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3 Things You Need to Know About Proxy Voting for Your Clients

As a financial advisor, proxy voting for client investments falls under your fiduciary obligations. Handling these votes properly and strategically acts in clients’ best interest.

Yet many advisors downplay proxy decisions, blindly follow default fund recommendations, or let paperwork pile up instead of taking an informed stance.

In this article, we define proxy voting duties for advisors and outline responsible practices upholding that fiduciary standard. Read on to ensure your proxy participation aligns with client interests and regulatory expectations.

What is Proxy Voting?

Publicly traded companies and mutual funds periodically have shareholder votes on policies, leadership decisions, or other governance matters. Proxy voting means casting ballots on clients’ behalf if they’ve invested in entities holding these votes.

As advisors managing client investments in stocks, bonds, or funds that initiate proxy proposals, voting responsibility passes to you. Yet many overlook thoughtfully evaluating each proxy vote’s impact and prudently expressing clients’ best interests through these ballots.

What Investment Advisors Should Know About Proxy Voting

Proxy voting is an important piece of a financial advisor’s fiduciary obligations to clients. As an advisor, you cannot take proxy decisions lightly or make missteps in this arena. Here are three things you should know about proxy voting for your clients:

1. You Must Complete and Follow Through on Your Fiduciary Obligations

The fiduciary standard requires advisors to conduct in-depth due diligence when voting client proxies. You need to:

  • Review all proxy materials
  • Research the implications of different voting decisions
  • Evaluate client priorities
  • Disclose any conflicts of interest
  • Determine votes in the best interests of each client’s circumstances and
  • Keep detailed records

Your role does not end once votes are cast. You must also follow up by monitoring voting outcomes and communicating impacts to clients. Routinely reviewing internal proxy voting processes is equally vital to confirm fiduciary obligations are fulfilled uniformly by all advisors.

2. There Are Times You CANNOT Vote Proxies

While in most situations, conducting diligence does allow us to vote, there are 4 scenarios where advisors may NOT vote client proxies:

  1. The client specifically opts out of your proxy voting authority. Your client can come to you and say they do not want you voting proxies for them. In that case, you want to make sure the client file is updated accordingly with a note or written communication from the client stating they don’t want you to vote proxies for them
  2. Fund guidelines prohibit financial advisor voting.
  3. You have material conflicts of interest that prohibit you from making such a vote, meaning you are not able to act in your fiduciary capacity and put the client’s interest ahead of your own.
  4. Operationally, you cannot conduct the necessary diligence. If you’re not able to do it operationally or guidelines prohibit you from doing so, then you absolutely cannot proxy vote for your clients.

If any of the above apply, you should not cast votes on behalf of that client.

3. Failed Proxy Votes Carry Serious Repercussions

The third thing you absolutely should know is that there can be some very serious repercussions if you don’t do a proxy vote that’s in the best interest of your client.

You can face three different types of loss—reputational loss, financial loss, and potential losses due to regulatory actions. That’s right, if you fail to be a fiduciary to your client during the proxy voting process, the SEC or state Securities Commission you are subject to can find you, suspend you, or bar you from the industry.

These things are disclosable events. They go on your Form U4. They’re publicly available on BrokerCheck and IAPD, which means you could also have harm to your reputation. And let’s be real, you don’t want reputational harm. You don’t want to lose current clients. You don’t want future clients to not use you because of these disclosures.

And finally, you can face financial loss. Poor proxy voting could mean that the repercussions to your client mean they’ve lost out on certain opportunities or they’re not making the kind of returns they could have if the vote had gone a different direction, which again could lead to fines from the SEC, them deciding to leave your business and not refer their friends and family to you, or prevent you from bringing on new clients.

Stay On Top of Your Proxy Voting Game

Proxy voting is a complex moving target for advisors today. Regulations continually evolve. Corporate actions requiring votes arise regularly. Even the most diligent fiduciaries can miss things or need guidance.

Don’t wait for proxy struggles to surface – be proactive now in shoring up your processes. Set your firm and clients up for success.

At My RIA Lawyer, we offer trusted compliance support specifically for registered investment advisors navigating these fluid waters. Think of us as your personal SEC compliance co-pilot. Our customized proxy solutions perfectly adapt to any RIA’s needs and client base. We’ll collaboratively tackle this fiduciary responsibility so you can focus elsewhere.

Ready to elevate your proxy voting operations today? Get in touch for next-step guidance. Let’s connect to explore what end-to-end proxy support could look like at your firm.

 

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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