12 Things to Think About When Choosing a Stock Transfer Agent

We are constantly asked how best to choose an investor services provider like a transfer agent.  It is a topic that could fill many pages, but for our readers’ convenience we have summarized our thoughts inside 12 short guidelines:

  1. Look for a “fit” (your goals and theirs).  For example, do you want to be with an agent who is striving to become the largest in the industry?  Maybe you do.  Maybe you don’t.
  2. Ask tough questions.  Such as:  are there regulatory changes in the offing, Mr. Agent, that could put upward pressure on your fees and/or expenses?  What clients did you lose last year, and why?  We have found the best agents like the tough questions.
  3. Stress-test quoted fees.  This is because some fees are cost-based, and some are not.  If you see a “big round number” for something, ask what it is based on — and if it can be improved upon.
  4. Ask for out-of-pocket expense projections.  They do not have to be spot on, but they should and can be “indicative.”
  5. Un-complicate the fee schedule, and invoices.  Have the agent “bundle” fee categories so you don’t get line-itemed to death — in the proposal and, by extension, subsequent invoices.  By the same token, don’t “over bundle” and thus lose track of what you’re paying for.  Fees should probably fit on one page, while expenses should be as detailed as possible.  And a last point:  if the service in question involves a declining “fee driver,” like number of registered shareholders, ask that the service be priced per this declining variable, rather than flat dollar amounts per month.
  6. Be sure you really want to use the provider for “everything.”  Is the agent really as good at employee plan administration, or proxy solicitation, as it is at stock transfer?  Maybe it is, but be sure before you do something expedient that causes a tandem functionality to suffer.
  7. Verify cost containment assertions (with existing clients).  Does the agent really share its savings on Zip +4, NCOA, print volume discounts, etc. with clients?  Ask a few of them.
  8. Check the provider’s track record on industry “heads-up.”  For example, was the transfer agent’s disclosure to clients about key developments like the Direct Registration System, Notice & Access and Cost Basis timely enough?  Was the employee plan agent’s disclosure on FAS123R issues prompt and helpful?  Did the transfer agent and proxy solicitor sufficiently help with N&A, and timely point out the 2009 reduction in broker discretionary voting….potentially threatening quorum?
  9. Evaluate a regional office relationship versus one from HQ.  Do you know the agent’s closest relationship management office to you?  And do you want primarily local/regional contact with the agent, or a relationship manager back at headquarters?  I.e., do you want a “face-to-face” relationship, or where your contact is “Johnny on the Spot” back at home office?  There are advantages to both scenarios.
  10. Call non-references.  Ask around who uses the agent, and/or check the investor relations web page of companies who have your profile and turn out to use the agent, and call those companies — not just the ones the agent includes in its service proposal.
  11. Ask or find out who the provider “partners” with.  Maybe you have had issues before with one of their “strategic partners,” or you did not realize one of their strategic partners is located on the other side of the world — which could be OK, but you still need to know that.
  12. Look at surveys, but don’t let them decide for you.  The differences in survey results can be thin – sometimes so thin (+/- 3%) that actual results could be different in a repeat of the same sampling exercise!  So, if you have access to multi-year results (at least three) use them, and in any event only use surveys as a guideline — not as gospel.