The Securities Transfer Association (STA) released a study, 2011 Transfer Agent Survey to Estimate the Costs of a Market-Based Proxy Distribution System, that evaluates the costs to public companies of beneficial owner proxy processing services over providing those same services to registered shareowners.
The study concluded that public companies could save more than 42% if proxy services were subject to free market competition instead using a regulated fee schedule. Savings ranged from 13% to 80% for companies.
The study evaluated 20 Broadridge invoices from large and small issuers, comparing them to prices currently offered by transfer agents to provide proxy services to registered shareowners. Additionally, the STA survey found:
- For companies with 5,000 or more owners, no individual transfer agent quote—including the cost of obtaining a list of owners from brokers and banks—exceeded the Broadridge invoice for the same number of owners;
- The cost savings were more significant as the number of owners increased, with an average of 50% in potential cost savings for companies with 5,000 or more owners; and
- As a group, these 20 companies could save more than $1.6 million in proxy processing fees, or an average of $80,081 per company, under a competitive market system.
The STA survey also documented more than $700,000 in unnecessary charges for processing proxy materials for individuals who typically do not receive annual meeting materials in broker-dealer managed accounts.
A substantial majority of these investors have delegated investment and proxy voting authority to an investment adviser. The STA’s stated position is that public companies should not be charged for any investor who elects not to receive annual meeting materials, pursuant to an account agreement with his or her financial intermediary. According to STA President, Charles Rossi,
This STA study is further confirmation that market-based pricing for proxy services is less expensive for public companies than fees set by regulatory rules. Not only are there cost savings for both small and large companies, but the potential savings are even more significant than even our STA members realized.
“This study highlights the many different pricing inefficiencies that are imposed on public companies in a regulated fee environment,” said Thomas Montrone, Chairman of the STA Proxy Communications Committee. “We need to introduce free market principles into the proxy processing industry, in order to generate cost savings for companies and encourage direct communications between our issuer clients and retail shareholders.”
The study was apparently conducted in an attempt to influence the SEC’s “proxy plumbing” initiative, which could include rules that establish competitive pricing for proxy services provided to investors who purchase shares through brokers and banks. Let’s hope the SEC reads and is influenced by the report. Unfortunately, the study doesn’t go far enough. More money could probably be saved and additional problems resolved if the SEC mandated a shift to direct registration.