Direct Stock Purchase Plans Explained


Investing can be confusing business, especially when you’re just starting out. But the good news is that if you’re starting early and have a long-term investment strategy you’ve got time on your side. With a direct stock purchase plan, your investment dollars can go a lot further.

First, the sooner you begin the more time you have to learn your way around terms such as “sales load” and “hard dollars.” The former is another way of referring to a sales charge. The latter is fees paid for services by a brokerage firm.

Second, people with a long-term investment plan can take better advantage of skipping the middleman, at least on some transactions, and buying stock almost directly. A stock transfer agent makes it possible.

Stock Transfer Agents are Closer to the Source

Most publicly traded companies use transfer agents. Some use outside or third-party agents, such as banks, and some act as their own agent.
According to the U.S. Securities and Exchange Commission, transfer agents are responsible for issuing and canceling stock certificates when they change ownership. They may also pay out interest and manage situations where certificates are lost or stolen.

You can open an account with some transfer agents. This account is similar to a brokerage account, but it’s called a Direct Stock Purchase Plan. As the name implies, this is a clever way to purchase stock from the company instead through a broker and skip the hefty brokerage fees.


The Top 2 Transfer Agents Have the Lion’s Share of the Market

There are numerous transfer agents, but two of them stand out with a much higher percentage of the market share than others. In 2014, Computershare / BMY Mellon took 32.6 percent of the market share. Coming in next was American Stock Transfer & Trust, with 22.91 percent.

After the top two, the numbers drop dramatically. Wells Fargo Bank came in with 4.7 percent, and Continental Stock Transfer and Trust was next with 3.09 percent.

You can identify other transfer agents through the Securities Transfer Association, , which is a professional association of transfer agents. If a company offers a direct stock purchase plan, you’ll find the information at their website that says so. If they don’t, there should be a statement to reflect that, as well.


Direct Stock Purchase Plans Aren’t for Everyone

Buying stock without a broker saves on fees, and that’s the biggest and most obvious benefit. Over the long term, that can add up to tremendous savings. For the patient investor with many years left before retirement, the downside of this type of investing has more time to level out and turn around.

Yes, there is a downside, otherwise everyone would always buy through a direct stock purchase plan and brokers would go out of business. One reason some people shy away is there’s so little control. When you use a transfer agent, you don’t decide when the buy is actually made — they do. By the time the buy happens, the price might be much higher, or perhaps a lot lower.

If you’re closing in on retirement fast, a direct stock purchase plan might hold too many uncertainties and have too many risks for you to consider. But if you’ve got time on your side, time is just the thing that can turn this thrifty stock purchasing strategy into one that could add considerable bulk to your retirement plan over the long term.

How prepared for retirement are you?  Spend a few minutes with a retirement calculator and decide whether you might have enough wiggle room in your budget for a direct stock purchase plan.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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