Transfer Agents: Definition, What They Do, Example, Benefits

What Is a Transfer Agent?

A transfer agent is a trust company, bank, or similar institution assigned by a corporation for the purposes of maintaining an investor's financial records and tracking each investor's account balance. The transfer agent records transactions, cancels and issues certificates, processes investor mailings, and handles a host of other investor problems, including reissuing lost or stolen certificates.

Transfer agents work closely with registrars to ensure investors receive their due interest and dividend payments in a timely manner. Transfer agents likewise oversee the mailing of monthly investment statements to mutual fund shareholders.

Key Takeaways

  • A transfer agent plays a vital role in acting as a liaison between a company's registrar and an investor.
  • Transfer agents closely maintain an investor's account balances and electronically maintain certificates of security ownership.
  • Stock transfer agents make sure shareholders receive dividend payments in a timely manner.
  • Bond transfer agents make sure bondholders receive their due interest payments, plus the face value of the bond, once it reaches maturity.

Transfer Agent

Understanding Transfer Agent

Traditionally, when investors purchased a security, they received a physical paper certificate. Today, transfer agents issue certificates in book-entry form—an electronic method of recording securities ownership that saves vast amounts of time and money. These book-entry securities vary depending on the investment.

For example, bonds are often issued in $1,000 multiples, while stock and mutual fund holdings are issued as shares. Meanwhile, unit investment trusts (UIT) are sold in block units. Transfer agents process all types of securities in book-entry form, in whatever necessary shape they must take.

It's possible to identify which transfer agent a company uses by checking out the investor relations section of its website.

Transfer Agent Responsibilities

Common and preferred stock shareholders have the right to vote on major corporate decisions, such as merger activities and the sale of companies. These votes are facilitated through transfer agents, who send proxy information to shareholders.

Transfer agents likewise furnish shareholders with annual reports, including companies' audited financial statements. And at year-end, transfer agents and registrars jointly send federal tax information to investors, including dividends information and interest paid, along with data on security trades executed during the year.

Distribution of Funds and Shares

Transfer agents pay distributions to investors, based on the registrar's records. For example, transfer agents send interest payments to bondholders, as well as the face value of their bonds, once they reach maturity. Similarly, transfer agents send cash dividend payments to stock investors once the companies they invest in generate sufficient earnings.

Transfer agents also send stock shares to investors after a stock split. If, for example, the company has a 3-for-1 stock split, each shareholder receives two additional shares for every share they already own.

If investors hold securities in their own names and wish to transfer or sell those securities, they may need to get their signatures guaranteed before the transfer agent will accept the transactions.

Mutual Fund Transfer Agents

Mutual fund transfer agents differ from stock transfer agents in that the former never issue physical certificates, whereas the latter must do so on shareholder request. However, mutual fund transfer agents perform many other important tasks, like maintaining records of shareholders' accounts, overseeing dividend payments, and responding to shareholder requests for account statements, income tax forms, and transaction confirmations.

Benefits of Transfer Agents

All shareholders are entitled to accurate information about their investments. While some corporations choose to act as their own transfer agents, other companies decide to use third-parties like trust companies, banks, or similar financial institutions. These companies receive fees for their services. 

These third-party companies specialize in providing transfer agent services and many corporations find the expense of hiring a third-party company well worth it. Transfer agents handle a detailed and challenging job, especially for large corporations with many shareholders. For example, it's not uncommon for a publicly traded company to issue millions of shares of stock. Someone has to keep all of the information relevant to those millions of shares in order.

It's part of the company's fiduciary responsibility to its shareholders to ensure that all investor records, account balances, and transactions are safeguarded and accurately tracked. Transfer agents fulfill this vital role in maintaining records and providing investors with timely and reliable information.

What is the difference between a broker and a transfer agent?

A transfer agent acts as a liaison between a company's registrar and an investor. A broker, on the other hand, acts as an intermediary between an investor and an exchange, buying and selling securities for its clients.

Who needs a transfer agent?

Publicly traded companies listed on a stock exchange need transfer agents to maintain records of shareholder accounts, calculate and distribute dividends, and keep investors up to date with what’s going on. Mutual funds and issuers of debt securities also rely on transfer agents for similar reasons.

How much do transfer agents make?

According to Glassdoor, the average total pay of a transfer agent in the U.S. is $52,854 per year. That’s based on an average salary of $41,323 and additional payments, such as bonuses and commissions, of $11,531. The range is quite wide, though. The highest-paid transfer agent could make up to about $89,000.

The Bottom Line

Companies use transfer agents to keep track of the individuals and entities that own their stocks and bonds. Most of the time they get these agents from third parties, such as trust companies, banks, or similar financial institutions.

The main duties of a transfer agent are to keep a record of who owns a company’s stocks and bonds, issue and cancel certificates to reflect changes in ownership, pay out distributions, and send useful information to stakeholders, such as annual reports and how to vote at meetings. The transfer agent essentially acts as a liaison between a company and its investors.

Article Sources
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  1. U.S. Securities and Exchange Commission. “Transfer Agents.”

  2. U.S. Securities and Exchange Commission. "Holding Your Securities - Get the Facts."

  3. U.S. Securities and Exchange Commission. ""Medallion Signature Guarantees: Preventing the Unauthorized Transfer of Securities."

  4. Federal Deposit Insurance Corporation. "Section 11- Role Of The Transfer Agent."

  5. Glassdoor. “How much does a Transfer Agent make?

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