Proxy voting for small RIAs: vote, or make clear you don't
Proxy voting means voting the shares in client accounts on company matters such as board elections. Under SEC Rule 206(4)-6, an adviser that has voting authority over client securities must have written policies to vote in clients' best interest, including how it handles conflicts, must tell clients how to get information on how their securities were voted, and must describe its policies and give a copy on request. Many small firms don't take voting authority at all, and say so clearly in their agreements and disclosures.
A proxy statement arrives for a fund held in forty client accounts. Does anyone at the firm vote it? If your agreements say you have voting authority, the answer has to be yes, and there has to be a written policy behind how. If they say you don't, the client votes, and you should be able to show that's what was agreed.
What is proxy voting?
Proxy voting is voting the shares held in client accounts on matters put to shareholders, such as board elections, mergers or, for funds, changes to the fund's adviser. Whoever holds voting authority decides how those shares are voted.
What does Rule 206(4)-6 require if you vote?
If an SEC-registered adviser exercises voting authority over client securities, the rule requires it to:
| Requirement | In plain words |
|---|---|
| Written policies and procedures | Reasonably designed to vote in clients' best interest, including how you handle material conflicts between your interests and theirs. |
| Disclosure on how to get vote information | Tell clients how they can find out how their securities were voted. |
| Describe the policy | Describe your proxy voting policies to clients, and give a copy on request. |
Source: 17 CFR 275.206(4)-6.
What records do you keep?
Rule 204-2(c)(2) lists records for advisers that vote, including:
- Copies of the proxy voting policies and procedures.
- A copy of each proxy statement received for client securities. You can rely on a third party that undertakes to provide copies promptly, or on the SEC's EDGAR system.
- A record of each vote cast on a client's behalf. A third party can keep this too, with the same undertaking.
- Any document you created that was material to a voting decision, or that records the basis for it.
- Each written client request for information on how you voted, and your written response to any client request.
Source: 17 CFR 275.204-2(c)(2).
Vote, or don't: how small firms decide
| You vote | You don't vote | |
|---|---|---|
| Work each season | Review and vote ballots, or oversee a third party | Forward materials or confirm the custodian sends them to clients |
| Documents | Written policy, conflict process, vote records | Clear language in agreements and disclosures |
| Client questions | Answer how their shares were voted | Point clients to their own ballots |
| Main risk | Votes not cast or not recorded | Agreements that say different things |
A worked example
Take a hypothetical two-person RIA with about 120 households, mostly in model portfolios of ETFs and mutual funds. The owner decides not to take voting authority. The firm checks that the advisory agreement and its disclosures both say clients keep the vote, confirms that the custodian sends proxy materials directly to clients, and adds a line to the onboarding checklist to explain it. When a client asks how to vote a fund proposal, the firm points them to their ballot and doesn't advise on the vote.
A second firm takes voting authority because its clients prefer it. It writes a short policy, names who votes and how conflicts are handled, uses its custodian's or a vendor's voting service, and keeps vote records through that service with the required undertaking.
Common gaps
- The agreement says one thing and the disclosure says another.
- The firm votes "sometimes", with no policy behind it.
- Votes are cast but nobody can produce the record.
When is this overkill?
If you don't take voting authority and your documents all say so consistently, there is little to run day to day. The work is making sure the agreements match and new clients hear it at onboarding.
How Advorra fits
Advorra keeps the firm's policies and procedures in a procedures vault alongside client records and compliance logs, so a proxy voting policy lives with the rest of your written procedures. Advorra doesn't vote proxies. See the product page, or read written procedures for small RIAs.
One thing to do this week: read the voting language in your advisory agreement and your disclosures side by side, and check they say the same thing.
A plain summary of public rule text, not legal or compliance advice. State-registered advisers should check their state's rules.
Questions advisors ask
Do I have to vote proxies?
Not necessarily. The rule applies when you exercise voting authority over client securities. Many small firms leave voting with clients. Whichever you choose, your client agreement and disclosures should say so clearly.
Can I use a third party to keep proxy records?
The records rule allows an adviser to rely on a third party to keep copies of proxy statements and vote records, provided it gets an undertaking that the third party will provide copies promptly on request. Proxy statements can also be obtained from the SEC's EDGAR system.
Does this apply to state-registered advisers?
Rule 206(4)-6 applies to advisers registered or required to be registered with the SEC. State-registered firms should check their state's rules.
What about mutual funds and ETFs in client accounts?
Fund shares can carry votes too, for example on fund mergers or adviser changes. Your policy should say how those are handled.
Is this compliance advice?
No. It is a plain summary of public rule text. Your compliance consultant decides what your policy says.
See it on a demo firm
Advorra is practice software for independent RIAs: clients, models, IPS, billing and compliance records in one place, on top of the custodian you already use. Built by The CollabHub.
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