Release No. IA-5325 and the Fiduciary Duties of Proxy Advisors

Abstract

The SEC’s proxy process review has so far led the SEC to approve two separate releases regarding proxy advisors. The focus of this comment letter is on the guidance provided in one of those releases, Release No. IA-5325 (Release). This guidance identifies, under the Investment Advisers Act of 1940 (Advisers Act or Act), a “principles-based fiduciary duty” that requires investment advisers with delegated voting authority to closely monitor the voting recommendations and research provided them by their proxy advisors. This comment letter recommends that the SEC provide additional guidance that recognizes a corresponding “principles-based fiduciary duty” owed by proxy advisors to their clients. This fiduciary duty would arise from the SEC recognizing proxy advisors as investment advisers under the Act. This duty would require proxy advisors to “implement policies and procedures” that result in voting recommendations that are in the best interest of their clients, supporting what is required of investment advisers under Release No. IA-5325. The burden of monitoring this new fiduciary duty would fall on the SEC, not the investment advisers. The following provides the argument for this additional guidance.