Thank you, Brian [Schorr]. Good morning and thank you to all of the Committee members and panelists for your participation today. Your two panel discussions should be interesting, and I hope you will have a robust discussion about the draft recommendation on investment adviser arbitration.

Pass-through voting for funds arose as a response to concerns that some fund advisers seemed to have forgotten to whom voting rights belong. Advisers, for example, were signing on to pledges to vote the shares of the funds they advised in accordance with third-party principles, and some asset manager stewardship teams were making cross-complex voting recommendations without regard for disparate fund objectives. As noted in today’s meeting agenda, “[t]he right to vote at a shareholder meeting belongs to the registered shareowner under state law.”[1] In the case of investment funds, the right belongs not to the adviser and not even to the fund investors, but to the fund itself.[2]

A fund’s board may delegate voting power to its adviser, but the adviser must exercise it in the interests of that fund and that fund alone. In making the voting decision, the adviser owes a fiduciary duty to its client—the fund—not to fund investors.[3] An asset manager that advises a large passive index fund and a small environmental impact fund may be tempted to use the leverage afforded by the index fund’s large holding in a company to pressure the company to take actions that would align with the environmental fund’s objectives. Such active engagement, however, is at odds with the passivity of the index fund.[4]

Does pass-through voting, which effectively hands the fund’s votes to the subset of fund investors who choose to express their preferences, respect the reality of the fund’s ownership? As you think about this question, bear in mind that regardless of their individual views on issues on which the fund may be called to vote, when investors in a fund choose to invest in a fund, they are signing on to the fund’s objectives.

With respect to your second panel topic: non-GAAP financial disclosures, today’s meeting agenda rightfully points out their ability to “help frame financial results from management’s perspective."[5] But more than offering additional perspective, such measures may reflect the actual metrics by which management evaluates its business. I hope the Committee will assess to what extent standardizing non-GAAP measures may undermine their inherent purpose which is to provide particularized nuance to already standardized GAAP measures.

I appreciate the Committee’s consideration of mandatory arbitration clauses by registered investment advisers and the work that went into the draft recommendation that you will consider today.[6] The draft suggests that the Commission should harmonize the regulation of predispute arbitration clauses for registered investment advisers and broker-dealers. In its discussion, I hope the Committee will consider the following questions:

1. As I mentioned at the December 10, 2024 discussion of these issues, freedom of contract is a bedrock principle.[7] How is the Committee thinking about that principle in connection with these draft recommendations?

2. Would harmonization in the area of arbitration obscure the different regulatory approaches for broker-dealers and investment advisers? The former is more rules-based and administered by FINRA, whereas the latter is principles-based and administered directly by the SEC without the assistance of an SRO.

3. Applying FINRA Rule 2268 to investment advisers, as the draft proposes, would prohibit investment advisers from, among other things, including in advisory agreements any clause that limits or contradicts the rules of any self‑regulatory organization. Given the absence of an SRO for advisers, how would investment advisers comply with this rule?

4. I found the discussion of investment adviser arbitration clauses at the December meeting and in the report presented by Staci Puente valuable. As noted in the report, however, only 5% of advisory agreements with retail clients that contained mandatory arbitration clauses (approximately 61% of such advisory agreements) limited claims that a client may assert and only 11% limited damages that may be awarded. Given these statistics and the fact that some states have addressed adviser arbitration clauses, should the Commission use its limited resources to engage in a rulemaking on investment adviser arbitration?

Thank you again for your willingness to dedicates so much of your time to the Investor Advisory Committee. Thank you also to Cristina Martin-Firvida, Marc Sharma, and Adam Moore for their work with the Committee.

¹ U.S. Securities and Exchange Commission, Investor Advisory Committee, Meeting Agenda (June 5, 2025), https://www.sec.gov/about/advisory-committees/investor-advisory-committee/iac060525-agenda.(go back)

² See Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies, 68 Fed. Reg. 6564, 6565 (Feb. 7, 2003), https://www.govinfo.gov/content/pkg/FR-2003-02-07/pdf/03-2951.pdf (“Because a mutual fund is the beneficial owner of its portfolio securities, the fund’s board of directors, acting on the fund’s behalf, has the right and the obligation to vote proxies relating to the fund’s portfolio securities. As a practical matter, however, the board typically delegates this function to the fund’s investment adviser as part of the adviser’s general management of fund assets, subject to the board’s continuing oversight.”).(go back)

³ See Goldstein v. SEC, 451 F.3d 873, 881 (D.C. Cir. 2006) (“If the investors are owed a fiduciary duty and the entity is also owed a fiduciary duty, then the adviser will inevitably face conflicts of interest. Consider an investment adviser to a hedge fund that is about to go bankrupt. His advice to the fund will likely include any and all measures to remain solvent. His advice to an investor in the fund, however, would likely be to sell. . . . While the shareholders may benefit from the professionals’ counsel indirectly, their individual interests easily can be drawn into conflict with the interests of the entity. It simply cannot be the case that investment advisers are the servants of two masters in this way.” (footnote omitted)); Nat’l Ass’n of Priv. Fund Managers v. SEC, 103 F.4th 1097, 1103 (5th Cir. 2024) (“In the private fund context, that client is the fund itself – not the fund’s investors.”).(go back)

⁴ For further discussion of these issues, see Commissioner Hester M. Peirce, There’s a Fund for That: Remarks before FINRA’s Certified Regulatory and Compliance Professional Dinner (Nov. 15, 2022), https://www.sec.gov/newsroom/speeches-statements/peirce-finra-remarks-111522.(go back)

⁵ U.S. Securities and Exchange Commission, Investor Advisory Committee, Meeting Agenda (June 5, 2025), https://www.sec.gov/about/advisory-committees/investor-advisory-committee/iac060525-agenda.(go back)

⁶ U.S. Securities and Exchange Commission, Investor Advisory Committee, Recommendation of the SEC Investor Advisory Committee’s Disclosure Subcommittee Regarding the Use of Mandatory Arbitration Clauses By Registered Investment Advisers (May 21, 2025), https://www.sec.gov/files/investment-adviser-arbitration-recommendation-052125.pdf.(go back)

⁷ Commissioner Hester M. Peirce, Arbitration, Alternative Assets, and Aging Actors: Remarks at the Meeting of the SEC Investor Advisory Committee (Dec. 10, 2024), https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-iac-121024#_edn2.(go back)