In the Best Interests of a Client: Proxy Voting and the Retention of Advisory Firms

28 August 2019
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Key takeaways:
  • On August 21, 2019, the SEC published guidance regarding the proxy voting responsibilities of investment advisers under Rule 206(4)-6 under the Advisers Act, and Form N-1A, Form N-2, Form N-3, and Form N-CSR under the Investment Company Act of 1940.Rule 206(4)-6 requires an adviser to adopt and implement written policies and procedures reasonably designed to ensure that the adviser votes proxies in the best interests of its clients.
  • While the Guidance is not intended to establish new law, it sets forth SEC expectations concerning the steps that investment advisers should take in connection with fulfilling their fiduciary duties in the proxy voting context, particularly in connection with the use of proxy advisory firms.
  • In light of the Guidance, investment advisers should review their proxy voting policies and their process for selecting proxy advisory firms.In connection with this assessment, an investment adviser should assess whether the proxy advisory firm’s policies are consistent with those of the investment adviser.An investment adviser should also consider whether it is desirable (or practical) to limit their proxy voting authority, particularly where doing so might be in the best interests of clients.