Episode 56: Proxy Voting for Investment Advisers

On Episode 56 , we take a look at the SEC’s release on proxy voting for investment advisers.


CCO Buzz: Hello, and welcome back to the CCO Buzz! This week, on Episode 56, we will be discussing the SEC’s recently released new interpretative guidance on proxy voting for investment advisers. So sit back, relax, and listen to what our Compliance Consultant has to say on this recent release from the SEC.

Compliance Consultant: On August 21, the SEC released new interpretative guidance concerning the proxy voting responsibilities of investment advisers. Rule 206(4)-6 requires SEC registered investment advisers who retain voting authority to maintain policies and procedures to ensure proxies are voted in the best interest of clients. The SEC’s guidance further clarifies the responsibilities of investment advisers when it comes to proxy voting in the form of a question and answer format designed to clarify advisers’ responsibilities.

To start the SEC describes how the adviser and the client must agree upon the scope of the proxy voting services provided by the adviser and determine to what extent the adviser will vote proxies, all the while bearing in mind that the adviser has a fiduciary duty to act in the best interest of the client regardless of the degree of the proxy voting services the investment adviser provides. This may result in the adviser maintaining multiple agreements of varying scale depending on agreed upon proxy voting services. For example, the SEC describes instances in which the client may request the adviser only vote proxies under certain conditions, refraining from voting when the vote may create high costs for the client, or only voting on certain corporate events that are of interest to the client. Regardless of the nature of the proxy voting agreement, the SEC emphasizes “an investment adviser and its client may shape the voting authority through full and fair disclosure and informed consent, (but) we reiterate that an investment adviser that assumes proxy voting authority must make voting determinations consistent with its fiduciary duty and in compliance with Rule 206(4)-6.”

The SEC also explains that investment advisers need to consider whether maintaining a broad proxy voting policy will be in the best interest of all clients or if it is better for the investment adviser to create policies that are tailored to different clients, for example retail clients and institutional clients or clients in growth strategies versus income strategies, which are better suited for the investment objectives of each client or strategy type. Additionally, certain types of voting events may require more scrutiny than others. For example certain types of mergers and acquisitions may require the investment adviser to perform a deeper dive on whether the investment adviser’s voting (in light of the event) is consistent with its policies and procedures and fiduciary obligation.

The investment adviser should also be sure to review its proxy voting records to make sure that its proxy voting activities remain consistent with its policies and procedures and client agreements. An investment adviser should review its proxy voting policies and procedures no less than annually to ensure that the investment adviser continues to vote proxies in a manner consistent with its agreed upon services for its clients. These reviews should be documented and reviewed by senior management as well.

For investment advisers that rely on proxy voting advisory firms for guidance on voting and execution of proxy voting services, investment advisers should review the activities of the proxy voting advisory firms regularly. This could include looking at sample voting ballots prior to a vote, consideration of important additional information and potential conflicts of interest with an issuer or the investment adviser, and in some cases, a higher degree of analysis of the proxy voting advisor’s methodologies and analysis with respect to votes on certain types of events. Additionally, investment advisers should ensure that their policies and procedures are reasonably designed to consider a proxy voting advisor’s policies and procedures especially in mitigating and disclosure of conflicts of interest; acquisition of third-party information; and technology for purposes of conducting research and execution of votes. Additionally, investment advisers should consider what steps their policies and procedures outline in consideration of errors by the proxy voting advisor or votes that may have a material impact on the investment adviser’s clients or contradict the adviser’s policies.

Lastly, investment advisers need to be reminded that they are never required to vote a proxy if doing so would violate the terms of the proxy voting agreement with the client or if the vote would not be considered to be in the best interest of the client. In all of these circumstances, investment advisers need to ensure that they are documenting their decisions and findings, and ensuring that the actions they undertake will always be in the best interest of the client.

To summarize, investment advisers need to ensure that their proxy voting policies and procedures and proxy voting agreements with clients are consistent and thorough and that the investment adviser continues to vote proxies in the best interest of the client. This is accomplished through thorough and consistent reviews of proxy voting activities and records; customization of the investment adviser’s policies and procedures and agreements; and detailed and rigorous analysis of investment adviser’s proxy voting records, and the proxy services provided by the proxy advisory firm if the investment adviser retains such a firm for proxy voting.

We recommend that listeners review the SEC’s guidance on proxy voting by heading to sec.gov, and for more information and guidance on proxy voting, or for assistance with customizing proxy voting policies and procedures, please visit Core Compliance at www.corecls.com or contact us at 619-278-0020.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.


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