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 his or her 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 works 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 liaising between a company's registrar and an investor.
  • Transfer agents closely maintain an investor's account balances, and electronically maintains 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.
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Transfer Agent

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

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 sends 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 and interest paid, along with data on security trades executed during the year.

How Funds Are Distributed

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. On the other hand, when a 10% stock dividend is paid, the transfer agent would issue another 10 shares to shareholders who own 100 shares.

Mutual Fund Transfer Agents

Mutual fund transfer agents differ from stock transfer agents, in that the former never issue physical certificates, where 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.

[Important: 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 transfers agent will accept the transactions.]