Why would voting all proxies for a client be considered bad? Is voting ANY proxies for clients considered bad as well? Which of the following is a possible breach of fiduciary duties by a CFA Institute member who manages assets on behalf of a client? A) Voting all proxies of stocks the client owns. B) None of these breach fiduciary duties. C) Using directed brokerage. D) Obeying the rules of corporate governance. Your answer: C was incorrect. The correct answer was A) Voting all proxies of stocks the client owns. Proxies have economic value to the client. To comply with Standard III(A), the analyst is obligated to vote proxies in an informed and responsible manner. A cost benefit analysis may show that voting all proxies may not benefit the client, so voting proxies may not be necessary in all instances. Directed brokerage occurs when the client requests that a portion of the client’s brokerage be used to purchase services that directly benefit the client. Although, this may prevent best execution, it does not violate the Standards as it was directed by the client, not the brokerage firm.
Need to do a Cost Benefit Analysis and only then decide on a trade-off, for the number of proxies to be voted. - Dinesh S
Standard III: Duties to Clients (A) Loyalty, Prudence, and Care p.55 “Part of a member or candidate’s duty of loyalty includes voting proxies in an informed and responsible manner. Proxies have economic value to a client, and members and candidates must ensure that they properly safeguard and maximize this value. A fiduciary who fails to vote, casts a vote without considering the impact of the question, or votes blindly with management on nonroutine governance issues (e.g., a change in firm capitalization) may violate this standard. Voting of proxies is an integral part of the management of investments. A cost-benefit analysis may show that voting all proxies may not benefit the client, so voting proxies may not be necessary in all instances. Members and candidates should disclose to clients their proxy-voting policies.” Also note that CFA exam questions never have “all/none of the above” choices.