Don’t Vote Proxies

Many Advisers are under the impression that voting proxies is no big deal; you receive the ballot and you either throw it away or you cast your vote and mail the ballot back. This could not be further from the truth.

Voting proxies is much more than casting a vote and dropping the proxy ballot in the mail. The Securities and Exchange Commission (“SEC”) take proxy voting seriously. They expect that the individual casting the vote take the time and effort necessary to research the issue(s) at hand to determine how they are going to vote and why. And just conducting due diligence of the issues is not enough. You will be expected to maintain documentation to evidence what research you conducted and why you voted the way you did.

If you are an SEC registered investment adviser, and you have opted to vote proxies on behalf of your clients, you can expect the SEC to conduct a thorough review of your proxy voting files during their next audit, which you had better be maintaining. When the auditor(s) start asking why you voted this way or that, the auditor(s) will expect you to be able to provide documentation evidencing your research and how you determined to vote the way you did; “I just did”, or, “I guessed” will not be an acceptable answer. If you are a state registered investment adviser, do not think that voting proxies for your clients will be any easier. Rest assured, if the SEC thinks it is a big deal, most states will follow the SEC’s lead.

If you are registered, or registering, as an investment adviser, and feel very strongly about wanting to vote proxies for your clients, take a look at services like ISS Proxy Voting Services, or Broadridge Institutional Proxy Voting. The cost for this service may be more than you want to pay, but it would be much better to pay for a service than to pay the regulator(s) a fine and have a disclosable event on your ADV and U4.

Most registered investment advisers probably aren’t investing in products, or in amounts, that would allow them to influence the product with their vote. And many of you are probably trying to figure out why it is such a big deal. Please refer to this article published by Securities Regulatory Daily.

Tougher rules for Social Security claiming strategies

With the signing of the Bipartisan Budget Act of 2015, two popular Social Security claiming strategies have been affected. Going forward “file and suspend” will be severely limited and “restricted application” will be phased out.

If you have clients that are nearing retirement, now is a great opportunity to reach out to those individuals and schedule some time to discuss their options. For 180 days following the date the bill was enacted, up until April 30, 2016, you can still implement restricted application and file and suspend strategies under current rules. After that date you will need to revisit your strategies for developing retirement income for your clients.

For more information click here.

SEC Commission Looking at Robo Advisers and New Regulations

Robo advisors have taken off from zero to 60 in no time at all and the SEC is trying to figure out how they should regulate them. A recent study estimated that by 2020 there will over $2 trillion dollars being managed by robo advisors. Not sure what a robo adviser is, well robo advisers allow you to use your smart phone to access automated investment advice and some even allow you to open an account through their proprietary mobile apps. Service offerings range from portfolio management to asset allocation and financial planning. There is little if any human interaction but the fees and minimum investment amounts tend to be lower than traditional brick and mortar financial advisors. You carry your financial adviser in your pocket and he/she goes everywhere with you.

As technology continues to explode, the Commission is now challenged to think through what it means to regulate a robo advisor. The laws as they exist today never contemplated a world with robo advisers in it. So they question appears to be, can robo advisers fit within the existing rules or do laws need to be created or tweaked to address the new realities. If history is any indicator, the SEC will be creating new rules to address robo advisers and how they provide investment advice. Click here to read the full content of the recent speech given by Commissioner Kara M. Stein. Need help to start a robo adviser, let Red Oak Compliance Solutions guide you through the process.