U.S. stock transfer agents – room for more?

The short answer is YES.

Sure, the U.S. marketplace is dominated already by Computershare, the soon-to-be-blended EQ and AST, Broadridge and Continental Stock Transfer.  And there are some quality smaller agents out there like ClearTrust, Securitize and, making a foray now into the U.S. from Canada via Minnesota, Odyssey Trust Company.  But that does not preclude newcomers making a go of it.

The questions for a brand new agent are:  who do you want to serve, how complex do you want to be, and how much money do you want to make?  If the answers are Fortune 500 companies, as complex as possible, and make a financial killing, you are out of luck in our opinion.  Why?  Because Fortune 500 companies (and the Fortune 1000, and even 2,000) not only have a sufficiently good relationship with their mega-agent, but more importantly they TRUST them with so important a function as taking care of their directly registered investors, handling corporate actions, abandoned property and annual meeting needs, etc.  To break into that market you would have to steal a ton of precious talent away from the big agents, and/or the big agents would have to completely fall on their face service-wise (or, God forbid, experience a multi-agent cyber disaster), any of which is highly unlikely.

No, the way into the U.S. transfer agent marketplace, and again we are talking about starting and growing a new agent, not purchasing an existing large one, is….

  • Hiring a small core of shareholder service industry veterans to run the business, who could then promptly hire who their eventual successors would be – from sources like Certified Equity Professionals
  • Buying or leasing a quality recordkeeping system, like TranStar
  • Targeting a readily identifiable and reachable constituency like companies in the immediate geographic area, or companies with less than 1,000 registered shareholders (which represent a shockingly high percentage of companies in the U.S.), or IPOs via a “friendly” law firm or two
  • Not scrimping on insurance coverages, especially vis-à-vis data hacks
  • Staying uncomplicated for a while, avoiding things like foreign shareholder recordkeeping or going too high-tech just for the sake of looking “modern”
  • Accepting very modest profitability the first few years – even losses

The fact is, opportunity exists for new transfer agents who can deliver reliable, easy-to-use service with a personal touch while making no avoidable mistakes, at a base price below what the mega-agents charge as a minimum annual fee.  But it will take patience, meaning time.  Computershare began in 1978 as a start-up stock transfer software provider in Australia, and within a generation had become the largest stock transfer agent in the world.  Anything is possible if the right initial choices are made, customer service is consistently excellent at a good price, a demonstrable track record of performance is well established, the agent’s owners maintain their understanding and LIKING of the industry – and enough profits are reinvested back into the business.  Pretty basic stuff, which interestingly 90% of the transfer agents in 1990 failed to embrace, resulting in their eventual closure or sale to others who did.