When I first learned the Securities and Exchange Commission was creating an Office of the Investor Advocate, I was thrilled.
I assumed that the office would prioritize the concerns of retail investors and promote policies that protect their interests and grow their investments. Unfortunately, current Investor Advocate Rick Fleming does not seem to be taking his role as a champion for Main Street investors seriously.
In a recent speech, Fleming claimed that retail investors are not concerned about issues in the proxy advisory industry — such as conflicts of interest or factual errors in voting recommendations. As a retail investor whose entire life was spent saving for retirement, I can say that this simply isn’t true.
Get the latest news, data and insights on key trends affecting Wall Street & financial policy.
But don’t just take my word for it. Research released last month by the Spectrem Group found that once investors were made aware of issues within the proxy advisory industry, 85 percent of them supported increased SEC oversight of proxy firms.
Fleming, our “advocate,” argues that the push for proxy advisory reform is being led by companies, not individual investors. This argument fails to acknowledge that company and investor interests could be aligned on the issue.
What’s good for companies is usually good for investor returns. In the case of proxy advisers, when companies must correct an erroneous voting recommendation, they are often forced to reallocate time and resources to respond instead of allocating these resources toward work that could improve the company’s financial performance and increase shareholder returns.
I found it confusing that, as the SEC considers proxy reform, its very own Investor Advocate is rallying against changes that would directly benefit retail investors. This led me to do some digging on the makeup of the Office of the Investor Advocate and, in doing so, I discovered that the current Engagement Advisor, Stephen Deane, is a former Institutional Shareholder Services vice president.
In his role at the SEC, Deane drafts comment letters and speeches and is responsible for investor outreach. This disappointing discovery provides a possible explanation for why Fleming’s speech portrayed investors’ views on proxy reform in a way that clashes with reality.
At last year’s roundtable on the proxy process, Fleming claimed “investors made it pretty clear that they are relatively happy with the services they receive from proxy advisers.” This is a mischaracterization of the event and its participants. On the contrary, many panelists and commissioners expressed concerns about inaccuracies in proxy adviser voting recommendations and conflicts of interest that occur when proxy firms also provide consulting services to their clients.
In addition to providing a voice for investors, one of the mandates of the Office of the Investor Advocate is to study investor behavior and oversee investor research. Fleming should take note of the recent research that has occurred in the retail investor space.
Poll after poll has found that retail investors prioritize the maximization of their returns over anything else. Therefore, growing the returns of retail investors should be Fleming’s top priority when he weighs in on SEC reform.
As the comment period at the SEC rolls on, it is my hope that the Office of the Investor Advocate will take note of the many retail investors who have submitted comments in favor of reform. Proxy advisory firms are doing damage to our retirement accounts, and they will continue to do so if oversight measures aren’t put in place. As the Investor Advocate, Fleming should be taking this issue seriously instead of labeling it a “low priority” and dismissing our concerns.
Nan Bauroth is a member of the Main Street Investors Coalition Advisory Council.
Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.