Broadridge Financial: documentary evidence that charges are steep

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Broadridge Financial Solutions Inc updates

Broadridge Financial Solutions is probably the lowest-profile beneficiary of the US’s retail investing boom. It is the main distributor of shareholder documents, with about 80 per cent of the market. But that dominance is spawning a backlash.

More individual shareholders in more stocks means more proxies to mail out and more fees to collect. Americans opened more than 10m new brokerage accounts last year, a record, according to JMP Securities.

It does not matter if most of these materials end up in the trash. The money still rolls in. Broadridge made close to $5bn in revenue in its last financial year, a 10 per cent jump. Net income grew almost a fifth to $548m. Shares have almost doubled since the onset of the pandemic to give the company a market valuation of $20bn.

Its success has put the mundane business of investor communications in the spotlight. Companies and fund managers complain that Broadridge’s quasi-monopoly means its fees are too high. Broadridge charges a maximum fee of 25 cents per investor communication even as the move towards digital communications lowers operating costs. The Investment Company Institute, a trade group for the fund industry, wants regulators to step in.

The ICI has a point. US law requires public companies and funds to pay banks and brokerages to deliver stockholder communications. Yet they have no say in who the work is outsourced to. Broadridge’s practice of giving banks and brokerages a fee in exchange for business means there is little incentive for participants to shop around.

At the same time, the nature of the job — keeping track of who owns what — means only big operators can do it well. 

The $220m a year in “unreasonable fees” calculated by the ICI looks less outrageous if you divide it among US fund industry participants. The surge is a problem of success: the growth of individual stockholding in the US. But volume should push down unit costs, particularly for digital distribution. If not, Broadridge and the brokerages have a case to answer.

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