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Regulation and Compliance > Federal Regulation > SEC

Retail Investors Overwhelmingly Support Proposed SEC Proxy Changes: Survey

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The percentage of U.S. retail investors who support increased Securities and Exchange Commission oversight of proxy advisors has grown even larger, according to a new study released Friday by wealth management research specialist Spectrem Group.

Seventy-five percent or more of the 5,000 retail investors polled online Nov. 13-21 supported many of the specific amendments proposed by the SEC, Spectrem said in its latest white paper, “Reclaiming Main Street: SEC hears retail investors’ cries for proxy advisory oversight.”

The study provided an update on the views of retail investors about proxy advisors and shareholder proposals from a previous April 2019 survey by the firm. The new survey results reflected “heightened awareness and apprehension among respondents,” according to Spectrem.

In November, SEC commissioners approved several proposals affecting proxy voting practices included in Section 14A-8 of the Securities Exchange Act of 1934, raising the requirements for submissions and therefore limiting them. The proposals are out for a 60-day public comment period.

“Investors were asked both before and after the survey whether they support increased SEC oversight of proxy advisors,” the new Spectrem report says. “At the onset, nearly two thirds of respondents indicated their support; by the end, that share increased by 12 points,” it notes, adding: “This shows that the more investors learn about proxy advisors, the more they support reasonable regulations of the firms. Of the rules proposed by the SEC, investors are most supportive of requiring proxy advisors to disclose conflicts of interest, and of requiring them to post a hyperlink directing investors to a written statement addressing the proxy vote advice, to allow companies to respond to the proxy advisor reports.”

At the start of the new survey, 69% of the retail investors supported increased SEC oversight of proxy advisors broadly, according to Spectrem. Following the survey, that support jumped to 81%, it said.

Among the other key findings of the new study was that 90% of retail investors supported disabling robo-voting when a hyperlink to additional information is included in proxy advisor reports. Meanwhile, retail investor support for the SEC’s shareholder proposal amendments was 68% or higher, with investors at least twice as likely to indicate they expected to engage more with companies as a result of the changes, Spectrem found.

Other findings of the survey included: 79% of retail investors supported the SEC’s new proposed rule requiring proxy advisory firms to give companies an opportunity to review and provide feedback on advice before issued; 78% supported the proposed rule to require proxy advisors to disclose conflicts of interest; 75% supported the proposed hyperlink rule; 77% supported the proposed rule requiring shareholder-proponents to provide their identity, role and interest when submitting proposals; 73% supported requiring shareholder-proponents to meet with companies to discuss proposals; 71% supported the proposal to limit proposals to one per shareholder; 68% favored increased thresholds for resubmission of previously failed proposals; and 72% supported modernizing criteria requiring shareholders to own higher amounts of shares for longer to be eligible to submit proposals, the firm said.

In addition, respondents who were aware of proxy advisors increased from 50% in April to 57% in November, while 47% were familiar with the issue of robo-voting, up from 39% in April; and 80% were concerned (35% said they’re very concerned) with robo-voting guided by pre-determined “custom policies,” according to Spectrem.

The most significant change since the April 2019 survey was the growing awareness by retail investors of the issues and flaws of proxy advisors, Spectrem said.

“As the research shows, the well-being and success of their investments, which they have entrusted to money managers and institutional investors, is incredibly important to retirees and ordinary investors,” according to George H. Walper, Jr., Spectrem president. “They are not only aware, but actively concerned about the impact of proxy advisory firms and their practices, and rely upon the SEC to implement the proper rules and procedures to safeguard this wealth,” he said in a statement.

The new survey was again designed in collaboration with J.W. Verret, board member of the SEC’s Investor Advisory Committee. The findings represented a “true measure of investor sentiment and clearly show that mom and pop investors support the Commission’s attempts to protect the value of their investments,” he said in a statement. It’s “critical that the SEC hears more of these voices, and that the general public and retail investors have their say in how additional oversight of proxy advisors is incorporated into the regulations that protect them and their investments,” he added.

Supporters of environmental, social and governance focused investing have criticized the proposals, saying tighter proxy voting rules would make it harder for shareholders to push companies to improve their practices.

Respondents to the survey were required to be at least 19 years old and have at least $10,000 in assets in any combination of stocks and bonds, mutual funds and exchange-traded funds held in various types of accounts, including 401(k)s and other defined contribution plans, advisory accounts, brokerage accounts, IRAs and other similar investment accounts, Spectrem said.

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