“I expect that our Enforcement Division will continue to be active in pursuing cases where hidden or inappropriate fees are at issue, but we also are exploring whether more can be done to clarify fee disclosures made to retail investors, and thereby deter and reduce the opportunities for misbehavior,” Clayton said.
As part of his efforts to empower retail investors, he said he plans to give Main Street investors a much more prominent seat at the shareholder table. “I have become increasingly concerned that the voices of long-term retail investors may be underrepresented or selectively represented,” he said.
The SEC staff estimates that almost 79% of Russell 1000 companies are owned by retail investors, either directly or indirectly through mutual funds, pensions or other employer-sponsored funds, or through accounts with investment advisors (if foreign ownership is excluded).
That makes it that much more important for investment advisors to vote proxies according to their investors’ best interests, Clayton said.
“A majority of Main Street America’s dollars are invested in vehicles where the investor—the person with their money at risk—is not the voting shareholder,” he said. “Often, voting power rests in the hands of investment advisors who owe a duty to vote proxies in a manner consistent with the best interests of the fund and its shareholders. A question I have is: Are voting decisions maximizing the funds’ value for those shareholders?”
Even in situations where voting power is held by or passed through to Main Street investors, it is noteworthy that, according to SEC data, participation rates in the proxy process are low. In the 2017 proxy season, retail shareholders beneficially owned 30% of the shares in U.S. public companies; however, only 29% of those shares voted.
“This may be a signal that our proxy process is too cumbersome for retail investors and needs updating,” Clayton said.
He said the agency is also interested in facilitating ways that disparate shareholders can find common ground for reconciling their goals and building consensus using shareholder proposals.
“History has shown that shareholder proposals can gain traction and lead to corporate governance changes that better track the long-term interests of Main Street investors,” Clayton said.