Stock Transfer Agent Revenue – The Other Sources

Transfer agents are good at getting paid for their work.  Better than you might think.  Most corporations do not realize how much extra revenue transfer agents bring in beyond the fees and even expenses presented in their monthly invoices.  We are not blaming transfer agents for this, but nor is it right for most corporations to remain unaware of it – especially when it is time to negotiate a stock transfer service contract.

Besides straight-forward service fees, here are other areas where transfer agents collect money unbeknownst to corporate clients – or at least where their collection is not “front of mind” at most corporations:

  • Interest earnings on dividends (“float”). Not only are dividends funded by the company in advance of payable date in most cases, but also it takes days for dividend checks to clear.
  • Interest earnings on corporate actions, where standard practice is for the transfer agent to request all necessary funds as paying agent “up front.”
  • A share in the amount paid to insurance companies for a lost certificate replacement indemnity bond, in most cases.
  • A share in the fees collected by lost shareholder “deep search” agents, in most cases.
  • Fees collected from third party agents like odd-lot program administrators, providing services such as shareholder lists.
  • Shareholder-paid DRIP and DSPP fees, plus broker commissions.
  • Fees deducted from the proceeds of a “waiver discount” transaction within a DSPP.
  • Fees collected from brokers to process the company’s DWAC transactions, which over a transfer agent’s entire client population can number many thousands per year, costing over $100 apiece.
  • Out-of-pocket expense “handling fees” added on to transfer agent invoices, in many cases.
  • Termination fees and expenses far beyond the actual cost to move records to a successor transfer agent, or process residual work after the termination, in most cases.

And the above does not include the many “captive” service fees a transfer agent gleans, like corporate action fees simply because it is the transfer agent for a company that acquires another, IPO fees because the transfer agent has the closest working relationship with certain law firms, and fees to facilitate delivery of shareholder records to Kelmar and similar state-retained abandoned property auditors.

Again, there is nothing wrong with any of this.  It is revenue transfer agents are smart enough to bring into their coffers “quietly.”  But if you are a corporation negotiating your stock transfer service contract, remember to take inventory of what else you are doing with the agent.  Is a participant-paid DSPP in place?  Does the company have an option or restricted stock plan agented by a major broker where the transfer agent maintains share reserves for it, thus involving DWACs?  Is your corporation acquisitive, buying other companies from time to time?  If so, factor all this into your bargaining position, especially if the transfer agent seems to be asking too much for routine stock transfer service.

And remember, we are here to help corporations navigate through all these issues.