An Update on the Number-One Question Your Editors Get: “What’s Up With All Those Transfer Agents?”
The Transfer Agency industry, as most long-term readers know, has been undergoing a rapid and rather massive transformation for well over a decade now. The latest view from the bridge, in a nutshell, remains the same: “The dealin’s in this business are far from over.”
The main driver of change has been a truly massive shrinkage in the number of registered shareholders - the main ‘billable item’ at most T-As - due to social and demographic factors that are irreversible in our view:
The world of ‘registered holders’ has declined from a peak of roughly 100 million in the early 1990s to around 40 million today, as older holders pass away and as their heirs - and new investors in stocks as well - opt almost exclusively for street-name registration.
In our last update on T-A market share, we noted that the long-term trend - an annual 5% decline in the number of registered shareholders - seems to be accelerating of late - as older Americans, who were and still are the backbone of retail investing, get their affairs in order and look to consolidate their paperwork, and the number of entities where they maintain accounts.
Particularly disturbing for providers of services to registered investors one would think, the number of participants in transfer-agent-managed Dividend Reinvestment and Stock Purchase Plans is declining at an even greater 8%+ rate per year, partly because of the heavy paperwork burden they impose on participants, and partly because most retail brokers offer reinvestment for free. But so far, TAs have been blithely unfazed, and uninterested in cooperating with one another to offer consolidated DRP statements on a quarterly basis - via the Web - rather than by making up to six mailings to each participant per year.
Another set of developments has been taking an even bigger toll on TA profits of late - the constant disappearance from the scene of big, old-time companies, due to M&A activities and, recently, to actual or threatened bankruptcies. Big, old-time companies have not only been the source of the biggest retail investor populations, they have long been the largest users of TA services in general, such as dividend payments, DRP and ESPP accounts - and of M&A services where, formerly, they tended to be the survivors rather than the victims of change. In 2018 we saw companies like Aetna, Express Scripts, Rockwell Collins, Time Warner and Toys R Us departing from the scene, plus a massive flight of retail investors from the formerly formidable GE. So far this year we see hundreds of thousands of retail holders in PSE&G and Sears Holdings in danger of being wiped out in potential bankruptcies and/or other reorganizations.
No wonder, thought we, that last year, the then brand new EQ took out three pages in our magazine to herald its plans for “Transforming U.S. Shareholder Services” - and that two other of the largest TAs recently designated official “Transformation Managers.” But this year?
No news for readers at all from EQ, which also pulled all of its listings in our Directory of Service Providers… And no news from Computershare in this issue either! The best construction we can put on this is that their “Transformation Plans” are not ready for roll-out just yet. But YIKES! This is truly a do-or-die competitive environment, where currently, there are just four “Big Agents” that would readily pass muster with mid-cap, big-cap and mega-cap boards - and where, rather astonishingly, all but one of them (Broadridge) are owned by non-US entities!
No wonder then that suddenly… there has been something of an upsurge in the number of “Small Transfer Agents” and an upsurge in interest in them. A few of them have been steadily “making hay” at the expense of the big guys - especially in the IPO market - and some are starting to bite around the edges at larger and already public companies as well.
And frankly, the idea of having a smaller, nimbler and lower-cost agent - without the big infrastructure and bureaucracy it takes to handle a long list of “big and demanding companies” - seems to have a great deal of appeal to issuers. And the idea of being a much bigger fish in a much smaller pond has appeal in and of itself.
But look carefully before you leap, dear readers: Please note that the former number-six agent, Registrar and Transfer Company, was bought out suddenly, on the heels of shocking SEC audit findings just a few years ago. Only a few months before that, the then number-seven agent, Illinois Stock Transfer and Trust Co. was shut-down completely by the SEC. And guess what? We looked back to the last article we ran on “small agents” a few years ago, and discovered that one of the three other “small transfer agents” we’d written about back then was snapped up by AST - and the other two have literally fallen off the radar screens!
So for now, are advice is to try to develop a warm and loving relationship with your TA, while keeping a close eye on the newspapers and the industry newsletters for more consolidation that is certain to come.
But if you are one of the ‘disaffected’ companies, or feel ‘dislocated’ or ‘disrespected’ after all the competitive reshufflings or if your corporate policies man- date you to go out for a look - here are three articles that will help you:
• What to Do if You are Not Satisfied with Your T-A
• Transfer Agent Liabilities - Underestimate Them at Your Peril
If you DO decide to look around a bit, please remember our promise and give us a call!
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