How Healthy is the U.S. Stock Transfer Industry in 2017?

Short answer:  fairly healthy.  Like most industries there is good news and bad news.  To some extent service providers’ fortunes are affected by economic cycles, regulatory changes, political parties in power and the like.  But stock transfer seems to be influenced more by deeper issues, and longer lasting trends.

Touching on the shorter-term influencers first, the economic crash of 2008 and relatively slow recovery from it clearly retarded the willingness of transfer agent clients to pay more for service – and for more services.  There was also a lower of number of IPOs (representing new clients); indeed, only once since Y2K were there more than 250 in a year, whereas in 1999 and 2000 there were 486 and 406, respectively.  Happily that may be changing, as seen in an apparent uptick in 2017 IPOs, but unhappily that may also not be so due to an evident trend away from going public — taking on all the applicable regulatory compliance – given the increasing availability of private equity funding.  Merger and acquisition deals, representing good ad hoc revenue for transfer agents, has remained decently strong (especially in recent years), but interest rate earnings on balances held by agents as “paying agent” have been paltry.  So have such earnings on balances held by agents for dividend-paying companies.  And further to the M&A challenge, a merger or acquisition means one more corporate client goes away on which a transfer agent could make money.

Which takes us to the deeper and longer lasting headwinds for the industry, including what we have already alluded to:

  • Fewer public companies to serve — less than half the number of listed ones in just the past decade!
  • Lower interest rates, notwithstanding a modest bump-up going on as we speak.
  • More money needing to be spent on cyber-security, and increased online service features for clients and shareholders.
  • More price competition among a dwindling number of transfer agents (ironically), especially involving two of the major players.
  • More competition from discount brokers and mutual funds that continue to siphon off “registered” shareholders into the “beneficial” shareholder environment.

That’s the bad news.

The good news is….

  • A more relaxed government posture toward regulation on business may increase IPOs, as well as free up corporate cash to pay for stock transfer services – and those fee increases that are truly justified.
  • Less regulation could lower compliance costs to transfer agents, they being regulated primarily by the SEC.
  • Interest rates will likely continue to rise.
  • Strong M&A activity will probably continue, spitting off fees and balance earnings, albeit one-time revenue.
  • We may have reached stabilization in the number of major agents, at least for a while, which should calm down the angst created by transfer agent mergers – for companies and transfer agents alike.
  • Every public company will, by law, continue having to officially offer stock transfer service to shareholders.

And the parallel universe of stock transfer software provided to smaller transfer agents, and companies still offering stock transfer to their shareholders “in-house,” appears sufficiently healthy as well.  For example, it was just announced Continental Stock Transfer is moving from SunGard to TS Partners’ TranStar system, which Broadridge and big in-house agent Aflac, among others, use as well – underscoring the availability of two not one such major service providers – SunGard and TS Partners.

So the industry has much to keep it up at night, and also much to be thankful for.  We, of course, will continue to monitor its progress for our readers on this website.

And a final reminder:  we constantly help companies eliminate costs in their stock transfer service agreements, fee schedules and invoices where fee increases are not warranted, where fee reductions are in fact appropriate and defensible, where “expenses” have no merit, where termination clauses are too penal, etc.  For more information call 415-246-7243 or e-mail .