SEC Staff Greenlights Directed Voting Programs for Funds

On September 29, 2026, the SEC’s Office of Chief Counsel, Division of Investment Management, issued a no-action letter (the “Letter”) to the Mutual Fund Directors Forum (MFDF) covering a “Directed Voting Program” under which fund shareholders may give standing instructions to vote with the board’s recommendation. The relief comes as conservative estimates place the total costs of fund proxy campaigns since 2020 at between $675 million and $1.14 billion, with fund shareholders regularly approving more than 80% of uncontested board-recommended proposals. The Letter brings the retail voting framework from the Exxon Letter, the Tesla Letter and the Goldman Letter¹ into the 1940 Act context, with governance safeguards specific to funds.

• The SEC staff agreed not to 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) to any registered fund or BDC (each a “Fund”) that implements a “Directed Voting Program” described in MFDF’s requesting letter.
• In a Directed Voting Program, a “retail” shareholder gives a revocable standing instruction to vote in favor of recommendations approved by the Fund’s board, including every independent director. “Retail” shareholders include holders of record and beneficial owners, whether or not they hold through an intermediary.
• The Letter does not reach the 1940 Act, the Investment Advisers Act of 1940, as amended (the “Advisers Act”), or any rules under either statute, and it covers only votes cast at duly called annual or special meetings (i.e., not written consents in lieu). Additionally, MFDF expressly did not seek no-action relief regarding whether program communications are “solicitations” under Exchange Act Rule 14a-1(l).

Directed Voting Programs

MFDF made the following representations regarding a Directed Voting Program:

1. Under the Directed Voting Program, a Fund shareholder could give a revocable standing voting instruction whereby, on an ongoing basis, the shareholder’s votes would be cast in favor of recommendations approved by the Fund’s board of directors (“Board”), including all of the directors of the Fund who are not “interested persons” of the Fund as defined under the 1940 Act (“Independent Directors”). Shareholders would choose between two standardized enrollment options: (1) all matters except the “Exclusions” (i.e., contested director elections and changes to the Fund’s primary investment advisory agreement), or (2) all matters except the Exclusions and the “Opt-Out Items” (i.e., certain Fund mergers and Rule 12b-1 fee increases), each as described in more detail below. Shareholders could not customize these options further.
2. The Directed Voting Program would be available to all “retail” shareholders at no cost to that shareholder, and each investor would be offered the same opportunity to enroll in the Directed Voting Program voluntarily. A retail shareholder would mean any person (as defined under Section 2(a)(28) of the 1940 Act) that has, or is entitled to have, voting authority with respect to the shares of a Fund by virtue of owning beneficially and/or of record such shares, regardless of whether the person owns their shares through a bank or other financial intermediary.
3. The Directed Voting Program would be (i) approved by the Fund’s Board, including unanimously by the Fund’s Independent Directors, prior to its implementation, and (ii) reexamined by the Fund’s Board at least every three years and reapproved by the Fund’s Board, including unanimously by the Fund’s Independent Directors, at such time if they determine that the Directed Voting Program remains in the best interests of Fund shareholders.
4. Standing voting instructions under the Directed Voting Program would only apply to matters recommended by the Fund’s Board and unanimously approved by the Fund’s Independent Directors.
5. The Directed Voting Program would not apply to contested director elections and changes to the Fund’s investment advisory agreement with its primary investment adviser that require a shareholder vote (including material changes to the advisory agreement, approval of an advisory agreement with a new primary investment adviser, and approval of an increase in advisory fees) (collectively, the “Exclusions”).
6. Shareholders that choose to participate in the Directed Voting Program would have the option to further exclude from their standing voting instructions under the Directed Voting Program votes on (i) Fund mergers that, under the 1940 Act and its rules, applicable state law, the Fund’s organizational documents, or applicable exchange listing standards, require approval of a Fund’s shareholders, and (ii) adoption of, or changes to, a Fund’s plan adopted pursuant to Rule 12b-1 under the 1940 Act that would result in an increase in 12b-1 fees for a Fund (together, the “Opt-Out Items”).
7. Participating shareholders could opt out of the Directed Voting Program to cancel their standing voting instruction at any time and at no cost. Participating shareholders could only opt out of the standing voting instruction for meetings for which the Fund has not yet filed a definitive proxy statement or definitive registration statement on Form N-14 (each, a “relevant proxy statement”).
8. Participating shareholders could always override the votes to be cast by the Fund through the standing voting instruction by voting using the proxy materials they received for that meeting. Participating shareholders will continue to receive the same required information relating to shareholder meetings (including the relevant proxy statement) in the same manner as they do currently. A Fund would make full disclosure on its website and prominently in its relevant proxy statement of the Directed Voting Program.
9. A Fund would file with the SEC the relevant materials describing the Directed Voting Program under cover of Schedule 14A pursuant to Rule 14a-12, and would subsequently file any material changes to these materials in the same manner.
10. Participating shareholders would receive, during the time period when the Fund is not soliciting votes for a shareholder meeting, an annual reminder of their opt-in status and selection. This reminder would remind them (i) of their ability to opt out and cancel their standing voting instruction with respect to subsequent meetings, and (ii) that, to the extent permitted by applicable state law, the Fund’s organizational documents, and any applicable exchange listing standards, shareholders that do not opt out prior to the filing of a relevant proxy statement with the SEC in relation to a particular meeting will be deemed to be present at such meeting for purposes of establishing a quorum.
11. Participating shareholders who did not opt to exclude the Opt-Out Items would receive an additional reminder prior to any meeting involving one or more Opt-Out Items.

Implications under the Investment Company Act

MFDF posited that permitting Funds to use a Directed Voting Program would both leverage the role of Independent Directors and alleviate the substantial costs and delays of drawn-out proxy solicitations. Additionally, MFDF argued that the provisions of the 1940 Act do not prevent a Fund shareholder from opting to cast its votes pursuant to a Directed Voting Program. Any limitations on this particular method of voting are imposed on Funds by the Exchange Act rules discussed above, through Rule 20a-1 under the 1940 Act, and by applicable state law, any relevant bylaw or charter provisions, and applicable exchange listing requirements.

• MFDF highlighted that a Fund using a Directed Voting Program would still require (i) a shareholder vote on those matters that require shareholder approval under the 1940 Act, and (ii) that such vote satisfy the vote standard under Section 2(a)(42) of the 1940 Act whenever such provision applies.
• MFDF acknowledged that one could argue a Directed Voting Program implicates concerns about self-dealing and management entrenchment by making it easier for investors who tend to agree with the Board to vote as compared to others. However, MFDF maintained that the program appropriately addresses these and other potentially applicable concerns through shareholders’ receipt of full disclosure prior to opting in, continued receipt of proxy materials, and receipt of annual (and in some cases additional) reminders of their ability to override and opt out. The concerns were also addressed by requirements for unanimous approval of the Independent Directors and by the fact that the Directed Voting Program does not apply to contested director elections, changes to the Fund’s investment advisory agreement with its primary investment adviser, and, at the option of the individual shareholder, the Opt-Out Items.

Staff Response

Based on the facts and representations presented in MFDF’s requesting letter, the SEC staff stated that it would not recommend enforcement action to the SEC 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 MFDF’s requesting letter. The staff emphasized that its position addresses enforcement action only and does not provide legal conclusions on the issues presented.

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Ropes & Gray attorneys represented MFDF in obtaining the Letter.

If you would like to learn more about the developments in this Alert, please contact your usual Ropes & Gray attorney contacts.

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