Advisors and investors are once again about to find themselves facing peak proxy-voting season — which can raise difficult issues for advisors and their clients.

In guidelines issued last summer, the SEC essentially said advisors don’t have to vote proxies on behalf of clients. But experts say whatever your policy is, you must make sure clients understand it.

“If your contract is silent” — that is, if it doesn’t explicitly say that an advisor won’t be voting — “then the SEC will assume that, if you have discretion, then you have an obligation to vote the proxies,” says Timothy Simons, senior managing member of Focus 1 Associates, a compliance consulting firm.

Shareholders of public companies are primarily asked to vote on such measures as the approval of auditors and board members. “Probably 80% to 90% of the proxy votes are routine matters,” Simons says.

Increasingly, however, investors face controversial proposals regarding some of the country’s largest corporations. Shareholders are being asked if these companies should issue reports on sustainability, political contributions, lobbying efforts and more.

“Exxon and GE and the bigger-name companies almost always have two or three shareholder initiatives put on the ballot,” observes Roger Pine, a partner at Briaud Financial Advisors in College Station, Texas.
Pine admits these questions are more difficult to tackle than the standard ones. Ultimately, however, he says he treats every question as one of fiduciary obligation, asking himself, “Will my client, as a shareholder, be better off or worse off financially if I go one way or the other?”

The answer to that question trumps all other considerations, he says, although Pine still thinks about how clients would respond to the issues. “As a financial advisor, my goal is to know my client. And I know a lot of my clients care about certain things a heck of a lot more than they care about money,” he says, adding that many clients are quite vocal about their opinions.

“That’s the ethical dilemma,” he says. “They might vote differently than the purely fiduciary-hat-wearing person would.”


Since his fiduciary obligation comes first, Pine suggests to clients that they could sell positions in companies employing practices they don’t agree with. If they are disinclined to sell, he offers to return the proxy voting responsibility to them.

“Nobody’s taken me up on that yet,” he says.

Perhaps that’s because most investors are happy to have someone else deal with ballots. Surveys indicate that only about one in eight retail investors vote their proxies. For many, that could simply reflect indifference or passivity. But other investors may sense their own limitations in dealing with these questions.

Some experts say individuals who choose to vote their own shares may be biting off more than they can chew. “This raises a whole host of other issues about their suitability for making decisions about complicated compensation programs or other issues that shareholders get to vote on,” says Robert McCormick, chief policy officer at proxy-advisory service Glass Lewis.

For advisors who do vote shares on behalf of clients, SEC guidelines indicate that there should be client consultation. But does that mean at the initial meeting between advisor and client, or more frequently?

McCormick says the SEC is “not specific about how frequently you need to review the guidelines or consult the client. Most have interpreted that as at least annually.”


Of course, advisors do have the option of not voting at all, provided the policy is disclosed to clients up front.

John Frankola, president of Vista Investment Management in Pittsburgh, cites the time and record-keeping involved in voting in explaining that he doesn’t vote on any proxy issues, as a matter of policy.

Even so, he says, he looks carefully at the pay packages awarded to management. “In most cases, I think managers are overpaid,” he says.

And while he doesn’t vote on pay initiatives, he says he tends to avoid buying companies where he believes “management is running the company primarily for the benefit of management rather than shareholders.”
Frankola, whose firm offers only discretionary accounts, asks his clients if they want to place any restrictions on his investments. He says some clients may want to avoid certain industries — he steers clear of tobacco stocks, for instance, although he has held alcohol and casino companies in some portfolios — but “that’s as far as they go in giving me direction.”

He also says that, if a client were to object to a particular company after he had purchased its shares for the account, he would take it out of the portfolio. Still, he says, “I’m not sure I’ve ever gotten that request.”


For advisors who specialize in clients with environmental, social and governance goals, efforts to influence corporate activity are a high priority. But many such advisors use funds rather than specific stocks to construct portfolios, leaving them one step removed from ballot questions.

At Wetherby Asset Management, an ESG-focused firm in San Francisco, wealth manager Karen Leech doesn’t buy individual stocks for clients. But for clients who arrive with existing positions, Leech says, “We vote on their behalf,” using Glass Lewis to advise on proxy issues rather than doing separate research on each ballot question.

But the firm offers clients a different way to participate in ballot questions. “We teamed up with As You Sow as another way they can have an impact,” Leech says. As You Sow is an Oakland, Calif.-based shareholder advocacy group whose past resolutions have included ballot questions on nano materials, electronic waste and fracking. Leech matches clients’ areas of interest with shareholder initiatives planned by As You Sow, which then uses the clients’ holdings to sponsor the filing of a resolution.

A participating client would have to have held shares in the company for more than a year and meet a minimum dollar threshold of ownership. In addition, the client would have to agree not to sell the shares until after the company’s annual meeting.

Not many believe individual shareholders can have much impact on corporate activities. For instance, the “say on pay” initiatives established by the Dodd-Frank Act are advisory and don’t force corporations to adjust executive compensation. 

That’s why Frankola questions the efficacy of voicing an opinion on something that ultimately doesn’t matter. He believes that, as a small asset manager, any position he might take on a ballot issue would have little impact. (That’s in contrast with a jumbo institutional fund — he cites CalPERS, California’s state pension giant — that, he says, “can definitely influence management with their vote.”)

Focus 1’s Simons sees it differently. “I think a lot of American firms are trying to be shareholder friendly,” he says. If they have many share owners complaining about a particular situation, he notes, “they’re going to at least look at that.”

Joseph Lisanti, a Financial Planning contributing writer in New York, is a former editor-in-chief of Standard & Poor’s weekly investment advisory newsletter, The Outlook.

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