Transfer Agent Market Share Updates Show Major Shrinkage In The Registered Holder Universe
Much More Shrinkage Still To Come, We Say
Our last update on T-A market share - which we call a “major decider” of who will survive long-term - was back in the first quarter of 2013. We were surprised and startled to note the big shrinkage in just over two years - from an estimated 41.9 million registered shareholder records in 2013 to a mere 36 million today.
Computershare, the biggest T-A by far, now says it has roughly the same 6,000 clients it had in 2013 - but that shareholder accounts have fallen from 25.7 million to 19 million. And this is after the acquisition of Registrar & Transfer Company, which in 2013 was the number-six agent and which had roughly a million shareholder records when they were acquired by CPU last year. (See the chart below)
Some of this shrinkage, as we opined back then, is probably due to a long overdue cleanup of closed accounts. Some is due to what we call “secular attrition” - which is a polite way to say that the grim-reaper continues to take a toll on older investors, who tend to love their stock certificates - and (mostly) hate brokers. But we’re sad to note that as the numbers clearly show, the attrition rate has accelerated dramatically vs. previous periods - in just the past two years.
We think that an even bigger secular trend is afoot – not just where the last of what we call the “post-WW-II savers and investors” are handing off to the big-spending, low investing baby-boomers - but where most of the boomers are now in their mid to upper 60s - and starting to use up or pass-on much of whatever stocks they have that survived the market meltdown of 2008, that drove so many individual investors away from the stock market altogether.
From the early 1970s - through 1999 - just over 50% of all U.S. households owned one or more stocks directly. Beginning with the infamous Y2K, and for the rest of the decade that we called “the noughties” - because stocks showed zero-returns after inflation for all of the 2000s - individual investors left the stock market in droves. (We also called the 2000 - 2009 period the years of the “naughties” - who took so many big companies down altogether). The upshot? Before the financial crisis of 2008, ownership of equities had plummeted to a mere 18% of U.S. households. And after the crash, the number plunged to a mere 13.8%.
Currently, people from “Gen-X” - and “the millennials” - still stand to inherit the biggest pile of assets ever. But most of them don’t even know what a registered holder IS. Recently, my good buddy and former STA President Ray Riley began to do the same thing your editor has begun to do - cleaning out the safe-deposit box and drawing down most of those DRP and DSPP accounts, in order to consolidate everything in one place. And guess what that place is…When Ray sent a handful of stock certificates to his broker, it caused quite a stir: The broker told Ray that the clerks wanted to send them out for “authentication” (not realizing that that’s exactly what happens when you send them to the T-A) because none of them had even seen a stock certificate before this!
And yet another big hit to the registered shareholder base is in the works thanks to record breaking M&A activities this year: So far this year there have been 37 deals announced that were
valued at $10 billion or more. And 28 of them involved a U.S. target, where all, or virtually all of the target companies’ registered shareholders will disappear. Yes, some shareholders will get stock in the new companies, and yes, there have been a few spinoffs, and a fair number of IPOs too - but the number of new registered accounts created is literally dwarfed by the number of registered accounts that will disappear for good.
Recently, an industry colleague asked when we thought the last transfer agent would fold its doors. He was genuinely surprised to learn that (a) every public company is required by law to have a T-A, and that (b) the fact they were no longer very busy was not necessarily a bad thing for public companies – or for TAs themselves. But for sure, Transfer Agents need to rethink their business models, sharpen their pricing models to rely less on pushing piles of paper, and on “earnings on balances” – which currently are earning zero - and to better articulate their “value added propositions.”
Transfer Agents also need to rethink their basic operating and sales models, we think, if they want to replenish those fast vanishing registered shareholder accounts, and avoid dropping off the radar screens altogether. The smarter agents have been trying to revitalize their Direct Stock Purchase Plan offerings (mostly with poor success, due in part to bad pricing vs. discount brokers, and in part to public-company indifference to attracting individual investors…which really needs a re-boot.) Also, as we have been saying for 22+ years, while shareholders of record have been going away year after year, employee investors are (mostly) here to stay - and easy to grow if one has a mind to do it - and a plan. But here too, most of the old-line TAs have failed to invest in systems, procedures - and in sales and marketing plans too, that would better articulate the potential for big value being added by bigger employee ownership.
To end on a much happier note, since 2009 the number of U.S. households has grown from 117 million to 123 million+ today. If transfer agents could get just 10% of them to become direct share-owners - whether through DRPs, DSPPs, 401-ks or Employee Plans - they’d add 12 million more records - and the percentage of household ownership would still be less than half of what it was during most of the second half of the twentieth century. So, theoretically, the T-As could do even better.
Always the optimist, The OPTIMIZER thinks that T-As could really catch a big wave here: Wider share ownership would go a long way toward “democratizing” business ownership – and control too. And, at a time when income inequality is beginning to trouble many of our top business people, it would also contribute to a much better and arguably fairer sharing of the tremendous wealth our public companies create. More to come on this in our next issue...