As RIAs and other institutional investors ramp up for the Fall mini-season and the accompanying uptick in workload it brings, if you are responsible for proxy voting (or not voting) at your firm you want to ask if your current strategy is working now? Will it work with the new SEC regulatory framework (https://www.sec.gov/rules/final/2020/34-89372.pdf) scheduled for the end of 2021?
Best practices might include asking the following questions:
- Is your current practice good for your investors?
- Does your current practice meet future and current regulatory requirements?
- Does your current practice work for your firm both in actual dollar cost as well as the often-larger time cost?
Is your current practice good for your investors?
Probably the most important question to ask is does your current practice align with the needs (return on investment) of your investors. Are you using a short-term, or worse, proxy voting policy, like always voting with management? While this kind of policy might be easy to implement and appear to be low cost in the short-term if it does not meet the need of your clients it can get very expensive very quickly.
Then there is the strategy of “letting investors vote themselves” knowing that if an investor doesn’t have the time or expertise to do their own investing why would they have the time and expertise to engage in something as specialized as choosing how to vote proxies? If your firm does not want to take care of your investors in this concern, rest assured one of your competitors will.
Does your current practice meet future and current regulatory requirements?
Especially as an RIA, but certainly in the case of any institutional investor, it is important to choose a practice that meets current and upcoming regulatory requirements. Many firms come to us after a decade of following a simple “always vote with management” policy only to discover after ten years that it did not pass regulatory muster. Proxy voting is complex and important – a just say “yes” to the Board is probably not the best answer for you or your clients.
Many of you are outsourcing proxy voting to either a proxy firm or “other” provider. Either way it is likely that any company providing out-source voting is going to fall under the new proxy voting rules – you want to make sure your provider knows this and complies.
Does your current practice work for your firm both in actual dollar cost as well as the often-larger time cost?
We live in a world of costs and limits, hiring dozens of staff to handle proxy voting seldom if ever makes economic sense. If you are going to outsource voting you need to make sure that the price is right and that you are not buried in 40 to 50 page reports that take hours to adequately review and audit.
Of course, you also want to ensure that your provider does not have so many consulting and other conflicts that it takes more time to audit and review these issues than it would to do the voting in house.
In short, in today’s complex proxy voting universe you need to make sure you are doing it right and that your proxy provider is too.