The trade group representing stock transfer agents and Broadridge
Financial, the world’s largest proxy mailing firm, are still coming to
blows over just who would be cheaper to mail proxy materials to
“Street-name” shareholders.In the latest salvo, the Securities
Transfer Association has just come out with yet another study to prove
that corporations are spending too much money sending their proxy
materials through Broadridge. Its answer: rely on a “market-driven”
solution – notably transfer agents which already provide recordkeeping
work for registered shareholders.
The STA’s study is aimed at persuading the Securities and Exchange
Commission, now studying how to change the “proxy plumbing” process, to
allow corporations to send proxy materials directly to Street name
shareholders instead of through their brokers and banks.
Doing so will open up the proxy mailing process up to competitive
bidding – issuers can pick who they want. Such a scenario would reduce
the costs of distribution, the STA claims. Broadridge’s response: it can
do the job better and at a lower cost than anyone else.
The STA’s study released earlier this week is the second one done by
the STA. A previous analysis which came to similar conclusions was done
with a far smaller pool of invoices. The STA’s new study of 20 invoices
sent to issuers by Broadridge showed that companies could save an
average of 42 percent for distributing annual meeting materials based on
a study of twenty companies.
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 claimed. A full copy of the survey
can be found on
http://www.stai.org/pdfs/sta-survey-proxy-processing-costs-10-3-11.pdf.
“The latest survey by the STA consists of twenty imaginary prices for
services it doesn’t offer, has no idea how to perform, and would never
have to deliver,” says Chuck Callan, senior vice president of regulatory
affairs for Broadridge in a statement to Securities Technology Monitor
on Friday morning. “The STA continues to dodge requests to disclose its
rate cards. Its data does not reconcile to any published rates.”
Callan went on to say that although the STA has been interested in
providing proxy distribution services for Street-name shareholders that
are better, faster, cheaper and more accurate than competitors “its
interest is free from any commitment to write the check.”
He suggests that the “market-rates” for proxy mailings to Street name
shareholders could come out to be far higher than the regulated rates.
The reason: a study conducted by Compass Lexecon, an economics
consulting firm on behalf of Broadridge which examined over 12,000
invoices for “actual work performed,” showed that the market-based rates
issuers pay Broadridge for delivering proxies to registered shareholders
are “substantially higher” than regulated rates for sending proxies to
Street-name shareholders.
Transfer agents distribute proxy materials to shareholders who are
registered directly with a public company. These agents compete with one
another to provide these services to more than 12,000 public companies
in the United States. Broker-dealers and banks are responsible for
distributing proxy materials to so-called “Street name” shareholders who
hold their accounts in the name of their financial intermediaries.
Instead of doing the work on their own, they hire Broadridge to do it
for them.
However, the bill is paid by corporations who don’t have a say in who
the broker-dealers or banks select. The fees charged by Broadridge for
these services are currently established by a regulatory fee structure
approved by the U.S. stock exchanges and the SEC.
The STA says that its recent survey included companies with as few as
110 shareholders to more than 2 million shareholders. The savings ranged
from 13 percent to 80 percent for all of the invoices except one. The
STA says that the only invoice which didn’t show any savings involved a
company with 110 shareholders. The “average transfer agent price” was
$133 higher than Broadridge’s quote.*
“These results show that a proxy processing system subject to
competitive market pricing is significantly less expensive for public
companies than a system in which prices are established by regulatory
rules.,” said the STA.
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 percent in potential cost savings for companies
with 5,000 or more owners.
The STA also says that its 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. “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,” says the STA.
