For a long time, buying securities through a company’s transfer agent was an inexpensive way to own stocks. When broker commissions were not free, buying though a transfer agent was an economical way to get started and to grow one’s portfolio for several reasons.
First, fees to purchase and reinvest dividends were quite low, in many cases free. Secondly, one could get started with very low amounts of money, even as low as $100 or less.
This has changed.
Forever is a long time
I have purchased most of the stocks I own through transfer agents. I detail how I invest and how I have used transfer agents in “The Mechanics of Money (Part 3): How I Invest” here. It has been easy, simple, and inexpensive.
Now the bad news
Unfortunately, there is a new trend to institute or hike fees inordinately for investors who purchase or reinvest through transfer agents.
1841.
By comparison
We consider mutual fund fees of one percent to be too high, as nowadays there are many very low and even some no fee funds. Buying stock these days through discount brokerages now are very low cost, even zero in some cases.
It is sad to report that nowadays fees for purchasing stocks through transfer agents in many cases can reach five percent! This is five times the one percent benchmark of what we consider too high in mutual funds. In addition, fees of that amount are now becoming common for reinvesting dividends.
To be fair, the five percent fee is often capped once it reaches some dollar amount. But what this does is penalize the small investor, while having a negligible effect on high net worth accounts.
Transferring funds to a transfer agent to purchase stock in this situation now can often trigger some transfer agent fees. Selling usually always triggers sales commissions. Selling commissions paradoxically are usually lower than when selling through a broker.
Not Every Company
This deluge of fees is not the case for all companies, and transfer agents vary. Some companies served by transfer agents have a history of low or even no fees. It pays to do thorough research on fees prior to instituting a buy order.
1865. (Editorial comment: It’s better to be the fiddle player, I’d guess.)
Examples
Let’s look at two examples.
| Company | Initial setup fee | Per share processing fees |
| Exxon (XOM) | Company paid | Company paid |
| M&T Bank (MTB) | $10.00 | One Time Investment 5% $2.50 max Recurring 5% $2.50 max Per share processing $0.05 Dividend reinvestment fee 5% $2.50 max |
So for Exxon (Disclosure: long XOM), there are no fees to open an account, to purchase shares, and no fees to reinvest dividends in additional shares.
Other companies
Here is an example of another company, M&T Bank. An initial setup fee is common, so I don’t begrudge a minimal fee such as $10.00. However, to be assessed a $2.50 fee for every investment or especially for dividend reinvestment is galling. Since $2.50 is 5% of $50.00, it seems the intent is prevent investments of very small amounts. If that was the case, the policy be better stated as a $2.50 charge if investments are less than some amount, such as $50.00 or $100.00.
If buying through a broker, some commission would be paid on every purchase and sale. And $2.50 is certainly less than most on-line brokers.
Why This Is Happening
In many cases, the capability to purchase through the transfer agent and the dividend reinvestment plan (if offered), are financial products offered by the transfer agent itself, not the underlying company in which one wants to buy stock.
It seems the transfer agents are now are seeking to increase their revenue by instituting or hiking fees. Since there is rivalry between transfer agents, from time to time a transfer agent will poach a client (a company) from another agent, often on price. As a result, keeping costs low for the client company is an important goal for a transfer agent, so fees are assessed on the individual buying stock.
And
And one way to avoid the ongoing transfer agent fees is to make a one-time purchase, and instruct that dividends are to deposited in one’s checking account, foregoing dividend reinvestment.
1850.
Costs
Let’s look again at the M&T Bank example. As of this writing, shares are about $180.00 each. If I invested $1,000.00 for 5.5 shares, my costs would be as follows:
| Setup fee | $10.00 |
| Investing fee of 5% or $2.50 | 2.50 |
| Per share fee of $0.05 per share | 0.30 |
| Total, estimated | $12.80 |
Where does this leave us? If the entire fee on a $1000.00 investment is $12.80, that equates to a 1.28% cost. Still higher than the offensive mutual fund fee threshold of 1%.
What To Do
Never assume one method is the most inexpensive. Check everything.
Yes But, On The Other Hand
A different consideration is recurrence. Mutual fund fees are annual, namely every year fees are being assessed and deducted from your account, regardless of activity. On the other hand, purchasing stock through a transfer agent incurs fees only when a transaction occurs. So maybe there is a counter-balance to the increase in fees? I don’t think so….
Not so low
Even low- or no-cost brokers have high fees in some cases: try to close your account, transfer stock to another brokerage, or request to have stock registered in your name. Or see what happens when a company you own stock in goes through a “reorganization.” You will be unhappily surprised.
Who
Since Loyal 3 imploded last year, I have been wary of “free” online brokers. I often wondered if free online brokers can survive. I think it is time for me to revisit that opinion.
The quest continues.
What do you think? What is your view on using transfer agents, and what do you think about their fees? See Contact page to reply.
Perils of Whaling, drawn by Francis Allyn Olmsted, from “Incidents of a Whaling Voyage, to which are Added Observations on the Scenery, Manners and Customs, and Missionary Stations of the Sandwich and Society Islands,” 1841. Wikimedia Commons.
Cover illustration from “The Atlantic Telegraph 1865,” by Robert Charles Dudley. Metropolitan Museum of Art.
“View of the Procession in Celebration of the Admission of California, Oct. 29th, 1850, Crossing the Plaza of San Francisco”, lithograph by John Prendergast. Bancroft Library, University of California, Berkeley
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