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Don’t Vote Proxies

Saturday, November 21, 2015

Many Advisers are under the impression that voting proxies is no big deal; you receive the ballot and you either throw it away or you cast your vote and mail the ballot back. This could not be further from the truth.

Voting proxies is much more than casting a vote and dropping the proxy ballot in the mail. The Securities and Exchange Commission (“SEC”) take proxy voting seriously. They expect that the individual casting the vote take the time and effort necessary to research the issue(s) at hand to determine how they are going to vote and why. And just conducting due diligence of the issues is not enough. You will be expected to maintain documentation to evidence what research you conducted and why you voted the way you did.

If you are an SEC registered investment adviser, and you have opted to vote proxies on behalf of your clients, you can expect the SEC to conduct a thorough review of your proxy voting files during their next audit, which you had better be maintaining. When the auditor(s) start asking why you voted this way or that, the auditor(s) will expect you to be able to provide documentation evidencing your research and how you determined to vote the way you did; “I just did”, or, “I guessed” will not be an acceptable answer. If you are a state registered investment adviser, do not think that voting proxies for your clients will be any easier. Rest assured, if the SEC thinks it is a big deal, most states will follow the SEC’s lead.

If you are registered, or registering, as an investment adviser, and feel very strongly about wanting to vote proxies for your clients, take a look at services like ISS Proxy Voting Services, or Broadridge Institutional Proxy Voting. The cost for this service may be more than you want to pay, but it would be much better to pay for a service than to pay the regulator(s) a fine and have a disclosable event on your ADV and U4.

Most registered investment advisers probably aren’t investing in products, or in amounts, that would allow them to influence the product with their vote. And many of you are probably trying to figure out why it is such a big deal. Please refer to this article published by Securities Regulatory Daily.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.