The Securities and Exchange Commission (“SEC”) has spent time and energy focused on proxy voting matters in the recent months. In August 2019, the SEC provided guidance (discussed below) to assist investment advisers fulfilling their proxy voting responsibilities. It also appears to have increased its attention toward regulatory actions involving proxy voting on behalf of clients.
In September 2019, Amadeus Wealth Advisors LLC and Three Bridge Wealth Advisors LLC both settled charges with the SEC relating to proxy voting issues. Both firms agreed to cease-and-desist orders, under which Amadeus Wealth Advisors will pay $40,000 and Three Bridge Wealth Advisors will pay $60,000 in fines.
Amadeus Wealth Advisors disclosed in its Form ADV Part 2A brochure and written advisory agreements that it did not accept proxy voting authority and that it would forward proxies to its clients. However, according to the SEC Order, the New York-based firm voted proxies for a total of 20 client accounts in 2015. In response to a request from a registered broker dealer, Amadeus allegedly executed a letter on company letterhead stating that it had authority to vote proxies on their behalf, and that it was voting in favor of the proxy solicited for all of the 20 accounts.
Similarly, Three Bridge Wealth Advisors LLC, disclosed in its Form ADV Part 2A that it would not accept proxy voting authority over its client securities and would forward any proxy solicitations it received. Instead, the SEC Order indicates that Three Bridge responded to a broker dealer requests on behalf of dozens of its clients, stating that it was the advisor, and had the authority to vote proxies for the clients.
In fact, the SEC alleges that neither advisory firm had proper authority to execute proxy votes on behalf of their respective clients. Further, the SEC noted that neither firm made any disclosure to its clients prior to voting the proxies in violation of Section 206(2) of the Advisers Act.
Establishing and Implementing Proxy Voting Agreements with Clients
As part of a client agreement, investment advisors need to clearly state whether the advisor will accept proxy voting authority. Additionally, an advisor’s approach to proxy voting should be accurately disclosed in the firm’s Form ADV.
While investment advisers are not required to take on proxy voting responsibilities, advisory firms do need to adhere to the policies and procedures that are currently in effect. If a change is desirable, in order to fulfill its fiduciary obligations, an investment advisor should determine what type of disclosure and possible modifications to client agreements are required before implementing that change.
Let our Experience Work for you
In the event that your firm decides it would like to revise its policies regarding proxy voting for its clients, Jacko Law Group and its attorneys can help revise the policies, update all necessary disclosures, clearly communicate with clients, and efficiently administer all of the appropriate changes.
Robert D. Conca is a Partner at Jacko Law Group, PC. His practice includes representation of investment advisers, broker-dealers, private funds, and non-financial industry companies, and their personnel, in a variety of ...
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