“Let’s Not Get Physical:” Saving Big on Stock Transfers
A little investor education and a lot of determination to eliminate old-fashioned paper stock certificates are generating substantial savings for a number of brokerage firms and banks – and for their customers as well.
The firms are accumulating the savings by making sure that whenever their customers trade shares held in the paperless Direct Registration System (DRS), the shares aren’t converted into paper stock certificates as part of the stock transfer.
DRS allows shareholders to keep their securities registered directly with the issuing company or its transfer agent, so that no paper certificates are involved. If the shares are traded, however, they might be converted to paper certificates as a matter of course because many investors – and some brokers – are not aware of the electronic registration.
Savings Can Mount
By simply requesting a statement of ownership rather than an actual stock certificate, the firms save $32 on every transaction involving DRS shares. For companies serving a large investor base or doing a high volume of transactions, the savings can mount swiftly.
In April alone, for example, Wells Fargo Bank, N.A., saved more than $20,000 in fees by pushing to make sure that a high percentage of its withdrawals by transfer for shares in the paperless Direct Registration System stayed paperless.
“We made a conscious decision to educate our user base,” said Jane Washington, vice president and manager at Wells Fargo Bank. “We have a large employee benefit business, and we spoke with the plan managers to let them know about direct registration and the increased costs they would experience if they allowed paperless shares to be converted to physical certificates.”
Fewer Handling Costs
In addition to the fees they don’t have to pay for obtaining paper certificates, the banks and brokerage firms also save on handling costs.
“DRS statements are sent directly to the shareowner, so we are not handling physical certificates, arranging for their pickup or mailing and tracking receipts to insure that the certificates were received by the plan administrator or shareholder,” Washington said. “This greatly reduces our risk and lowers the cost over receiving and mailing physical certificates.”
“Getting a DRS statement is much faster,” added Linda Daher, managing director and head of securities processing at brokerage firm Piper Jaffray. “They can typically be completed within a two- to three-day timeframe, while the issuance of physical certificates can sometimes take as long as four to six weeks.”
Added Incentive
Piper Jaffray has also been working to educate its clients on DRS statements vs. the cost of physical certificates. It now routinely offers its clients the option of electronic ownership or physical certificates. The firm also provides an incentive for avoiding certificates. DRS statement transactions are free of charge to its clients, while the fees associated with issuing a physical certificate are passed on to clients.
The results since the beginning of 2005 have been clear. The volume of statements for electronic ownership has steadily increased. Early in the year, only about one out of ten of Piper Jaffray’s DRS withdrawals by transfer from DTC resulted in a statement rather than a certificate. Since March, however, the volume of DRS statement withdrawals from Piper Jaffray has been averaging roughly 25 percent.
Ultimately, Daher said, the firm’s goal is to help eliminate the issuance of physical certificates as the industry tries to move towards dematerialization. “We are launching a campaign to educate our clients on the benefits of electronic ownership, so that we can then gradually move to an electronic environment only,” she explained.
Piper Jaffray practices what it preaches. The firm’s first step as a publicly traded company was to join the Direct Registration System and list its own stock as eligible for electronic registration.
High Costs and Incentive
Wells Fargo’s Washington said the bank does not specifically track its volume of DRS statement withdrawals. “But we do pass the charge on to our businesses if they choose to receive a physical certificate on a DRS-eligible asset. The result is decreased revenue for the business…and an incentive for them to educate their clients.”
One company that seldom has to pay the extra costs for paper certificates is Temper of the Times Investor Services, a New York State-based firm that specialized in enrolling people in dividend reinvestment plans. In most months, more than 90% of its DRS withdrawal by transfer requests result in statements, not certificates. “We save time, trouble and money whenever possible by going paperless,” said John Stracquadanio, a Temper operations manager.
“These particular companies, and a few others, are standouts,” said Joe Clemente, DTC senior product manager. “Under present laws, physical certificates are sometimes a necessity. But by and large, firms are paying needlessly to have paperless DRS shares turned into physical certificates. For the industry as a whole, the bill this year will probably be more than $4 million. Most of that payment could have been avoided.”
Editor’s Note: For more information on how to avoid physical certificate fees, contact Joe Clemente at nomorepaper@dtcc.com, or call 212 855 2421. @