.’
“In fact, I don't think any mutual funds offer a certificate for purchased shares any more. It’s all kept electronically (which is what is meant by "street name"). You can buy shares of a specific company (such as Wal-Mart Stores or Exxon Mobil Corp., for example) and actually get paper shares of that stock. It would have your name on it and you'd have to store it safely, like a safe-deposit box.
“If it was lost, stolen, destroyed by fire, etc., you can get it replaced but it’s a lot of work. And when you want to sell it, you have to actually present that piece of paper and deposit those shares into a brokerage account in order to do so. That's a real pain if you need to sell it fast.
“By keeping the shares at the brokerage firm, your shares are in ‘street name’ and can be sold with just a phone call. And the shares cannot be lost, stolen or ruined by fire.”