On July 13, 2022, the Securities and Exchange Commission (the “SEC”) adopted amendments to its rules governing proxy voting.¹  In addition to rescinding rules applicable to third-party proxy voting advice businesses (“proxy advisory firms”),² the amendments rescind the SEC’s supplemental guidance (the “Rescinded Guidance”) issued in 2020 to investment advisers (“advisers”) regarding their proxy voting obligations when using proxy advisory firms.³

The Rescinded Guidance provided that an adviser should consider whether its policies and procedures with respect to the use of pre-populated votes and automated voting (“automated voting”) offered by proxy advisory firms were reasonably designed to ensure that the adviser exercised voting authority in its client’s best interest.  Further, the Rescinded Guidance provided that an adviser had an obligation, as a result of its fiduciary duty to clients, to make full and fair disclosure of all material facts relating to the advisory relationship and provided that an adviser should consider disclosing (i) the extent of and the circumstances under which the adviser uses automated voting; and (ii) how the adviser’s policies and procedures address the use of automated voting in cases where the adviser becomes aware of additional information prior to the proxy submission date. The Rescinded Guidance had also provided that, due to the timing of pre-populated votes and automated voting, third party proxy advisory firms may possess non-public information regarding how an adviser intended to vote a client’s securities. Therefore, the Rescinded Guidance suggested that an investment adviser should consider reviewing its agreements with proxy advisory firms to determine whether the proxy advisory firms would be permitted to utilize this information in a manner that would not be in the best interests of the investment adviser’s clients.

Advisers that adopted or amended proxy voting policies and procedures pursuant to the 2020 supplemental guidance may wish to consider revising those procedures given the SEC’s rescission of the guidance.  The SEC, however, reminded advisers that their fiduciary duty requires conducting a reasonable investigation into an investment to avoid basing their advice on materially inaccurate or incomplete information.

This client alert replaces Seward & Kissel’s client alert dated August 6, 2020 entitled “SEC Supplements Prior Guidance on Proxy Voting Responsibilities of Investment Advisers.”