Welcome to Financial Advisor IQ


Explainer: What Are Sub-Transfer Agent Fees?

By Crucial Clips     November 4, 2015
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: Ignites, Nov. 4, 2015 

What are sub–transfer agent fees?

Fees paid to broker-dealers for shareholder servicing have generated a lot of buzz in the asset-management industry, thanks to a Securities and Exchange Commission focus on such payments.

Before we take a closer look at the fees and why regulators are so interested in them, let’s start with what transfer agents do and how their function has changed over the years.

Transfer agents (or TAs) serve as a fund’s recordkeeper, keeping track of investors’ purchases and sales, and moving the monies associated with those transactions in and out of the funds.

The transfer agent also calculates and distributes dividends and capital gains to shareholders and oversees the preparation and distribution of account statements and other materials sent to its fund shareholders.

The role of the transfer agent has changed as more investors work with advisors, which means that they buy funds through intermediaries, and not directly from the fund company.

With this shift came the rise of so-called omnibus accounting. Here, an intermediary, such as a broker-dealer or RIA custodial platform, aggregates all of the purchases and redemptions it receives in a day from individual shareholders and sends one big trade to the fund.

In this structure, intermediaries also take on some of the shareholder services that transfer agents once provided, and they want to be paid for this sub-TA work.

So why do regulators care about these fees? Fund firms can pay intermediaries for recordkeeping with fund assets, but there are limitations.

The SEC became concerned that some of the fees funds pay intermediaries for shareholder services are actually being used to further sales, which is not allowed.

But fund companies pay distributors for all types of services, and the accounting of those costs is not always clear.

The SEC began looking more closely at these fees and their related services in 2013, and agency officials said in the first half of 2015 that they expect to bring enforcement actions against firms that have broken the rules.