S. 1670: INvestor Democracy is EXpected Act

This bill, titled the "INvestor Democracy is EXpected Act," proposes modifications to the Investment Advisers Act of 1940 concerning how investment advisers manage voting rights for passively managed funds, such as index funds. The key points of the bill include:

Proxy Voting Requirement

The bill introduces a new section that mandates investment advisers managing passively managed funds to follow specific protocols when voting on proxies of the securities held by these funds. Investment advisers must:

• Vote the shares of the securities in a manner that reflects the voting instructions received from the fund's investors.
• Only cast votes proportionate to the instructions received unless all voting instructions are obtained.

Definitions

Key terms defined in the bill include:

• Covered security: A voting security in which a qualified fund invests, excluding securities registered as investment companies.
• Passively managed fund: A fund designed to track an index and that meets certain disclosure criteria.
• Qualified fund: Various types of investment vehicles such as investment companies and private funds.

Voting Instructions

Investment advisers are required to solicit voting instructions from individuals holding shares in the passively managed fund. The instructions must be obtained to cast votes for covered securities. If not received, the adviser cannot vote those shares. Exceptions exist for "routine matters," where advisers may vote without instructions under specific conditions.

Handling of Voting on Secondary Funds

If a passively managed fund owns shares in another passively managed fund, the advisers must also gather voting instructions from their investors when there are votes related to the downstream fund.

Information Dissemination

The bill outlines the requirements for investment advisers to provide information to voting persons, including:

• Proxy statements and annual reports.
• Forms for providing voting instructions.

These materials can be disseminated electronically, and investment advisers may also give recommendations regarding how to vote.

Prohibitions and Exceptions

Several prohibitions are established, including:

• No reimbursement for expenses related to voting obligations can be sought from registrants.
• Advisers cannot solicit votes from only a subset of the voting persons.

Exceptions are made for routine voting matters, allowing advisers to vote on routine issues without obtaining instructions if they haven't received them within a specified timeline.

Effective Date

The provisions introduced in the bill will take effect on August 1 two years after its enactment.

Amendments to Voting Instructions

The bill also amends the Securities Exchange Act of 1934 to include "voting instructions" in the scope of consent required from investors.

Relevant Companies

None found