Broadridge Financial’s proxy ‘monopoly’ faces challenge from start-ups

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Start-up companies are moving to seize a slice of the lucrative business of distributing shareholder voting materials from Broadridge Financial Solutions, which for years has dominated the market in the US.

Broadridge’s services include emailing regulatory documents and counting shareholder votes on behalf of brokers. The company says it provides proxy services for about 80 per cent of outstanding shares in the US.

But new entrants are attempting to challenge its heft, hoping to exploit new technology and heightened interest in shareholder voting from small, retail investors. In its annual regulatory filing in August, suburban New York-based Broadridge added an item to its list of potential risks — “fintech start-ups and new market entrants”.

London-based Proxymity, which offers shareholder voting services and launched in the US late last month, said they are up against an “800lb gorilla in the room” in taking on Broadridge.

“We are expanding in the US, and you can’t make any inroads in the US without taking on Broadridge, because they’re the major player,” said Jonathan Smalley, Proxymity’s co-founder and chief operating officer.

Proxymity has attracted investments from JPMorgan Chase, HSBC and Deutsche Bank and in 2022 raised funds from Mediant, which Broadridge has identified as one of its few proxy service competitors.

New York-based Troop offers a shareholder activism tool via a mobile app that highlights hot-button environmental and social causes for people to vote on. The start-up has raised early-stage money from venture capital funds Northzone, BlockTower and Seedcamp.

Troop aims to work with asset managers, but has struggled to convince financial firms it can handle some of the proxy services offered by Broadridge such as delivering voting materials to fund investors, co-founder and chief executive Felix Tabary said. “The piping is all rolling up to one company,” he said.

“What is the cost to shareholders and investors to have such a big monopoly in this space?” he added.

New entrants are contending with an incumbent that analysts have said is difficult to unseat. While some of its business lines face competitors, Broadridge’s investor communications division has “a near monopoly”, said Rajiv Bhatia, analyst at Morningstar. “Broadridge really has been able to maintain its market share and I don’t see that slipping,” he said citing “client inertia” as a top reason for the company’s dominance.

Broadridge also offers a mobile app for retail investors to vote at companies’ annual meetings. Shareholders can link their accounts across different brokerages that are clients so people can vote seamlessly in one place, said Chuck Callan, a senior vice-president for regulatory affairs at Broadridge.

“We are trying to facilitate retail participation and make it easy for people’s voices to be heard,” he told the Financial Times. “We have proven ourselves to be an innovator in [this] area with things like the app and mobile proxy voting.”

Spun out of payroll processor ADP in 2006, Broadridge has benefited from the boom in electronic investing. People increasingly hold funds and shares through large brokers, which use Broadridge to keep track of shareholder data and send out required information about companies and funds.

Broadridge maintains there is competition in the market. In a 2022 letter to the US Securities and Exchange Commission, the company said its competitors include Mediant and Say Technologies, which was acquired by retail broker Robinhood in 2021.

But experts said Say was struggling to compete with Broadridge when Robinhood bought it.

Broadridge said it has about 1,100 broker clients. Mediant, its next closest competitor, worked with about six, Morningstar estimated in 2022.

Broadridge also says its size gives it a vital cyber security edge. “It is really important that the system performs well and that it works flawlessly every time,” Callan said.

Asset managers have long been frustrated with a lack of transparency over Broadridge’s fees. The Investment Company Institute, a lobby group for fund managers, has argued that a charge of 25 cents per email to send regulatory documents to investors is outdated, for example.

“It’s something people have just kind of accepted — like Microsoft Office,” said Eric Pan, ICI’s chief executive. “People are not 100 per cent satisfied by the system as it currently works, but even though there are new entrants they are not really viable alternatives.”

He said that unless one of the start-ups could convince a large asset manager or broker to take on the expense of switching completely to a new provider, it would be impossible for them to achieve the scale necessary to take on Broadridge.

“Being a start-up in any industry is hard, but in the case of proxy services I really don’t know at this stage how good their chances are,” Pan said. “These firms are innovative, and they’re attracting attention. If they create competitive pressure on Broadridge, it can only be a good thing.”