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In 2008, Shareholder Service Solutions® spoke at a number of industry association gatherings - including the national meeting of America's Corporate Secretaries - and one subject we addressed that is frequently on people's minds these days is how to best choose an investor services provider. It is a topic that could fill many pages, but for our readers' convenience we have summarized our thoughts inside 12 short guidelines.
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This term in the stock transfer industry has to do with "lost shareholders," or investors on a transfer agent's books who have a) failed to supply an updated address to the transfer agent, b) lost track of these shares, or c) passed away, without the estate knowing the shares exist. Actually, searches for these holders happen by law (SEC Regulation 17Ad-17) very quickly after the investor becomes lost, but mandated checking against prominent databases - the primary tool for such searches - is often not enough to effectively find these people. When they are not found, their property (e.g., sup- pressed dividends, and the underlying stock itself) must be turned over to the state of last known address ("escheated"), usually three years after the holder becomes lost.
Deep Search is a service offered by enterprising specialist firms to find undiscovered lost holders before escheatment is required. These firms do not just look at databases, they go through a whole host of intelligent, thoughtful steps to successfully find these people, because they are paid only if they find them; and, they are also paid a percentage of what they find. The main advantage of Deep Search is many investors are, in fact, found before their property is escheated (a messy event to "unwind"); and, the share- holder rather than the corporation pays the discovery cost. A couple of caveats about Deep Search, however, are some firms that perform it can charge a lot (too much?), like 35% of asset value; and/or they can neglect the smaller shareholder because a percentage of his/her found assets do not add up to that much. Since Deep Search is a service frequently offered through the stock transfer agent, there can also be some referral fees collected by the transfer agent, to engage the Deep Search firm, which go "unrecognized" and can add up to real money.
Bottom line: corporations should embrace Deep Search as a valuable function within the share- holder services industry, while at the same time kicking the tires now and again of who is actually performing the work, how, and for how much.
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