What exactly does a transfer agent do?

The transfer agent services provided by Phoenix American are part of a complete range of back-office services for alternative investment funds.


What exactly does a transfer agent do?

A transfer agent is a neutral third-party company that is required by law to process a stock transfer from one investor to another. Some corporations are required to hire a transfer agent due to the nature of their Securities and Exchange Commission registration. Other businesses are not obligated to hire a transfer agent, although they may do so because of the transfer agent’s independent status and the possibility of additional back-office services. Others, who are not obligated to hire a transfer agent, manage transfers themselves and act as their own transfer agent.

Who uses a transfer agent?

Many publicly traded firms, mutual funds, and private capital funds use a transfer agent to keep track of who owns their assets if they have a large number of investors. On behalf of the company, the transfer agent will enter new investment information into a transfer agent system, manage the investor database and keep investor profiles up to date. The transfer agent can then handle various back-office duties for the company. These duties may include paying distributions to investors, managing proxy votes and communicating with investors on behalf of the fund. These duties are simplified by the transfer agent system’s access to all investor information. A transfer agent may also process capital calls, pay sales commissions to financial advisors, produce K-1 or 1099 tax forms and provide online account access to investors in the name of the investment fund through an investor portal that draws data from the transfer agent system.

What Defines a Transfer Agent?

The Securities and Exchange Commission defines transfer agents as performing three primary functions:

  • Issuing and revoking certificates in order to reflect changes in ownership. When a company declares a stock dividend or split, the transfer agent issues new shares. Transfer agents keep track of who owns a company’s stocks and bonds and how they’re held: by the owner in certificate form, by the company in book-entry form or by the investor’s brokerage firm in street name. Transfer agents also keep track of the amount of shares or bonds that each investor owns.
  • Acting as a point of contact for the company. A transfer agent may also serve as the corporation’s payment agent, disbursing interest, cash and stock dividends, and other payments to shareholders. A transfer agent may act as proxy agent, distributing proxy materials; an exchange agent exchanging a company’s stock or bonds in a merger; a tender agent tendering shares in a tender offer; or a mailing agent distributing the company’s quarterly, annual, and other reports.
  • Taking care of certificates that have been lost, destroyed, or stolen. Transfer agents assist shareholders and bondholders when a stock or bond certificate is lost, damaged, or stolen.

In many cases, you may find out about a company’s transfer agent by going to the investor relations section on its website. You can also visit the website of the Securities Transfer Association (STA). The STA is a private trade group for transfer agents.

Transfer Agents of Various Types

A transfer agent can be a bank, a trust company, a stand-alone transfer agent services provider or a group within a corporation or investment fund that acts as the company’s own transfer agent. An in-house team can license a transfer agent system to boost their own efficiency without the licensor being the ‘transfer agent of record.’ Many investment funds utilize a third-party transfer agent even though it is not needed. A third-party ‘transfer agent of record’ satisfies the due diligence needs of sophisticated and institutional investors.

The Growing Use of Transfer Agents in Private Funds

Transfer agents used to have a limited part in the industry of private investment funds. For funds that were publicly registered with the SEC, an SEC-registered transfer agent was required. Typically, these were large funds with tens of thousands of unaffiliated shareholders. Private funds (private equity, venture capital, and private real estate funds, for example) had fewer investors and were less regulated, therefore they didn’t need a transfer agent. However, in recent years, the number of private equity fund investors has increased, investor-related regulatory requirements have been introduced and fee compression and cost pressures have compelled more private equity companies to use transfer agents. Sophisticated investors and institutions, such as pension funds, now demand that an investment fund under consideration use a transfer agent as a required element of operational professionalism.

Transfer agent processes are examined by a Service Organization Control (SOC) audit to ensure that the systems and procedures in place are correct and dependable. Many fund companies will request an annual SOC audit of their transfer agent to meet their due diligence requirements.

The Role of the Transfer Agent Is Expanding

Because a transfer agent is in charge of storing and maintaining a company’s most important data, the investor database, it’s not uncommon for them to provide extra services relevant to the investor experience. Fund accounting and reporting for the fund’s assets may also be provided, extending the transfer agent’s services to the complete back office of the fund. A fund administrator is a transfer agent who offers a variety of back-office services related to investors, assets and even sales teams.

The transfer agent services provided by Phoenix American are part of a complete range of back-office services for alternative investment funds. We provide full-service fund administration, fund accounting, transfer agent and investor services, as well as sales, marketing, and financial reporting to fund sponsors in the alternative investment industry. Since its beginning in 1972, as a sponsor of equipment leasing funds, Phoenix American has offered industry-leading transfer agent services and pioneered the evolution of the transfer agent role into full-service fund administration and back-office outsourcing.

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