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July 23, 2020 at 05:36 PM
Advisors received further direction from the Securities and Exchange Commission on Wednesday when the agency set down supplemental guidance regarding advisor proxy voting responsibility, in addition to the rules that, according to the SEC, makes proxy voting “more transparent.”
The commission’s guidance for advisors, to become effective upon publication in the Federal Register, adds to fiduciary rule 206(4)-6 under the Investment Advisers Act of 1940 that relates to advisors’ authority to vote on proposals on behalf of their clients. The SEC stated that this guidance “will assist investment advisors in fulfilling their proxy voting responsibilities in light of these amendments to the solicitation rules under the Exchange Act.”
According to the SEC, the supplemental guidance should aid advisors in “assessing how to consider issuer responses to recommendations by proxy advisory firms that may become more readily available to investment advisors as a result of the amendments to the solicitation rules under the Exchange Act. This includes circumstances in which the investment advisor utilizes a proxy advisory firm’s electronic vote management system that ‘pre-populates’ the advisor’s ballots with suggested voting recommendations or for voting execution services.”
But as Cipperman Compliance Services saw it, “When you cut through all the regulatory-speak, the SEC wants investment advisors to stop allowing proxy advisory firms to pre-populate ballots. Instead, advisors should evaluate the substance of the proxy proposals and the registrant/issuer’s response without slavishly hitting ‘send’ on the pre-populated automated ballot.”
The Investment Adviser Association wasn’t happy with the outcome, according to Karen Barr, president and CEO, “While the final proxy voting rules and new guidance adopted by the SEC [Wednesday] have been modified from the initial proposal in response to widespread criticism — including from the IAA — we continue to believe that the SEC’s actions represent bad policy. They represent a major step backwards for corporate governance and will make it more difficult for investment advisors to use the services of proxy advisory firms to fulfill their proxy voting responsibilities on behalf of their clients.”
Although the SEC has been trying to be more transparent the last few years, says Trina Glass, an attorney with the law firm Stark & Stark, the guidance might have made things more difficult: “Advisors will be on a constant hunt for information that would impact how they vote proxies,” she told ThinkAdvisor. “For example, if an issuer files additional information, prior to the submission deadline, the advisor is reasonably expected to consider that information prior to exercising its voting authority. Failure to do so may also be the advisor’s failure to vote in its client’s best interest.
“However, just because the issuer files additional information doesn’t mean that information is useful, presented fairly or complete. The advisor would also need time to reasonably consider and analyze the new information and determine whether it impacts their vote. Without assurances that the advisor would have reasonable time to evaluate all the information in my mind may also jeopardize the advisor’s ability to vote in the client’s best interest. That is problematic.”
