U.S. Securities and Exchange Commission Commissioner Peirce questions rulemaking on mandatory adviser arbitration and warns on pass-through fund voting

The U.S. Securities and Exchange Commission published remarks by Commissioner Hester M. Peirce to the SEC Investor Advisory Committee that challenged several policy directions under discussion, including pass-through proxy voting for funds, possible standardisation of non-GAAP measures, and a draft recommendation on mandatory arbitration clauses used by registered investment advisers. On pass-through voting, Peirce argued that proxy voting rights belong to the fund as the registered shareowner under state law, and that while a fund board may delegate voting authority to the adviser, the adviser’s fiduciary duty is to the fund rather than to fund investors. She highlighted risks where stewardship teams make cross-complex voting recommendations that do not reflect differing fund objectives, and questioned whether pass-through voting properly reflects fund ownership when only a subset of investors expresses preferences. On non-GAAP disclosures, she cautioned that standardising non-GAAP measures could undermine their purpose of providing particularised nuance alongside GAAP figures. On adviser arbitration, she urged the Committee to consider freedom of contract, the differences between FINRA’s rules-based broker-dealer regime and the SEC’s principles-based adviser regime, and how advisers would comply with applying FINRA Rule 2268 given advisers lack an SRO; she also questioned the case for SEC rulemaking given cited statistics that only 5% of retail advisory agreements with mandatory arbitration clauses limited claims and only 11% limited damages. The Investor Advisory Committee was scheduled to consider a draft recommendation on investment adviser arbitration at the meeting.