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Why do discretionaries abstain from shareholder votes?

Why do discretionaries abstain from shareholder votes?

Many discretionary managers do not actively cast shareholder votes on behalf of their clients.

Back in the 1990s several firms, including Killik & Co, campaigned for beneficial shareholders – or rather those whose shares are held in a nominee company – to have the same rights as legal shareholders who appear on the register of the company.

Their campaign succeeded in 2007 when the Company Law Reform Bill was amCharles Stanley Group PLC (CAY.L)ended. However, it would appear that discretionary clients are not necessarily utilising these rights.

Whether this is down to company or client inertia, or is simply because firms don’t want to hassle their clients with further paperwork, remains unclear. However, in reality it means a swathe of wealth managers’ clients are not having their say when it comes to casting votes on corporate issues.

The reality of responding to every potential shareholder vote would certainly be tedious for any investment business, but an informal survey of the sector suggests few follow a company-wide policy on their discretionary share portfolios or have input from a corporate governance team.

As the sector manages some £600 billion in assets (albeit not all in direct shares), its potential clout should still not be underestimated. While institutional investors and fund management houses have been urged to exercise their votes and thus appear to have become much more vocal on certain issues, some say it is only a matter of time before private client firms come under the same pressure.

‘We have always had the ability for our discretionary clients to vote in AGMs and so on, but these votes have not really been used very often,’ said Louis Coke, an investment manager at Charles Stanley. ‘You can see that the writing is on the wall and pressure could increase to vote. We will take the market’s lead on it.’

Charles Stanley does not have a company policy on shareholder votes but allows individual managers to make decisions on behalf of their clients. A spokesperson for the firm said there were no plans to implement a group-wide strategy and said it does not currently have a corporate governance team in place.

Coke expects the institutional market to take the lead on utilising votes. ‘You can see it happening where the institutional market will lead it and private client [managers] follow further down the line. This can only be a good thing,’ he says.

Close Brothers Asset Management does vote on behalf of the 1,800 discretionary clients who use its tailored portfolio service when it feels strongly on an issue.

However, a spokeswoman acknowledged the firm does not do this frequently and tends to stick primarily to situations where a vote is required. ‘If we feel the majority of clients are going to benefit from something we will take a vote on it,’ she added.

Rathbones appears to take a more active approach, voting on clients’ behalf as part of a company-wide policy.

This is driven by a corporate governance committee, which is chaired by a senior director, while the firm also gets input from a shareholder consultancy.

‘We have a policy of voting on all major holdings that we have in the UK market. Where we hold over a certain threshold of a certain company we will vote on those. If there is an issue that a client has, they are always entitled to come back and make their own statement. It is their shareholding. In the absence of that we will follow our policy,’ said Paul Chavasse (pictured), head of investment management at Rathbones.

The firm’s ethical arm, Rathbone Greenbank, also has the scope to engage with companies over clients’ specific issues.

‘We certainly take a view that we are stewards of our clients’ investments and where possible we should engage and vote. It is part of being a shareholder and part of our responsibilities,’ Chavasse said.

Manager autonomy

Redmayne-Bentley allows its discretionary managers to vote if they wish but said this is not something that is done frequently. The firm provides an online service for shareholder voting for positions held in its nominee service and offers clients the opportunity to attend meetings if they wish, although there is a small charge for this.

‘As we are a bespoke investment management firm, each situation will be assessed individually and it will be down to the investment manager as to what action is required. All decisions are made on a case-by-case basis,’ said Redmayne-Bentley stockbroker Lauren Charnley.

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