Warning – beware of transfer agent charges to interface with other service providers

This issue has always been a problem with stock transfer agents, especially the larger ones.  It bothers them to have invested money in ancillary service capabilities like corporate actions, proxy functionality and lost shareholder searches – and then see the client choose another service provider.  So the transfer agent will often quote substantial fees to “support” the chosen vendor’s activities (providing shareholder files, updating shareholder accounts after processing) in an attempt to discourage the client from utilizing the outside firm.

A good example is when the company chooses an outside service provider to distribute and tabulate both beneficial and registered shareholder proxies – with Broadridge that party in most cases.  Some transfer agents charge thousands of dollars to provide a record date shareholder file to Broadridge – plus the same amount to take the file back with “shareholder contact” updates.  And yet, there is no comparable cost at the transfer agent to do this “work.”  Moreover, transfer agents almost never lower their overall fees in such circumstances to recognize they are no longer performing the registered proxy distribution and tabulation function!  Pretty amazing.

Another egregious example is when a company elects to use an outside service provider for lost shareholder searches other than the transfer agent, or its specialized subsidiary.  Here the transfer agent might quote $25.00 – $50.00 per lost shareholder account, plus $1,000 – $10,000 per CUSIP, for file updates and to generally (but modestly) support the search effort.  Large companies would have to pay millions of extra dollars at these rates.  Historically search firms covered such transfer agent surcharges because they were reasonable, thus offering a “cost-free lost shareholder solution” for the company; but, as these transfer agent “support” fees continue to grow, firms can no longer absorb them.  This essentially means the company has to use the transfer agent or its subsidiary.

While it is logical for a transfer agent to want to keep client work it can do in its own shop, it should make that happen through service quality and client convenience, not penal surcharges that are almost vindictive.  Remember again, there is almost no incremental cost to a transfer agent to electronically provide a shareholder file, or electronically update it (as long as a standard format is used) – nor is there even “opportunity cost” to do such work.  The necessary resources, human and technological, are already – and always – in place at the transfer agent.

If you are a public company dealing with this situation, push back!  And if you need help doing so, give us a call on 928-862-2048.