A new report published by George Mason University law professor J.W. Verret and the Spectrem Group, a wealth management research and consulting firm, which surveyed over 5,000 retail investors on proxy advisory firms has found a “wide gulf between the expectations of the retail investor community and institutional investors and proxy advisors who purport to act on their behalf.” The online survey of 5,159 people with at least $10,000 of assets in any combination of stocks, bonds, mutual funds, and ETFS held in various accounts (like 401K or IRAs) asked a variety of questions about the current proxy process, including several the role of proxy advisory firms and the impact on the voting views of those retail investors. The survey’s key findings include:
- 91 percent of retail respondents indicated they prioritize investment investment returns over social responsibility.
- 85 percent of retail investors at least slightly supported SEC oversight of proxy advisory firms.
- 86 percent of retail investors indicated support of SEC oversight regarding inadequate proxy advisor transparency, specifically to address one-size-fits-all approaches to making proxy voting recommendations.
- Over 95 percent of retail investors indicated that remaining unbiased from conflicts of interest was important in proxy advisor recommendations.
Based on the data, Professor Verret makes a number of recommendations for the SEC, including requiring conflicts of interest disclosure. He notes that unlike institutional investors, retail investors “do not take the same ‘see no evil, hear no evil’ approach” to conflicts and would embrace a required conflicts disclosure. Additionally, Verret recommends a clarification of mutual fund fiduciary duties with respect to share voting to address concerns with robo-voting and the prioritization of social objectives instead of investment returns.
The SEC has shown a strong interest in the retail investor population as it has begun to review reform of the proxy process. Several key SEC figures, including Chair Clayton, have been vocal in their desire to see a rise in the engagement of retail investors and have requested information about retail investor views on the panoply of proxy process issues.