Despite growing consolidation and other ongoing changes, service and efficiency remain key to good relationships.
Finding a transfer agent whose representatives could recognize – and spell – Kalaniana’ole Highway and other vowel-laden Hawaiian names was important to Cori Weston, corporate secretary and senior vice president at Bank of Hawaii. ‘Our shareholders have surnames like Kawasaki and Yasunaga,’ she explains. ‘They’re not your typical Smiths and Jones.’
Weston praises her transfer agent, Continental Stock Transfer, for the service it delivers to her company’s unique group of registered shareholders. That said, being a transfer agent can be a thankless job.
‘Typically, you remember your transfer agent based on the last mistake made,’ says Karl Wagner, president of the Corporate Transfer Association (CTA) and assistant secretary at Merck. The ideal transfer agent, he maintains, is ‘invisible’. Julian Clark, president and CEO at Mellon Investor Services, agrees, saying that in some sense what transfer agents are selling is ‘an absence of pain.’
But, for an industry that aspires to invisibility, transfer agents are in the midst of tremendous upheaval. ‘The regulatory environment is changing,’ observes Charles Rossi, division president at EquiServe and president of the Securities Transfer Association, noting that the existing transfer agent rules were written in 1974. He anticipates the SEC will begin issuing new proposed rules for transfer agents later this year. Among the issues the commission is expected to address is how technology is changing the industry, especially as shareholders migrate from paper stock certificates to a book-entry system. Rossi points out that around 60 percent of all registered holders today own book-entry shares.
Change on the horizon
With regulatory changes on the cards, some transfer agents are redefining themselves to stand apart from the pack. Clark sees a schism between transfer agents that specialize exclusively in transferring stock, and the larger agents – such as Mellon and Computershare – which are broadening their services to meet the needs of employee shareholders. Clark coined the term ‘equity administration’ to reflect the fact that Mellon’s traditional transfer agent services and its employee stock plan administration ‘link rather nicely for employees and senior executives.’
Consolidation also continues to unsettle the industry. As Computershare completes its acquisition of EquiServe, Rossi emphasizes the benefits of consolidation, explaining that Computershare has the means to invest in the best technology and people. Once it owns EquiServe, which works with 18 mn shareholders and 1,300 corporate issuers and closed-end funds, Computershare will be the largest transfer agent in the US.
Some of the smaller regional agents aren’t daunted by consolidation and even argue that it might work in their favor. ‘Our niche is small to mid-sized shareholder base companies; as Computershare and others get bigger, the smaller clients will increasingly be under-served,’ contends Marlayna Jeanclerc, senior vice president and manager of shareholder services administration at National City Bank, which maintains 1.3 mn shareholder records for 800,000 accounts at 170 different issuers.
Jeanclerc believes technology is one of the most pressing issues facing transfer agents. An increasing number of public companies want their shareholders to have online access. In addition, Jeanclerc says, ‘telephone and internet proxy voting is rapidly gaining in popularity, even among smaller public companies.’
Weston emphasizes the importance of online access to Bank of Hawaii’s 10,000-plus registered shareholders. She’s pleased her investors can use the internet to access account information, as well as request affidavits for lost stock certificates. Meanwhile, in 2004 Mellon improved the web information it provides and installed speech recognition in its call center systems. ‘This makes it a lot easier for some of the more elderly folk,’ says Clark. ‘They simply have to say, Can you give me the share price, please? and they get the information.’
Technological advances are also giving rise to more outsourcing as some of the larger transfer agents begin to subcontract call center functions, sometimes to companies outside the US.
Wagner explains that outsourcing can be a sensitive issue, however. In the US, for example, employees at transfer agents are generally fingerprinted but how do you maintain the same checks on employees residing outside the country? One public company, Wagner recalls, contacted the CTA to complain that its transfer agent was routing calls overseas. ‘The shareholders were having trouble understanding the people on the phone,’ he explains.
Clark maintains that Mellon’s decision to use a call center in the Philippines, in addition to its US call centers, helps deal with the peaks and troughs in call volume and actually improves service to the shareholder. Through its quality monitoring, Mellon has found service at its Manila call center is ‘equal to or better than what we experience here,’ Clark says.
The bottom line
Merck is very pleased with Wells Fargo Bank, which it has used for 13 years, and it’s not the only firm that holds its transfer agent in such high regard. Group Five, an independent consultant and research company, found issuer satisfaction with transfer agent services improved for the fifth straight year in 2004.
Price is inevitably on everyone’s mind as smaller agents fret about competing with Computershare. ‘Transfer agents think price is the most important thing – and it does get people’s attention,’ says Wagner. ‘But the problem is, if this service is sold too cheaply, when you need help from the agent you might discover that there is an additional fee.’
In fact, when Mellon surveyed more than 100 key executives last year about what constitutes an ideal shareholder services provider, 90 percent of respondents cited responsiveness and accuracy as the key attributes. Less than 25 percent said the ideal provider was the one charging the least.
In the best of all possible worlds, of course, quality and cost savings go hand in hand. ‘Our sense is that there’s a fairly significant amount of interaction with shareholders and transfer agents that isn’t necessary and doesn’t provide value for anybody,’ comments Clark. ‘If we could do a better job of simplifying this business and communicating with shareholders, the shareholder would be more satisfied and costs would come down.’
One potential area for improvement is the overly complicated legal language. By ensuring documents are written in plain English and striving to simplify the requirements, especially when small sums are involved, a transfer agent can save the issuer money and the shareholder aggravation. Mellon is currently working on reviewing its documents and analyzing which requirements make sense and which could be modified.
Whether quality improvements come from high-tech new services or more user-friendly documents, corporate secretaries are adamant that what they want from their transfer agent is a smooth, hassle-free relationship. ‘The real key is service,’ concludes Weston. ‘If you ask any corporate secretary, that’s what it boils down to.’
