» Downside of DRiPs - Dealing with the TA DIY Finances: Take control of your finances.

Posted in March 22nd, 2006

Warren Buffett warns of frictional costs coming between investors and their money. Too many middle men taking a small piece of the pie until there is nothing left for the investor. The classic line “Where are the customers’ yachts?” is the perfect example of how the middle men are all getting rich while the investor - who takes all the risks - is still poor.

Being cost conscience, I am an avid dripper. I buy stocks directly from the companies (or should I say, their transfer agents) at no direct cost to me. For example, I can send $100 to Bank of Nova Scotia. At the end of each month, they will buy me as many shares as my $100 will buy - and that includes fractional shares. So my whole $100 is working for me. Sounds great, right?

Well, it is great! But there is a downside. Transfer agent incompetence. I have had many incidents in the past where my optional cash purchases were returned for one reason or another. It was never my fault - just incompetence at the transfer agent.

Here is my latest episode. I just recently transfered a share of Enbridge to my daughter and I am holding it in trust for her. So the share belongs to me in trust for my daughter. Enbridge uses CIBC Mellon as their transfer agent. When setting up your first optional cash payment (which allows me to buy more shares commission free), you must fill out a Participation Declaration form.

Normally, this is a fairly simple process. However, because the share is in trust to my daughter, I decided to phone CIBC Mellon and get advice on how to fill out my form. So, I phoned them, and a customer service representative helped me fill out my form.

Great! I am now all set to make an optional cash purchase on my daughter’s behalf. I send both the form and the cheque in just in time to catch this quarter’s purchase period.

Just today, I get a letter from CIBC Mellon. I opened it up, and there is my form and cheque back. The letter from CIBC Mellon states that I filled out my form wrong!!! Sigh. Transfer agent incompetence. Either the representative that helped me or the person that processed the payment is wrong.

Now, I have missed this quarter’s purchase period (unfortunately, Enbridge only allows quarterly purchases of shares). I will call CIBC Mellon tomorrow and find out what was wrong. I am wondering which CIBC Mellon employee didn’t know what they were doing. Either way, it is the investor that pays for their incompetence.

4 users commented in " Downside of DRiPs - Dealing with the TA "

Finance Junkie said,

in March 22nd, 2006 at 10:22 pm

I have over 10 drips. Of my drips, Bank of America is by far the worst offender. Before discontinuing my BAC drip, the transfer agent booked my transaction prices consistently well over that days highest trading prices.

Steamboy Dave said,

in April 2nd, 2006 at 5:38 pm

I used to think that, because TA’s were handling financial transactions and shares, they would be as reliable as banks. Once your money’s in there, the computers seem to do a good job. Don’t lose shares, calculate dividends and DRIP shares ok, etc. It’s the human end with the paperwork that seems to always have some little screwup - nothing that can’t be corrected but it makes you lose your confidence that everything will be taken care of.

Average_Joe said,

in April 2nd, 2006 at 10:35 pm

I agree. Once everything is set up, things seems to proceed very smoothly.

I called CIBC Mellon and the representative helped me fill out the form. Of course, this person filled it out differently than the last person. I do expect this OCP to go through the next time around.