SEC

Register for a webinar on October 4: The Latest on the SEC Standards of Conduct Initiative

Join industry leaders for a 60-minute webinar on Thursday, October 4, 2018 at 11 a.m. (EDT) to discuss the potential impact of the SEC’s Best Interest Proposals on the fund industry. Topics will include:

  • Overview of the Proposals, Including Regulation Best Interest
  • Key Themes in the Comment Letters
  • Impact on Fund Distributors, Dealers and Funds, including Non-Cash Compensation and Other Distribution Practices
  • Evolving Process and Future Suitability Concerns

Speakers:

Helen E. Rizos, Senior Vice President & Deputy General Counsel, Fidelity Investments

Sarah A. Bessin, Associate General Counsel, Investment Company Institute

David W. Grim, Partner, Stradley Ronon, Former Director of the U.S. SEC’s Division of Investment Management

Lawrence P. Stadulis, Partner & Co-Chair, Fiduciary Governance, Stradley Ronon

Register to view the webcast here.

Lawrence Stadulis advises clients in matters pertaining to the registration and regulation of investment advisers and investment companies under federal and state securities laws. He also manages related issues pertaining to investment advisers and investment companies, including matters involving ERISA, broker-dealer regulation and banking laws.

Staff Withdraws Proxy Voting Guidance for Investment Advisers

On September 13, 2018, the Chairman announced a review of staff guidance to determine if prior positions “should be modified, rescinded or supplemented in light of market or other developments.”1 In conjunction with the Chairman’s statement, IM staff withdrew two interpretive letters that gave guidance to investment advisers seeking to comply with the proxy voting requirements of rule 206(4)-6 under the Investment Advisers Act of 1940, which, among other things, requires investment advisers to vote client securities in the best interest of clients and to describe how they address material conflicts of interest between themselves and the clients on whose behalf they are voting.2 While rule 206(4)-6 does not dictate how an investment adviser must address conflicts, the adopting release discusses options, including engaging a third party to vote a proxy involving a material conflict or voting in accordance with a pre-determined policy based on recommendations of an independent party.  The letters addressed how investment advisers that have a material conflict can determine that a proxy advisory firm is capable of making impartial recommendations in the best interests of the adviser’s clients. The SEC left in place 2014 staff guidance that enshrines the principles of the two interpretive letters.3

Sara Crovitz

IM staff indicated in its statement that its withdrawal of the letters was designed to “facilitate discussions” at the Roundtable on the Proxy Process,4 which is expected to be held in November, and that staff was seeking views on the 2014 staff guidance. The U.S. Chamber of Commerce and some corporate secretaries have criticized proxy advisory firms for years, claiming proxy advisory firms lack transparency and accountability, and as part of these efforts, the corporate community has lobbied to withdraw the letters.5  Legislative efforts to directly regulate proxy advisory firms also have been proposed.6 For further information on the impact of the current and potential future SEC and staff actions, and advice on how to respond, please contact us at Stradley.


1 “Statement Regarding SEC Staff Views, available at: https://www.sec.gov/news/public-statement/statement-clayton-091318.  The Chairman noted that other federal financial agencies had instituted similar reviews of staff guidance.

2 Statement Regarding Staff Proxy Advisory Letters, available at: https://www.sec.gov/news/public-statement/statement-regarding-staff-proxy-advisory-letters.  Commissioner Jackson issued a statement in conjunction with the Investor Advisory Committee meeting critical of IM staff’s withdrawal of the letters.  Statement on Shareholder Voting, available at: https://www.sec.gov/news/public-statement/statement-jackson-091418.

3 Staff Legal Bulletin No. 20 (June 30, 2014), available at: https://www.sec.gov/interps/legal/cfslb20.htm.

4 Statement Announcing SEC Staff Roundtable on the Proxy Process available at: https://www.sec.gov/news/public-statement/statement-announcing-sec-staff-roundtable-proxy-process.

5 See, e.g., Statement of the U.S. Chamber of Commerce on the Market Power and Impact of Proxy Advisory Firms (June 5, 2013) (“For a number of years, the Chamber has expressed its long-standing concerns with . . . proxy advisory firms”), available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2010/04/2013-6.3-Pitt-Testimony-FINAL.pdf; James K. Glassman and J.W. Verret, “How to Fix our Broken Proxy Advisory System,” (2013) (recommending that the letters be rescinded to “[e]nd the preferential regulatory treatment that proxy advisors currently enjoy in the law”). Both the corporate community and the asset management industry discussed their views on the letters and proxy advisory firms generally in a prior SEC roundtable in 2013. See Transcript of  the Proxy Advisory Firms Roundtable (Dec. 5, 2013), available at: https://www.sec.gov/spotlight/proxy-advisory-services/proxy-advisory-services-transcript.txt

6 For example, HR 5311 was introduced in May 2016 and later folded into the Financial CHOICE Act. More recently, in October 2017, HR 4015, which is mostly a resubmission of HR 5311 was introduced.  These bills generally require registration of proxy advisory firms with the SEC, and require firms to meet extensive disclosure requirements relating to methodologies and conflicts of interest, require firms to hire an ombudsperson to handle complaints, and give corporate issuers the ability to vet proxy advisory firms’ recommendations before the recommendations are released.

Sara Crovitz, most recently Deputy Chief Counsel and Associate Director of the U.S. Securities and Exchange Commission’s Division of Investment Management, provides counsel on all aspects of investment company and investment adviser regulation. She worked at the SEC for 21 years, including 17 years in the Division of Investment Management focusing on issues under the Investment Company and Investment Advisers Acts of 1940. While in the Division, Sara supervised the provision of significant legal guidance to the investment management industry through no-action and interpretive letters, exemptive applications, IM guidance updates and other written and oral means.

SEC rescinds two 15-year-old letters written by its staff concerning proxy advisers

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Form CRS under microscope

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Elad Roisman confirmed as SEC commissioner

Today, the Senate confirmed Elad Roisman for a seat on the Securities and Exchange Commission, 85-14.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

States looking for ‘Significant Improvements’ from SEC on Reg BI

Bloomberg Law reports on NASAA’s letter to the SEC seeking clarity on the meaning of “best interest” and greater disclosures from broker-dealers in a final version of Regulation Best Interest.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Elad Roisman moves ahead for full Senate vote

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Clayton takes aim at sales contests

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Will consumers understand the SEC’s disclosure documents?

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

George Michael Gerstein interviewed by Compliance Reporter regarding intersection of Reg BI and state action

I discussed with the reporter the implications on state legislation and enforcement in the wake of the SEC’s review of the comments to Regulation Best Interest.

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.