Compliance Corner: The SEC issued new guidance on proxy voting. What does that mean?

In August the SEC issued new guidance on proxy voting to help clarify the roles and responsibilities that registered investment advisors (RIAs) have when voting proxies on their clients’ behalf. While the guidance may seem complex, we want to breakdown what it means and provide a link to the press release issued by the SEC:

What is a proxy?

A proxy is a means for shareholders to participate in a public company’s shareholders meetings and vote on matters being considered at that meeting. At certain times of year and based on certain decisions being made, public companies are required to hold shareholders meetings where anyone who holds shares of that company is entitled to vote on matters that affect the company. This can range from prescribed annual votes to approve the company’s board of directors and auditors or other more sporadic changes like retirement plan options being offered by the company to its employees. Shareholders also have the opportunity to submit their own questions or concerns to the company for consideration. Shareholder requests are typically related to more transparency on social and/or environmental issues.

What is the role of an investment advisor?

When buying and selling stocks on behalf of its clients, an RIA can assume responsibility for voting its clients’ proxies. Because of the ongoing due diligence being conducted by the portfolio manager(s), the RIA usually knows more than the average investor about the companies in which investments are being made. In fact, investors rely on their RIA to conduct due diligence on their behalf and have a level of expertise about each company being chosen for investment. RIAs must have the ability to make informed decisions that are in the shareholders’ (i.e., clients’) best interest. This is a service that Fort Pitt providers on behalf of its clients

What is the new guidance saying?

Part of the SEC’s new guidance relates to how RIAs use outside proxy advisory services to help them to make voting decisions. The issues being voted upon can be quite complicated and proxy advisory firms can help provide recommendations on whether to vote for/against a particular issue. These recommendations can provide some relief for smaller investment advisory firms that may not have the resources or personnel to perform detailed ongoing analysis about each issue. However, advisers should not just be “rubber stamping” the recommendations received. Even smaller RIAs have to conduct their own research and have a reason to believe that proxies are being voted in their clients’ best interest, no matter how complicated the issue may be.

This guidance is essentially a confirmation from the SEC that RIAs need to have policies and procedures around the proxy voting process and follow them consistently. Advisors should be doing their homework when voting proxies.

At Fort Pitt, we have detailed policies and procedures for voting proxies. Although we utilize service providers to help with the mechanics of voting large numbers of proxies, we are making decisions that we believe are in our clients best interest. Part of my role as Chief Compliance Officer is to perform testing to make sure that decisions are being made and proxies being voted in a manner consistent with our policies and procedures. Shareholders are entitled to information regarding the proxies that are being voted on their behalf at any time. Please contact your advisor if you have any questions about the process or how we’re voting.

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