On July 22, 2020, the Securities and Exchange Commission (SEC) amended its proxy solicitation rules regarding proxy advisers. In general, these amendments codify the SEC’s position that proxy adviser’s voting advice constitutes a “solicitation” under the federal securities laws proxy rules. As a consequence, the amendments were adopted to effectively require proxy advisers to (i) disclose conflicts of interests to its clients concerning voting, (ii) provide issuers with access to the proxy adviser’s voting advice no later than when provided to its clients and (iii) update the proxy adviser’s clients of issuers’ statements related to such voting advice.

The SEC also issued a supplement to its August 2019 guidance to “assist investment advisers in fulfilling their proxy voting responsibilities” in light of these proxy rule amendments. The supplement can be accessed here.

An investment adviser has a fiduciary duty to each of its clients with respect to services undertaken on the client’s behalf, including voting such client’s securities. The investment adviser must make a voting determination in the best interest of the client and must not place the investment adviser’s own interests ahead of the interests of the client.

The supplement addresses the need for consideration of an issuer’s responses to proxy voting advice when the investment adviser becomes aware of such responses prior to the proxy deadline. In light of the supplement, an investment adviser should (i) review and update its policies and procedures to ensure consistency with its duty of voting a client’s securities in such client’s best interest and (ii) review and update, if necessary, its client disclosures to ensure full disclosure of all material facts, including conflicts, relating to the investment adviser’s services related to voting.