Study Comes as the SEC Considers Overhaul of the Proxy Process; Shows Widespread Support Among Retail Investors for Regulation to Bring Industry into Line with Other Financial Services
CHICAGO, April 2, 2019 – A new study released today by wealth management research specialist Spectrem Group, reveals significant concerns among retail investors about the role of companies who provide guidance to institutional shareholders on how to vote their securities.
Unleashing Main Street: Retail Investors’ Views on Proxy Advisory Industry is the first in-depth analysis of the views of shareholders on so-called proxy advisory-firms and highlights widespread unease over their performance. Among the concerns raised are a track record of issuing erroneous guidance, inherent conflicts of interest and enablement of automated ‘robo-voting’ among institutional investors.
The survey was designed in collaboration with J.W. Verret, board member of the Investor Advisory Committee of the Securities and Exchange Commission and an expert in corporate governance law. It gauges retail investor awareness about America’s complex proxy voting process, while also measuring support for enhanced government oversight of the industry. The study comes at a critical juncture, with the Commission currently carrying out a consultation into the proxy process, including proxy advisors, typically the first step in the rule-making process.
Among the study’s key findings include:
- At the start of the survey, 64% of retail investors support SEC oversight of proxy advisors, with the remaining third lacking an opinion.
- Of those familiar with proxy advisors, 96% were supportive of increased SEC oversight.
- Following a discussion of topics, 85% or respondents supported increasing SEC oversight of the proxy advisory industry
- More broadly, 91 percent of retail investors indicated a preference for wealth maximization over the pursuit of wider objectives.
Commenting on the findings, JW Verret said, “While proxy advisory firms occupy a relatively obscure and arcane part of the corporate governance universe, these results suggest that there is a baseline of concern about them among retail investors, which increases significantly as they learn more about the industry.
“Since joining the Commission, Chairman Clayton has made clear that his overwhelming priority is to protect the interests of America’s Main Street investors. These results show unambiguously that the owners of America’s public companies are alarmed about the influence proxy advisors are having on their investments and support regulation to bring the industry into line with other financial services, post Dodd-Frank.”
The research specifically explores a particularly contentious criticism of proxy advisory firms, the practice of robo-voting, where institutional investors automatically vote in line with proxy firms’ guidance without conducting their own due diligence. The research indicates that retail investors are alarmed by this trend, with 84% indicating slight or greater concern and 79% supporting intervention by the SEC to address the problem.
“Ordinary investors and retirees, whose life’s wealth has been entrusted to professional money managers, are concerned that unregulated advisors who lack any statutory authority, have significant influence over the future of their investments,” said George H. Walper, Jr., President of Spectrem Group. “These investors’ inability to influence the proxy process – as demonstrated by their low participation levels – is symptomatic of a system in which Main Street investors feel disenfranchised about their ability to influence voting outcomes in companies whose stocks they own.”
Notes to Editors
Spectrem conducted an online survey of 5,159 individual investors between February 14 and March 1, 2019.
Respondents were required to be at least 19 years old and have at least $10,000 in assets in any combination of stocks and bonds, mutual funds and ETFs held in various types of accounts, such as defined contribution plans (such as 401ks) advisory accounts, brokerage accounts, IRAS and other similar investment accounts.
The survey was conducted to mirror the age distribution of the overall U.S. population above the age of 19. Of all respondents contributing to the sample, 67% have a defined contribution plan, 23% have a managed or advisory account, and 61% have an IRA. All survey data, including detailed demographic data, can be found on Spectrem’s website at https://spectrem.com/Content_Whitepaper/exile-of-main-street-whitepaper.aspx. Additional findings include:
- Investors overwhelmingly favor maximizing returns over supporting social or political objectives. 91% of retail investors indicated a preference for wealth maximization over political or social objectives.
- 84% of retail investors indicated robo-voting was at least slight concern, and 79% at least slightly support the SEC adopting changes to address this issue.
- Over 95% of retail investors indicated that remaining unbiased from conflicts of interest was important to proxy advisor recommendations. The data demonstrates overwhelming support (83%) from retail investors with regard to the SEC addressing conflicts of interest.
- 86% of retail investors indicated support of SEC oversight regarding inadequate proxy advisor transparency – specifically to address the use of one-size-fits all methodologies.
- 80% of retail investors have voted shares in the past, or are interested in voting in the future, 12% don’t know if they’re interested, and only 8% have not voted and are not interested in voting in the future.
- When asked how the financial industry can increase retail investor proxy voting participation, 42% said that additional education would increase their likelihood of participating, while 40% said that improved communication and coordination among the proxy participants would make them more likely to participate.
About Spectrem Group
Spectrem Group (www.spectrem.com) is the leading provider of market research, consulting and content in the wealth management and retirement markets. Spectrem Group strategically analyzes its ongoing primary research with investors to assist financial providers and advisors in understanding the Voice of the Investors.