The fund proxy system is increasingly inefficient, expensive, and ineffective, according to an analysis and survey by the Investment Company Institute (ICI).
The ICI found that the growing costs involved with fund proxies are imposed on fund shareholders, and the Securities and Exchange Commission (SEC) should reform this system.
“Fund proxy campaigns are costing funds and their shareholders hundreds of millions of dollars unnecessarily. Smart, targeted reforms such as lowering quorum requirements while increasing the required affirmative vote to a supermajority would cut down on the time and money involved. This would reduce the expenses ultimately borne by investors and save them from a barrage of unwanted phone calls, paper packages, and emails. We encourage the SEC to move forward with investor-centric modernization of the proxy system,” Eric Pan, ICI president and CEO, said.
To reform and modernize the fund proxy framework, ICI made the following recommendations:
- Create a new approval mechanism with a lower quorum of more than one-third combined with a ‘supermajority’ affirmative vote of at least 75 percent.
- Allow fundamental policy changes with board approval and advance shareholder notice.
- Permit fund boards to appoint more independent directors without requiring a shareholder vote.
- Remove exchange-mandated annual meeting requirements for listed closed-end funds and business development companies.
- Allow funds to adopt retail voting programs like those the SEC has allowed for operating companies.
- Reform shareholder communication and proxy processing fee rules to allow funds to contact shareholders more directly and reduce costs.
- Streamline proxy disclosure through layered, more shareholder-friendly formats.
The report, using data from 2020 and 2025, found that total campaign costs ranged from $675 million to $1.14 billion.
ICI also found that shareholders overwhelmingly support fund-sponsored proposals. For example, funds seeking changes to diversification status driven by increased equity market concentration saw average approval rates reach 85 percent of shares present. Yet many proposals still failed or required repeated adjournments of shareholder meeting dates due to quorum challenges.
ICI noted that fund shareholders are largely retail investors who own their funds through intermediaries such as investment advisers or broker-dealers. Thus, it is difficult for funds to identify and communicate directly with them – and prolonged solicitations and adjournments increase costs further.