March 5, 2009
DWAC Fees
What’s the scoop?
If you regularly visit our website, you may have noticed a number of discussions recently in our Q&A Discussion Forum regarding a topic that is impacting many of our issuer members and gaining the attention of others in the industry–DWAC fees. DWAC is the acronym for Deposit/Withdrawal at Custodian and is the method used to request the movement of shares to or from an issuer’s transfer agent electronically to a shareholder’s account i.e., in the event of an ESPP purchase, restricted stock release or an option exercise. There is a fee associated with these events, but a fee to what party has typically varied. Often times this fee has been passed on to the broker by the transfer agent who has then absorbed the cost on behalf of the corporate client or weaved the cost in the client’s service related fees.
It seems that, contrary to past practice, a number of brokerage firms have started passing the transfer agent’s DWAC fees on to their corporate clients, which is the origin of this topic in our Q&A Discussion Forum. The reason for this change in practice isn’t entirely clear; it might involve an increase in fees by the transfer agent, the state of the current marketplace or just a change in practice.
Fees, fees and more fees!
Fees for each DWAC transaction can range from $25 to $100. This can become a fairly sizeable amount, especially when stock activity is abundant. It only takes one transaction each business day in a one-month period to incur approximately $1,000 ($50 assumed DWAC fee * 20 business days) in DWAC fees–for just that one month. One member indicated that they recently received an invoice from their transfer agent in the amount of $5,200 for 104 DWAC transfers; a high price to pay by any party for this process.
Possible alternatives
In light of this change in practice and in lieu of using the DWAC system, some of our members have indicated that they will begin using the Direct Registration System (DRS), or have stock certificates sent to their captive brokerage firms on behalf of their shareholders. The DRS system works virtually the same way the DWAC system does, but without the exorbitant fees mentioned here. For more information regarding DRS, take a look here and and here.
Final thoughts
It remains to be seen what best practices evolve in this area in the days and months to come. Will companies look to the alternatives recommended above or is this just a whole lot of hype that will go unnoticed as time passes? Whatever the outcome, the flurry of discussions on this topic in our Q&A Discussion Forum is evidence that any changes in past practice by a service provider, where additional fees might be incurred by the corporate client, should be delivered with care.
If you aren’t currently utilizing our Q&A Discussion Forum to seek out answers to your questions, network with colleagues, or just share information, I encourage you to reconsider this. I guarantee that many of the topics on your mind are likely addressed, or can be addressed, in a discussion topic in the forum–just one more way that you can take advantage of all that the NASPP has to offer today!
New Compliance-O-Meter: Reconciling Stock Plan Balances
We’ve posted a new Compliance-O-Meter quiz on reconciling your stock plan balances. Take the quiz today and find out how your procedures stack up against your peers. It’s only five easy questions–you’ll be done in less 10 minutes!
-Robyn