Generally, investors get signature guarantees from commercial banks, savings banks, broker-dealers or credit unions. Although an inconvenience, signature guarantees protect shareholders by preventing unauthorized transfers and possible investor losses. They also limit the liability on the transfer agent who accepts certificates. Thus, it safeguards both the investor and the transfer agent.
Signature guarantees are essential to transfer ownership of registered securities.
Securities certificates, which are negotiable, and written instructions regarding disposition of securities, including mutual fund shares, can be forged. Because an issuer or its transfer agent cannot know the signature of all registered securities owners, it has to rely on the guarantee of a financial intermediary that the owner's signature is genuine. Under state laws, an issuer or its transfer agent may be liable if it transfers securities with a forged signature, even if it had no way of detecting the forgery. So to protect the issuer and the transfer agent, signatures on certificates are guaranteed by a responsible financial institution. In general, the financial institution guarantees that the signature is genuine and that the signer is the right and legal person to sign.