Transfer Agents to SEC: Eliminate Suppression Fees
June 17, 2010
The Securities Transfer Association has asked the Securities and Exchange Commission to help eliminate the fees which issuers are charged by broker-dealers and their proxy distribution agent Broadridge Financial Solutions to suppress the mailing of proxy materials to investors who place funds into separately managed accounts.
“The practice of charging issuers for not communicating [to the holders of such accounts] results in the unnecessary diversion of many millions of dollars each year to intermediaries that otherwise would be used by companies to benefit their shareholders,” wrote Thomas Montrone, chairman of the proxy communications committee of the STA, the trade association representing transfer agents, in a June 2 letter to SEC Chairman Mary Schapiro.
A copy of the letter was obtained by Securities Industry News late Wednesday. Montrone is also president of transfer agent Registrar and Transfer Company in Cranford, N.J.
The separately managed account business operates on the premise that the high net-worth individuals who place $100,000 or more into these accounts want specifically to have the funds managed for them, by experts, on a custom basis. As part of the arrangement, their fund managers can suppress the sending of notices to the account holders, since they are the parties managing the accounts.
Calling the “suppression fees” unreasonable, the STA estimated that issuers of corporate notices may have been charged $50 million or more in 2008 and as much as $40 million in the first four months of 2009 by brokers for not providing issuer communications to investors in SMAs.
Transfer agents are hired by corporations to administer the accounts of registered shareholders who hold shares in corporations on the books of issuers in their own name. An estimated 85 percent of all shareholders in the U.S. hold shares in Street name – aka the name of their financial intermediary who is also responsible for ensuring clients receive proxy materials.
According to the STA, issuers may be billed as much as $1.06 per SMA account – a fee which has little relationship to the expenses which are actually incurred by either the broker-dealer or Broadridge Financial.
That fee reflects a basic processing fee of 40 cents, a suppression fee of 50 cents, an electronic voting fee of 6 cents and an intermediary fee of 10 cents for each shareholder.
Issuers who are taking advantage of the SEC’s “notice and access rule” could be charged an additional fee of 25 cents per SMA account.
That means that for some issuer the cost of not having brokers supply materials to individual SMAs may be as much as $1.36 per shareholder account.
The NYSE sets the maximum fees which broker-dealers may charge issuers for mailings of proxy materials. Most broker-dealers outsource their proxy mailing work to Broadrige Financial, the world’s largest distributor of proxy information. Broadridge then collects the proxy fees on behalf of the broker-dealers.
The STA claims that the New York Stock Exchange has taken the “informal” position that issuers may not be charged suppression fees for providing proxy communication services to holders of so-called Wrap accounts, where a brokers manages an investor's portfolio for a flat quarterly or annual fee which covers all administrative, commission and management expenses.
