Transfer Agent

A transfer agent is a trust company, bank or similar financial institution assigned by a corporation to maintain records of investors and account balances. The transfer agent records transactions, cancels and issues certificates, processes investor mailings and deals with other investor problems (e.g., lost or stolen certificates). A transfer agent works closely with a registrar to ensure that investors receive interest payments and dividends when they are due and to send monthly investment statements to mutual fund shareholders.

When an investor purchases a security, the new owner is issued some form of a certificate and most certificates are now issued in book-entry form. Rather than invest the time and expense to issue physical securities, book-entry securities record ownership electronically and a transfer agent issues and cancels these types of certificates.

Different investments issue book-entry securities in different forms. Bonds, for example, are issued at a face amount of $1,000 and in $1,000 multiples, while stocks are issued in shares. In addition, unit investment trusts are sold in units, and mutual funds are issued in shares, and the transfer agent processes all of these securities.

Owners of common and preferred stock have the right to vote on major corporate decisions, such as a merger or company sale, and the transfer agent sends proxy information to shareholders so that they can vote their shares. The transfer agent also sends the annual report to shareholders, which includes the company’s audited financial statements.

At year-end, the transfer agent and registrar work together to send federal tax information to investors, including dividends and interest paid, along with reporting on security trades during the year.

Investors receive several types of distributions and the transfer agent pays those distributions based on the records kept by the registrar. Interest payments are sent to bondholders, and these investors also receive the face amount of their bonds when the bond issue matures or is called by the issuer. Stock investors, on the other hand, receive cash dividend payments when the company generates sufficient earnings and when a dividend is declared by the board of directors.

The transfer agent also sends shares to investors due to a stock split or when a stock dividend is paid to shareholders of record. If the company has a 3-for-1 stock split, for example, each shareholder receives two additional shares for every share they already own. On the other hand, when a 10% stock dividend is paid, a shareholder who owns 100 shares would receive another 10 shares from the transfer agent.

The primary difference between a mutual fund transfer and stock transfer is that mutual fund shares do not involve physical certificates, whereas stock shareholders may demand a physical certificate. Therefore, mutual fund transfers are limited to recordkeeping in the transfer agent's computer system. 

Mutual fund transfer agents perform many important tasks, like keeping record of shareholders' accounts, overseeing dividend payments, and responding to shareholder requests for account statements, income tax forms, transaction confirmations, account balances and other information. Often, a shareholder service department that is part of the transfer agent will maintain customer relations. The registered transfer agent a mutual fund employs can generally be found in a mutual fund prospectus.