Last week the Securities and Exchange Commission’s (“SEC”) Division of Investment Management issued new guidance on proxy voting in the form of a Legal Bulletin (the “Bulletin”) containing, thirteen (13) frequently asked questions. The guidance reiterates the importance of an adviser’s fiduciary duty to its clients as it relates to how a proxy firm votes client shares.
Highlights from the Bulletin for investment advisers are:
- An investment adviser could demonstrate compliance by conducting a periodic review of sample proxy votes and an annual review of the adequacy of proxy voting policies and procedures
- Advisers are not required to vote every proxy; they and their clients have flexibility in terms of their proxy voting arrangements. However, “an investment adviser that assumes proxy voting authority must do so in compliance with the Proxy Voting Rule”
- In order to comply with the proxy voting rule an adviser has a duty to “adopt and implement policies and procedures that are reasonably designed to provide sufficient ongoing oversight of the third party in order to ensure that the investment adviser, acting through the third party, continues to vote proxies in the best interests of its clients”
- There are several considerations an investment adviser should take when considering retaining a proxy advisory firm. The Bulletin states “[advisers] should ascertain, among other things, whether the proxy advisory firm has the capacity and competency to adequately analyze proxy issues”
Please review the entire Bulletin to learn more about an investment adviser’s responsibilities in voting client proxies and retaining third party proxy firms.
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