Evaluating a Transfer Agent

Some of the considerations to think about when evaluating a transfer agent provider along with questions to ask about their capabilities.


Evaluating a Transfer Agent

A buyer’s guide to transfer agent services for alternative investment funds

By deciding to deal with a transfer agent, you’ve taken a big step ahead. Outsourcing transfer agent services, fund accounting, investor services, and other back-office functions so you can focus on sales and assets is a smart decision, but it should be done with caution.

It is impossible to stress the significance of choosing the right transfer agent provider. The most important qualities to look for in a transfer agent company, as well as the questions you should ask about their services, are listed below.

With the right transfer agent on board, fund managers may concentrate their efforts on acquiring assets that will provide the most value to investors.

Background and Experience of the Transfer Agent

Some transfer agent firms have significantly more relevant experience than others. Firms from various s may transition into the role of transfer agent. Some businesses offer transfer agent services in addition to their primary services, which may be in other industries. You should look for a transfer agent who has a lot of experience with alternative investment funds in particular. It should be their main priority. A transfer agent’s function in mutual funds and ETFs differs greatly from that of an alternative investment transfer agent. It’s a mistake to assume that simply because a transfer agent’s name is familiar with publicly traded funds means they’re knowledgeable with private fund transfer agent services. Furthermore, because a transfer agent is a difficult team-oriented function requiring cohesion and continuity, you should look for a transfer agent partner who has not been involved in a merger or acquisition in recent years.

Questions to ask a transfer agent about their experience and background:

  • How long have you been working as a transfer agent?
  • Did you start out as an alternative investment fund transfer agent?
  • Have you worked with a number of asset classes and fund types?
  • Are you primarily a transfer agent for publicly traded funds?
  • Have there been any mergers or acquisitions in the recent few years?
  • Could you provide me some guidance on how to choose the best transfer agent for my funds?
  • Are you a Securities and Exchange Commission (SEC) registered transfer agent?
  • Have your transfer agent process controls been subjected to a SOC 1, Type II audit?

The importance of a transfer agent’s background:

  • Alternative investments are a distinct environment in which transfer agent experience is critical. There isn’t a lot of standardization here. Experience counts a lot in the world of transfer agent services.
  • The position of alternate investment transfer agent is unique and involves challenges requiring learned experience.
  • Transfer agents communicate with broker-dealers, RIAs, wire houses, clearing firms, custodians, data aggregators and other industry participants. Understanding these players and how they interact effectively comes only from years of experience.
  • Based on their experience, your transfer agent partner should be able to advise you on back-office best practices for your specific fund type.
  • Transfer agent companies that have been purchased or are in the process of being acquired can spend years transitioning to new systems, organizational structures and corporate cultures to the detriment of client service.

Integrated Services Beyond Transfer Agent Services

Your transfer agent partner will be in charge of all of your important investor information. It can be quite helpful to be able to integrate additional back-office services with this single vendor. A transfer agent firm that can manage all fund data and back-office procedures can help with compliance, data security, uniformity and timeliness of deliverables while controlling costs. Is the transfer agent company you are considering capable of offering a full range of back-office services? Even if your current transfer agent needs are modest, now is the time to think about how they might change as your funds grow and your plans change.

Questions to ask a transfer agent about additional integrated services:

  • Do you provide services such as fund accounting, investor services, cash management, tax services,  printing and fulfillment in addition to transfer agent services?
  • Do you have a website that investors and financial advisors can access for account information?
  • Can you handle all investor communications via mail, email, phone and the internet?
  • Do you manage capital calls and proxy voting?
  • Do you print your own checks, statements, notifications and other deliverables?
  • Do you have any referral partners for banking, valuations, auditing or other services?

Why are additional services integrated with transfer agent services important?

  • The more third-party service providers you have in addition to your transfer agent, the more likely you are to experience communication issues, misunderstandings and delays.
  • You can save a lot of money by combining transfer agent and other services with a single partner.
  • Frequent exchange of sensitive data among various service providers beyond your transfer agent jeopardizes data security.
  • Coordinating the work of numerous suppliers is more difficult than managing a single full-service transfer agent relationship for all back-office functions.

The Transfer Agent's Service Flexibility

Your transfer agent should be able to set up your fund and provide services according to your demands, workflow and business strategy. Your fund’s structure, asset class, fundraising strategy and operational procedures are all unique. It’s vital to have a transfer agent solution that is tailored to your needs. You shouldn’t have to work around the preferences of the transfer agent.

Questions to ask a transfer agent about the flexibility of their services:

  • Will you be able to set up my fund to meet all of the requirements of the fund formation document (PPM/LPA/LLC )?
  • Would you be willing to work with me and/or other parties to solve unique transfer agent problems?
  • Do you have the ability to customize my investor statements?
  • Do you have the ability to brand my investor web portal to match my website?
  • Is it feasible to customize the reporting output for different audiences?
  • Is your fund accounting team up to the task of dealing with a complex waterfall?
  • Do you have the ability to adjust transfer agent solutions to changes in our strategy, structure or investor type as they occur?

Why is a transfer agent’s service flexibility important?

  • Your transfer agent partner is there to alleviate your back-office stress, not to make you conform to their requirements.
  • Your transfer agent’s service and output communicate your brand to investors, advisors and others in a variety of ways. You should have complete control over how your fund is represented.
  • Even if your fund formation document has unusual or complex characteristics, your transfer agent processes must follow them.
  • As time goes on, you may desire to shift your investment strategy, asset classes or investor types, which may necessitate different sorts of transfer agent support. Will your transfer agent be able to service any subsequent fund you decide to launch?

An Important Partnership

If you were building an in-house transfer agent team, you would hire people who possessed all of the traits of a top-tier transfer agent provider. The answers to these questions will assist you in determining whether a provider you are considering is qualified, prepared and eager to be your ideal back-office partner.

There’s more to consider in Part 2 of the transfer agent buyer’s guide. Learn what questions to ask when contemplating transfer agent support for your fund.

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