2012 Transfer Agents

Our Top Tips And A List Of Resources For Issuers Looking To Make Sense Of Industry Turmoil

When your editor started in the shareholder servicing business—in the 1960s he must confess—there were well over 1,000 transfer agents. Every major bank in New York City was one—like Bank of New York, Bankers Trust Company, Citibank (then “First National City”) Chase, Chemical, Franklin National, Irving Trust, JP Morgan, Marine Midland… down to little Republic Bank…and others… In Chicago there was Continental Bank, First Nat’l Bank of Chicago, Harris Trust, LaSalle National…et al. In California there were at least five bank agents…and five in Texas…and at least two in Seattle and in Portland…and in most every other major city. There were over 1,000 privately-owned transfer agents too—several of whom have survived, and thrived…but most are gone now, or handle mostly unregistered and/ or unlisted securities.

Today, the industry is down to one “mega-agent’—with commanding market share—two “mid-sized agents”—two good-sized independently owned and operated agents…and, as we had long predicted…a relative newcomer to the industry; one that we also predicted will change the landscape dramatically going forward…plus a dozen or so very small agents serving the very smallest companies. And, as the OPTIMIZER has said again and again, “The dealin’ is far from done”…mainly because the industry “drivers of income” continue to contract…with no end in sight.

The pace of mergers, acquisitions, going-private transactions and bankruptcies far exceeds the rate of companies going- public. Equally bad, the number of registered holders also continues to contract inexorably—due to what we call “secular attrition” (read the ‘passing’ of old-time ‘certificated holders’ and the clear preference for street-name registration on the part of their heirs and assigns.)

Against this unsettling background comes the need to periodically look around, and maybe to shop around—partly as ‘insurance’ against what will surely be the departure of one or more agents from the scene—but also in response to corporate policies to periodically review all one’s vendor arrangements.

Accordingly, we thought we are probably overdue in summarizing our own “Top Tips” in terms of things to do and actions to take to stay on top of things—along with a list of articles to review if this is new to you, so here they are:

• Start, we advise, with a list of Who’s Who in the business:
  (Go to our website, www.optimizeronline.com and click on our Online Index of Products, Services and Service Providers for a short-list. Also, this issue of the OPTIMIZER’s annual Special Supplement—while clearly not all- inclusive—will give you an excellent overview, we think—and a strong idea of who IS who, and what they, and their business models are like. And all of the T-As represented here are decidedly worth a look.

• Pay close attention to the “tone at the top”:
  This is still the most important indicator, by far, of the kind of businesses they really are—and how well they fit with your own company’s needs—and approaches to shareholder service. The “chemistry” is still the top thing one should be focusing on in the end, we say—along with the overall “ethical environment”—which we, as very long-term “insiders” can’t stress enough. (See the article in this issue for two examples of serious warning signs.)

• If you are not entirely satisfied with your present agent—or not entirely sure how they are really doing for you—read our article on that very subject for starters:
  Go to www.optimizeronline.com and click on “Sample Articles” for “What to do if you are not satisfied with your transfer agent.” We are still strong believers in trying to work out “issues” with one’s current agent if at all possible, since changing agents involves considerable work, and risk, and many other operational and “political uncertainties” that staying put can avoid.

• If you are really unhappy—or—if your company policies mandate a more careful periodic look-see—be sure to read the article under “The Basics” on our website—on how to proceed —AND on how to make the decision—AND on important dos and don’ts, and things to consider before you sign a contract: “A Checklist of Best Practices in Selecting a Transfer Agent.”

• Since we published the article on the RFP process—and on transfer agent selection—we have given quite a bit of thought to the “RFP-LIGHT” concept: We sort of like this idea, of maybe just asking for a brief business overview and an approximate “indication” of the fees that would likely be offered—just to keep the process simple, and to maybe satisfy the purchasing gurus. We also think that your outside consultants might be able to leverage their own knowledge from recent RFP engagements—and come up with something shorter and simpler than a full-blown RFP process. But most companies seem to find that this won’t cut the mustard with headquarters—and, since one only does this every five years or so, giving it short-shrift is probably not that smart. There is more than an outside chance in this business that today’s “number-two choice” might have to become your next port of call…on short notice…thus…
• Do a very careful assessment of how likely the agents on your short-list are to survive in the business over the long term. The last thing you’d ever want to do is to recommend a new agent to your Board, only to need a new one before the ink on the contract is dry.
• No matter how intensively, or how far afield—or how “selectively” you may decide to look—DO hire an “expert consultant” to help you: There are at least three good ones out there (including the Editor’s own firm, although we hasten to say that we mostly do this for existing customer or subscribers, since it involves a lot of work and a truly astounding amount of paper-pushing—even with “RFP-Light”).

“All professions are conspiracies against the laity” one industry expert, Jack Sunday, wisely reminds, quoting George Bernard Shaw. And when it comes to transfer agents, we most heartily agree: When we see some of the old T-A contracts that ‘laymen’ have signed off on—and read some of the fine print they’ve signed off on, or were ready to sign off on—like “roach motel provisions,” caps on T-A liabilities, commitments to buy a host of other services at unspecified prices—we can guarantee that using an expert will pay for itself many times over…not to mention the big CYA benefits.