Stock Transfer Performance Standards Recently Touted, But Are They Worth the Trouble?

As we helped clients renegotiate stock transfer contracts in 2008, some companies asked if they should impose new “performance standards” on their transfer agent.  We have a definite (and different) take on installing these devices.

On the one hand they sound like a good idea, requiring big, inscrutable transfer agents to “toe the line” on minimally acceptable operating performance.  There are fewer and fewer transfer agents left out there, there is less competition among them as a result, and they seem to be calling the shots on pricing more and more – so why shouldn’t they be held more accountable for their actions?

Here’s why…

  • Transfer agents are already being audited every year by some or all of the following entities:
    • The SEC (since they are required to file an annual Form TA-2)
    • Their outside auditors/accountants
    • Federal or state banking authorities, if a bank-hosted transfer agent
    • Transfer agents’ own Quality Assurance teams
    • Surveying outfits, hired frequently by transfer agents to randomly sample operational performance
  • The additional apparatus to measure transfer agent activities, especially for individual companies expecting their own shareholder service to be measured in a particular way, can be complex and expensive to install…and maintain
  • The extra work and cost cited in the prior bullet must be paid for somehow – and thus inevitably “finds its way back” to the company, and other clients, in higher fees
  • The validity of such standards is the extent to which they are not met, and in our 20 years of experience we have seen “citable violations” occur well less than 1% of the time

We also can not argue with some transfer agents’ claim that – if they are being held accountable for these extra/special standards, and must pay a “penalty fee” if they miss a standard now and again, by a couple of percentage points – then if they do an especially good job in a certain month or quarter (say, effect stock transfers 25% faster than NYSE requirements) they should be entitled to a “reward fee” of a comparable amount!  Sounds reasonable and yet…what companies would want to pay that?

Our position is:  transfer agents already have plenty of watchdogs keeping an eye on them – and many with sharp teeth.  Moreover, companies already have these opportunities for recourse at their disposal:

  • Fee reimbursements stipulated within the liability provisions of their stock transfer contract
  • Good faith negotiations with the transfer agent to resolve (and make financial amends for) recent service issues
  • The threat of terminating the transfer agent – including termination itself – if service issues are not resolved

Bottom line:  stock transfer performance standards may look good on paper, but in the real world they simply do not survive a thorough cost/benefit analysis.

[To verify that your stock transfer agent’s pricing and contract terms and conditions are “best practices,” call or e-mail us today for more information about a Shareholder Services Check-Up®.]