SEC Issues Guidance on Proxy Voting Responsibilities of Investment Advisers

When an investment adviser has the authority to vote its client’s securities, the exercise of that authority is subject to the adviser’s broader fiduciary duty to the client in general and to Rule 206(4)‑6 under the Investment Advisers Act of 1940 in particular. The SEC recently issued guidance that stresses that advisers must act in the best interests of their clients when voting client securities and discusses advisers’ responsibilities when vetting and retaining proxy advisory firms. Issued simultaneously with that guidance, the SEC’s interpretation and guidance regarding the applicability of the proxy rules makes clear that proxy advisory firms that provide research and recommendations on voting are engaged in proxy “solicitation” within the meaning of the federal proxy rules and that their recommendations are subject to the anti-fraud provisions of those rules. This article analyzes both sets of guidance. For coverage of other SEC releases, see our two-part series on the exempt offering framework: “Review of the Concept Release” (Sep. 5, 2019); and “Key Takeaways From the Concept Release for Private Fund Managers” (Sep. 12, 2019). See also “Key Takeaways for Private Fund Managers From SEC’s Latest Reg Flex Agenda” (Aug. 15, 2019).

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