There have been major changes in the transfer agents’ world of late.
Consolidation at the top end of the industry has led to major pressures on fees as the larger players jostle for position. Technology has taken a lot of the paper-based administration out of the business but led to new challenges related to system design and implementation.
And, just like everyone else in the financial world, transfer agents face a growing list of compliance requirements covering everything from money laundering regulations to provisions against falsification of records. Meanwhile, corporate clients are putting transfer agents under greater pressure than ever to provide high-quality service at lower cost.
Jack Sunday, CEO of Group Five, which conducts an annual independent survey of transfer agents, notes that industry consolidation brings a whole new set of challenges for the major players, as well as for investor relations professionals and corporate secretaries choosing an agent.
‘The big problem is fewer choices,’ he says, adding that he finds it hard to see any other new large players entering the US market in the near future. ‘Our survey tends to find that service is very good in the industry as a whole. But that means it is more and more difficult for transfer agents to differentiate themselves. The service is becoming more commoditized so the competition, in effect, comes down to price. There’s been a real pressure on fees in recent years.’
Indeed, Group Five’s latest study, published in October 2004, notes that clients have begun to take fees into account when judging their overall satisfaction with their transfer agent.
That may sound like a given, but it’s the first time the issue has been cited by respondents to the survey – and this in an industry that prides itself on extremely high levels of customer satisfaction. ‘These companies really have to run lean and mean,’ explains Sunday, adding that the leading players must be very efficient to stay one step ahead of the competition. ‘Everybody expects industry consolidation to continue, and that can only add to the pressure.’
Testing time
It is undoubtedly a testing time for the industry but Group Five’s study reveals that leading transfer agents are well positioned to cope with the increased burdens placed upon them. Many in the industry have adapted the technology to help provide quality assurance to both regulators and ustomers, while keeping costs under control at the same time.
Group Five’s 2004 survey includes responses from around 1,600 issuers, representing around 40 mn registered shareholders. The survey found that customers are most satisfied with such issues as the mailing of dividend checks on time, proxy mailing and tabulation, and account administrator responsiveness. However, they are least satisfied with matters such as telephone services to shareholders and the way in which shareholder complaints are handled.
In 2004 the Bank of New York received the highest overall score for client satisfaction for the third year in a row, a favorable rating of 92 percent. Mario Passudetti, managing director and senior product manager in the bank’s stock transfer business, says he and his colleagues have had to work particularly hard to stay ahead in the areas corporate issuers are most concerned about. He points to ways in which the Bank of New York has adapted new technology to keep a watchful eye on quality assurance issues – which helps ensure they are watertight on compliance issues.
‘Every piece of paper that comes into the register service is committed to image and indexed by shareholder account,’ explains Passudetti. ‘We literally build an ongoing dossier of the entire paper trail that might exist around an account holder’s holding.’ He adds that, by committing the paper to electronic imagery, he and his colleagues are much better placed for account retrieval and archiving purposes. That then feeds back into the ability to respond to shareholders, customers and regulators. It keeps costs under control, too.
Handling shareholder complaints is obviously a key concern for corporate issuers, most of whom want the small, administrative problems kept well out of their day-to-day work so they can get on with bigger strategic issues.
Thomas Richlovsky, head of investor relations at National City Corporation – which has its own transfer agent business – points out that what most issuers really want from their transfer agent is reliability and responsiveness: they want the transfer agent to handle problems, soothe concerns of shareholders and take all the administrative headaches away from the IR department or corporate secretary’s office.
‘The transfer agent is doing a good job if IROs never have to think about what the agent is doing,’ Richlovsky notes. ‘It only starts to be a problem if something is brought to the IRO’s attention.’
Passudetti prides himself on how his company has worked to keep shareholder complaints to a minimum. ‘We have an electronic referral system that links our call centers,’ he says, adding that if one staff member cannot deal with a particular issue it automatically gets routed on to those who have experience with such a problem. ‘The result is that we’ve probably got a much higher percentage of first-call resolutions than many of our competitors.’
The Bank of New York also conducts a survey of shareholders that have been in contact over the last month to find out whether they are satisfied with the service they have received.
‘If respondents indicate anything less than complete satisfaction, we really tear apart that issue and changes are made where warranted,’ says Passudetti. ‘We check whether we need to make procedural changes or reeducate our staff. There’s a real pay-off for attention to such quality and that’s been reflected in the results from the Group Five survey.’
Sunday acknowledges the Bank of New York’s commitment to customer satisfaction but points out that it will have a real fight on its hands to stay ahead of the competition in the years to come.
‘The Bank of New York continues to manage its stock transfer business effectively, focusing on both corporate client and shareholder service,’ Sunday says, but once again points to the threat of consolidation in the industry, coupled with its attendant impact on competition and fees.
He also points out that many leading transfer agents make their big money on M&A work and use that to subsidize their fees for the more routine work. That is all well and good when everything is rosy in the M&A world – but when that work falls away, as it has in recent years, the whole industry suffers. Still, with US M&A work on the rise once again Sunday predicts an interesting couple of years for the transfer agent industry.
