Broker vs Stock Transfer Agent

Differences between online stock broker vs transfer agent for IRA or investing account. Computershare vs brokerage firm: which is better?

Overview of Stock Brokers and Transfer Agents

Although brokerage houses are commonly used to trade and hold stocks, they aren’t necessary to do so. Transfer agents can also be used. This article will look at the advantages and disadvantages of broker and transfer agent.

Four Ways to Trade and Hold Equities

In the United States, there are four primary ways that stocks can be traded, issued, and held. The first method is for a company to issue paper certificates. This is the oldest method and is still used today. The security, which can be a stock or bond, is registered in the name of the purchaser and the transaction is listed in the company’s records.

The second method is to buy a stock or bond through a brokerage firm. Under this scheme, the broker’s name, not the purchaser’s name, is listed on the company’s books. The brokerage house holds the security in “book-entry form.” This simply means that ownership of the security is listed electronically, because you don’t receive a paper certificate.

“Book-entry” might be a little misleading because there aren’t any actual company books anymore. Everything is done digitally now. This second form of registration is also called “Street Name” because of the broker’s role.

The third method of buying and holding stocks is to buy them directly from a company and let the company hang onto them. Called the “Direct Registration System,” this method registers securities in the purchaser’s name on the company’s books. The stock in this case is held in book-entry form, so it’s a hybrid of the first and second options.

The fourth and final method is also a form of direct registration, except that the purchase goes through a transfer agent, who holds the security in book-entry form after the transaction.

Functions of a Transfer Agent

Transfer agents help corporations keep tabs on who owns their bonds and stocks. Often a transfer agent is a bank or trust company. But a company can act as its own transfer agent.

There are three primary roles of a transfer agent. The first is to make updates to ownership and to keep a record of ownership changes. Transfer agents cancel and issue security certificates to note changes in ownership. If a corporation declares a dividend or stock split, the agent will issue new shares.

The second task of a transfer agent is to function as an intermediary between the company and its shareholders and bondholders. In this role, a transfer agent can perform many functions, such as distributing interest and dividends to security holders. An agent may also send out voting materials or other documents.

The third job of a transfer agent is to manage destroyed, stolen, or lost security certificates. For example, a “stop transfer” can be initiated to prevent ownership of a security being changed from one name to another if a stock or bond is lost.

Recommended Articles

Best investment firms for beginners
TD Ameritrade vs Vanguard
Top 10 brokerage firms

Transfer Agents Pros and Cons

Both transfer agents and brokerage firms have their own unique advantages and disadvantages. One of the primary advantages of using a transfer agent to buy and sell a company’s stock is that it may not charge any commissions. Another strength that direct registration offers is that if you are registered on the books of the company, you will receive communications directly from the corporation, instead of documents going through a broker first.

The disadvantage of direct registration is that the transfer agent may not execute an order at a specific time, and it may not accept limit orders, either. Instead, a transfer agent will usually execute orders at an average price once a day, week, or even month. This form of trading has less guarantee of price.

The primary advantage of choosing to hold securities in “street name” is that the brokerage firm holds all securities from all companies in one account. The brokerage house is tasked with safeguarding these electronic securities and sending out all documents from all securities.

Different companies may use different transfer agents; so if you had five stocks you might have to use five different transfer agents. This is a major weakness of not using a broker. Also keep in mind that not all stocks in the U.S. investment space can be purchased through transfer agents.

The Direct Registration System allows for the transfer of securities from one organization to another. For example, you can move stocks that are currently held at a company to a transfer agent or a broker. To do this, you would contact the entity you want to transfer to and start the transfer on that end.

Transfer Agent vs Broker

One popular transfer agent is Computershare (read ComputerShare review). It offers hundreds of stocks for purchase. Some of the stocks that can be bought directly through Computershare include AT&T, Wal-Mart, Exxon Mobil, Coca-Cola, Ford Motor, Verizon, IBM, and McDonald’s.

Computershare also provides a DRIP service free of charge. Some of the companies that provide dividend reinvestments through Computershare include American Express, Chesapeake Energy, Citigroup, Johnson & Johnson, Nestle, and Xerox.

Transfer Agent vs Broker

The minimum investment for some stocks is $50. For others it is $250. Yet for others it is $2,000. Some stocks allow for lower minimum subsequent purchases.

Some stocks purchased through Computershare may have an initial setup to participate. For example, Wal-Mart has an initial setup fee of $20. Ongoing automatic investments cost $1 each, and there is a $25 minimum for this service.

Computershare does not charge any fees for account maintenance or stock transfers. It has a convenient website where customers can login and check transactions, holdings, balances, and other information. It also issues account statements.

Read Computershare vs Ameritrade, Fidelity and Schwab.

Transfer Agent vs Broker Summary

Both transfer agents and broker-dealers have their own unique strengths and weaknesses. Which one is better typically comes down to how you want your securities managed. If you choose a transfer agent, keep in mind that costs can vary from stock to stock.

About the Author
Chad Morris is a financial writer with more than 20 years experience as both an English teacher and an avid trader. When he isn’t writing expert content for, Chad can usually be found managing his portfolio or building a new home computer.