8 Tips on Selecting a Stock Transfer Agent

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A transfer agent is a company or financial institution that helps manage securities recordkeeping duties for private and public entities. Transfer agents perform many functions, including but not limited to: ensuring compliance with the Securities and Exchange Commission (SEC) following an initial public offering (IPO) or private placement, company merger/acquisitions, processing stock splits, administering shareholder meetings, issuing or cancelling stock certificates, and stock transfers. With these professional services, a transfer agent makes it easier for you to manage your investor cap table.
Selecting the right transfer agent for your company is a critical decision that not only affects the level and quality of service you receive as the issuer, but also the satisfaction of your investors and their perception of your company. Choosing the right one can help in a variety of ways, while selecting the wrong one may lead to numerous problems: it may cause state and federal compliance issues, problems with your investor relations campaign, securities clearing and settlement issues with DTC and brokers, corporate action discrepancies with FINRA, or problems with IPO and securities offering closings. We’ve witnessed all of these with clients transferring over to our firm.
Larger transfer agents often cater to the needs of huge public companies, and subsequently have advanced and unneeded services and higher fees. In contrast, smaller transfer agents cater to medium and small companies, and most often offer lower prices and personalized services. You should think about what is most important for you and your company when selecting a transfer agent.
Many transfer agents employ automated attendants; however, they can be a hassle to work with. Live representatives provide you with more personalized, immediate assistance for your questions and needs. It is vital to gauge the quality of these reps; a polite and professional staff will be the most beneficial for your company and investors.
You should also factor in responsivenss, knowledge and accuracy – how quickly do they respond and do they do it accurately. You don’t want to waste time and energy with a company that doesn’t know how to serve you on a timely basis with what you need.
Finally, the most important component of customer service is to have an agent that is professional, one that makes you look good to your investors, bankers, and funding network.  These are your most important relationships, so you don’t want to go wrong here.  A professional transfer agent should have most of these items:
When deciding on transfer agents, opt for the one with a better service team. It is essential to have a trusting, reliable transfer agent that can provide consistent and high-quality customer service.
Don’t forget to ask the transfer agent about their experience in the field. How long have they been in business? Are they registered with the SEC?  If you find out that they have had SEC complaints filed against them or may have engaged in unethical business practices, you should strongly consider looking elsewhere. In order to determine this and the quality of their reputation, you should submit a request for references as well.
It is important to setup a good transfer agent contract that includes a full listing of their fees and the services you expect from them. Do they have a term length specified in the contract or large termination fees? We’ve had several clients that have tried to switch from agents that had termination fees in the tens of thousands of dollars because the transfer agents left the termination fees out of the agreement. Be mindful of the contract terms before committing to a transfer agent and do not hesitate to consult your legal counsel or a knowledgable consultant.
It is important to have good communication with your transfer agent. Just think if your transfer agent misallocated shares on a reverse stock split and awarded certain shareholders with incorrect amounts. We had a client that this happened to – we spent a lot of time correcting the mistakes with FINRA and DTC.
Ask tough questions. Remember, you are looking for the right transfer agent for you. Consider the following:
There may be other relevant questions to you and your business only – asking the right questions will help you decide on a transfer agent. Be detail-oriented, you will be happy later.
What services does the agent provide? Are they a crowdfunding transfer agent? Alternatively, are they good at managing employee plans or shareholder proxy meetings? Perhaps you need help with becoming DTC eligible, or completing DWAC/DRS transactions for important investors; or, maybe you need help issuing dividends to your shareholders. In addition, some transfer agents offer other services such as newswire distribution and EDGAR filings. Depending on the needs of your company, you may not need every one of these services. Determine what services you will need and whether the agent excels in them. You may want a unique transfer agent that specializes in privately company services. Research carefully, as some transfer agents may offer unique benefits.
It is important to understand the capabilities of the transfer agent by asking the right questions as presented earlier. In order to do this, we recommend inquiring different ways based on the volume and number of investors within company:
Using these methods will help you further organize and prioritize your goals and not only find an appropriate transfer agent, but first identify the qualities you desire in your future transfer agent, based on the needs of your company.
It is critical to have an agent who knows when changes in the industry and regulations are happening, one that will inform and help prepare you for compliance. An agent that does not notify you in advance or does not comply with regulations is putting you at risk. For example, under the JOBs Act, Regulation A was changed by the Securities and Exchange Commission (SEC) on March 25, 2015 to make it easier for companies to raise money up to $50 million from unaccredited investors under Tier 2 of the amended rules, also known as Regulation A+. A transfer agent who does not keep up with changes such as these may deprive their clients of a great opportunity to significantly grow and invest in new technologies. Similarly, rule changes such as the IRS cost basis reporting and DTC cusip eligibility fee are just as important; failure to address these rule changes could result in compliance issues, which puts your company at risk. Thus, an agent that stays atuned to the latest regulatory changes will be important to make your job easier and stress free.
Find an agent that will help you meet your needs and achieve your goals. For example, do you want an agent who caters to a certain type of client (ie, Fortune 500), or one that focuses on providing good service to smaller clients, or both? Are you a private company, looking to go public? If so, this requires services that may not be offered by every transfer agent. Weighing the benefits and drawbacks of each transfer agent may be critical to the success of your business. For example, some companies may emphasize the efficiency of their software, while others may pride themselves on their longevity or personalized service. What characteristics of a transfer agency will optimally help your company succeed? The answer to these questions will help you choose the right transfer agent that can assist you in accomplishing your personal goals.
Keep these tips in mind when you’re looking for a transfer agent to suit your needs. For more information about hiring a transfer agent, please contact Colonial Stock Transfer sales department at 877-285-8605, or complete this contact form.
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