Transfer Agent

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.

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 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.

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. 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.

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, 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.

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.