SEC Issues No-Action Relief for Fund Directed Voting Programs

Who may be interested: Registered Investment Companies; Directors of Registered Investment Companies; Investment Advisers

Quick Take: On September 29, 2026, the staff of the SEC Division of Investment Management (Staff) issued a no-action letter concluding that it would not recommend enforcement action under certain Exchange Act proxy rules if a registered fund implements a voluntary Directed Voting Program to permit fund shareholders to provide a revocable standing voting instruction to vote their shares in accordance with recommendations approved by the fund’s board of directors, including its independent directors, subject to specified exclusions and shareholder protections. The relief provides a potential framework for funds to streamline shareholder voting and reduce the costs associated with obtaining shareholder participation.

Background and Regulatory Considerations 

The Mutual Fund Directors Forum, an industry group representing independent directors of registered investment companies, submitted a request to the Staff seeking assurances that the Staff would not recommend enforcement action under Exchange Act Rules 14a-3(a), 14a-4(d)(2), 14a-4(d)(3), 14a-4(f), 14a-6(o), 14a-10, and 14a-12(a), as made applicable to funds by Rule 20a-1 under the 1940 Act, if a registered investment company, business development company, or series thereof implemented a voluntary Directed Voting Program. Under the proposed program, retail fund shareholders could provide a revocable standing voting instruction pursuant to which their fund shares would be voted in accordance with recommendations approved by the fund’s board of directors and unanimously approved by the fund’s independent directors.

The Directed Voting Program relates to how shareholders vote their own fund shares on matters submitted to fund shareholders for approval. The request sought relief similar to recent no-action letters issued by the staff of the SEC Division of Corporation Finance concerning retail shareholder voting programs for operating companies, while incorporating additional limitations and shareholder protections reflecting the governance requirements applicable to investment companies. These Directed Voting Programs are also distinct from prior SEC relief permitting fund shareholders to express preferences regarding how advisers vote proxies issued by companies held in a fund’s portfolio. Here, shareholders are directing how their own fund shares are voted on matters submitted to fund shareholders for approval, rather than expressing voting preferences regarding portfolio company proxies.

Participation in the program would be voluntary. Shareholders would continue to receive proxy materials and could revoke or override their standing voting instructions. The Directed Voting Program would apply only with respect to proposals that are recommended by the fund’s board and unanimously approved by the fund’s independent directors. In addition, the fund’s board would have to approve the Directed Voting Program, including unanimous approval by the fund’s independent directors, and the Directed Voting Program would have to be reconsidered at least every three years. Participating shareholders would also receive annual reminders regarding their enrollment status and voting elections.

A fund must continue to comply with applicable state law, its organizational documents, and any applicable exchange listing standards in connection with a shareholder granting a standing voting instruction pursuant to a Directed Voting Program. State law in certain jurisdictions permits standing voting instructions to remain effective for a specified default period unless shareholders provide for a different duration, allowing funds to administer such instructions in accordance with applicable legal requirements.

The proposal would not apply to contested director elections or votes concerning changes to a fund’s primary advisory agreement, two categories of matters that the request identified as raising heightened concerns regarding management entrenchment and conflicts of interest. Notably, shareholder approval of advisory agreements is a core protection under the 1940 Act. In addition, participating shareholders could elect to exclude certain fund mergers and Rule 12b-1 fee increases from the scope of their standing voting instructions.

The request noted that funds often incur significant expenses in obtaining quorum and securing shareholder approval for matters requiring a shareholder vote. The request cited industry estimates regarding the costs of fund proxy campaigns and noted that uncontested matters recommended by fund boards are typically approved at high rates once sufficient shareholder participation is obtained.

SEC Staff Considerations

In its response, the Staff noted the request’s representations that shareholders would (i) continue to receive proxy materials, (ii) retain the ability to opt out of the Directed Voting Program, and (iii) be able to override any standing voting instruction by voting directly on matters submitted to shareholders. The Staff referenced the annual reminder process described in the request letter. The Staff also noted that granting the relief would not alter shareholder voting requirements under the 1940 Act.

Relief Granted

Based on the facts and representations set forth in the request, the Staff stated that it would not recommend enforcement action under Exchange Act Rules 14a-3(a), 14a-4(d)(2), 14a-4(d)(3), 14a-4(f), 14a-6(o), 14a-10, and 14a-12(a) if a fund implements the Directed Voting Program as described in the request letter. The relief is limited to the specified Exchange Act proxy rules. The no-action letter expressly states that it does not provide no-action assurances with respect to the 1940 Act, the Advisers Act, or any rules thereunder and reiterates that it reflects the views of the Staff rather than the Commission. The relief provides a potential framework for funds to address proxy solicitation and quorum challenges with respect to their own proxies, while preserving shareholder protections.

The Staff’s no-action letter and request letter are available here.

The staff of the SEC Division of Corporate Finance also recently issued several no-action letters, on September 28 and September 29, 2026, approving retail shareholder directed voting programs for non-investment company issuers.