Study says fund proxy campaigns are increasingly costly, inefficient and ripe for SEC reform.
US fund companies may have spent more than a billion dollars on proxy campaigns over the past five years, costs that ultimately flow through to investors.
New research is renewing calls for regulatory reform of the fund proxy system and finds that the process for obtaining shareholder approvals has become increasingly costly and difficult, even when investors overwhelmingly support the proposals being voted on.
The Investment Company Institute report means that investors face hidden costs embedded in mutual funds, exchange-traded funds, and closed-end funds, from the operational expense of simply getting shareholders to vote.
The ICI survey of 62 fund firms, representing roughly $38 trillion, or about 85% of US registered fund assets, estimated total proxy campaign costs since 2020 ranging from US$675 million to $1.14 billion, driven largely by outreach efforts needed to obtain enough votes to meet quorum requirements.
Eric Pan, ICI President and CEO, says that there is a way to move forward.
“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,” he said. “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.”
The root of the problem lies in how funds are owned as unlike operating companies that may have concentrated institutional shareholders, registered funds have vast retail investor bases that are often held through intermediaries such as broker-dealers, RIAs and retirement plans.
This structure makes identifying and contacting shareholders difficult and expensive, while participation rates compound the challenge with only about 30% of retail investors voting their proxies historically, compared with roughly 80% of institutional investors, according to the report.
That gap forces fund sponsors to rely on repeated mailings, phone campaigns and solicitation firms just to reach quorum thresholds; costs that rise sharply when proposals require approval by a majority of outstanding shares.
For advisors whose clients hold funds in brokerage accounts or retirement plans, the implications are that proxy-solicitation expenses reduce fund assets and can ultimately affect returns.
Most campaigns are not contentious
ICI found that most shareholder proposals pass with wide margins, often receiving approval from around 85% of shares represented at meetings. But reaching that point frequently requires multiple meeting adjournments and costly outreach to shareholders who have not yet voted.
The report highlighted several examples where proxy campaigns cost tens of millions of dollars each, including at least six campaigns exceeding $25 million and one topping $111 million. In some cases, the costs rival or exceed high-profile corporate proxy fights. By comparison, Disney estimated that its widely publicized 2024 boardroom battle cost about $40 million, the report noted.
The report also flags another cost driver: shareholder activism targeting listed closed-end funds.
Exchange rules require those funds to hold annual shareholder meetings, creating opportunities for activists to push contested board elections or other campaigns. Such contests can raise proxy costs to an average of about $761,000 per meeting, compared with roughly $32,000 for routine annual meetings.
While activism can sometimes narrow discounts to net asset value temporarily, the report argues that most benefits accrue to activists who exit quickly, while long-term investors remain responsible for the associated costs.
Suggested reforms
To address the rising expenses, ICI is urging the SEC to modernize the proxy framework governing funds.
Among the key recommendations are lowering quorum thresholds while requiring a 75% supermajority vote to approve certain measures; allowing some policy changes through board approval and advance shareholder notice rather than a full proxy campaign; permitting funds to adopt retail voting programs similar to those recently approved for operating companies; and eliminating exchange-mandated annual meetings for listed closed-end funds.
The goal, according to ICI, is to preserve investor protections while reducing the administrative burden that funds and their shareholders currently shoulder.
As proxy campaigns grow more expensive and complex, the debate over reform may increasingly become a question of protecting investors from the costs of a system designed decades before today’s retail-driven fund landscape.
