At the SEC’s Investor Advisory Committee meeting of 2025, the morning’s panel conversation turned to a fundamental challenge in modern corporate governance: how to meaningfully involve beneficial owners in proxy voting when shares are held through intermediated fund structures.

As traditional notions of shareholder democracy strain under the weight of intermediated ownership structures, new mechanisms, such as pass-through voting and voting choice, aim to bridge the gap between those who hold the economic interest in a company and those who legally control the vote.

With a diverse group of experts, the panel explored how these evolving tools are reshaping investor influence, especially in passive funds, and what lessons might be drawn from efforts to better involve even the most elusive actors in the system: the so-called NOBOs (non-objecting beneficial owners).

Statements from regulators

Chairman Mark Uyeda framed the issue as part of a broader shift toward investor empowerment, expressing support for mechanisms that give individuals more direct influence over how shares linked to their economic interests are voted.

His comments reflected the Commission’s growing interest in pass-through voting: an increasingly popular concept whereby asset managers solicit voting preferences from fund investors and reflect those preferences in proxy decisions.

Commissioner Hester Peirce offered a more cautionary perspective, focusing on the legal and fiduciary boundaries that define the role of asset managers. She emphasized that, under current law, voting rights reside with the fund itself, not its investors, and that advisors are bound to act solely in the fund’s interest.

Peirce challenged recent trends in asset stewardship, where some managers have used the voting power of large passive funds to advance goals better aligned with smaller, more targeted investment strategies. In her view, pass-through voting risks confusing the governance structure of funds and may blur the advisor’s fiduciary responsibilities.

“Does pass-through voting, which effectively hands the fund’s votes to a subset of fund investors who choose to express their preferences, respect the reality of the fund’s ownership?”

SEC Commissioner Hester Peirce

By contrast, Commissioner Caroline Crenshaw raised concerns less about legal structure and more about operational feasibility. She called attention to the volume and complexity of voting decisions and questioned how asset managers could realistically communicate those choices to investors in a way that promotes genuine engagement.

Crenshaw’s focus was on designing a system that is not only theoretically fair but also practically workable, ensuring that engagement with beneficial owners is informed, equitable, and scalable.

Collectively, the commissioners highlighted the tension between evolving democratic expectations in finance and the institutional constraints of fiduciary law and fund design.

The rise of policy-based voting 

Panelists discussed how the growing demand for shareholder influence has led to the development of policy-based voting programs, which allow investors in pooled funds to express proxy preferences without navigating the complexity of voting in thousands of individual ballots.

These frameworks offer a limited menu of voting profiles, typically four to six distinct policies, each reflecting a coherent governance stance. Instead of making vote-by-vote decisions, investors select a policy that is then systematically applied to their fund holdings.

While far removed from direct control, this approach is seen as a middle ground between passive delegation and full shareholder engagement.

One of the panelists described this model as a pragmatic response to the sheer scale of modern asset management and the informational asymmetry facing retail investors.

Retail participation in proxy voting remains low, hovering around 30% for direct stock ownership, and the cost of acquiring, digesting, and acting on voting materials has proven to be a persistent deterrent.

Offering investors a small but differentiated set of policy options is intended to provide meaningful choice while avoiding cognitive overload. Notably, early pilots have shown that a substantial share of participants opt for a policy that differs from the fund’s default, suggesting a genuine case for alignment.

However, legal constraints still shape the contours of what can be offered.

Panelists emphasized that voting policies must remain consistent with the fund’s fiduciary duty to maximize financial returns. Some participants flagged that values-based options, such as those grounded in religious or environmental ethics, may fall outside permissible bounds if they risk sacrificing economic performance.

In the absence of formal regulatory guidance, asset managers have interpreted these boundaries conservatively.

There was broad agreement that as these programs expand, policymakers may need to clarify how fiduciary obligations intersect with investor-driven choice in the proxy process.

Reaching the retail investor 

The second major theme of the panel centered on the logistical and technological barriers to engaging beneficial owners, particularly retail investors, at scale.

Panelists agreed that even the best-designed voting programs struggle to reach large swathes of their target population. Many investors hold their shares through intermediaries, such as brokerage accounts or 401(k) plans, which can obscure the relationship between the fund provider and the end investor.

This makes it difficult to communicate voting options, collect preferences, or even confirm that proxy materials are received. In such cases, only a fraction of fund participants may be eligible or reachable for engagement.

One of the panelists, speaking from the perspective of a retail investor and academic, described the act of voting as both burdensome and opaque.

Proxy platforms often present proposals with minimal explanation, forcing investors to consult dense proxy statements, sometimes running to hundreds of pages, to understand what is at stake. Without access to proxy advisor analysis or streamlined summaries, retail participants are left at a disadvantage.

Even for motivated shareholders, the process of logging into multiple platforms, deciphering the content, and tracking previous votes can be so cumbersome that many opt out entirely.

In response, several panelists pointed to the promise of better-integrated digital tools. Embedding voting policy choices into brokerage and retirement platforms, where investors already engage with their portfolios, was seen as a viable way to improve uptake.

Others advocated for a model of “informed intermediation,” where fund managers solicit high-level preferences from investors and incorporate them into centralized stewardship decisions.

While full pass-through voting may remain impractical for most, panelists generally agreed that capturing investor sentiment, whether through explicit votes or guided policy selection, represents a crucial next step in restoring legitimacy and transparency in the proxy system.

Beneficial owners step into the light

Recent efforts by the SEC to expand engagement with beneficial owners, especially through mechanisms like pass-through voting, appear to be converging with the broader regulatory push for transparency in beneficial ownership reporting.

The discussion during the SEC’s June 2025 Investor Advisory Committee panel indicated that so-called NOBOs (non-objecting beneficial owners), long hidden from view, could now become more visible if it means having a greater voice in how their economic interests are represented in proxy decisions.

This behavioral shift echoes insights from the SEC’s recent capital formation and beneficial ownership reports, which highlight growing investor interest in participating not just in markets, but in company governance itself, with this sentiment particularly strong among investors in private funds and newer asset structures.

This evolution aligns, perhaps unexpectedly, with the priorities of law enforcement and financial regulators pressing to preserve and strengthen beneficial ownership disclosure frameworks. As detailed in recent opposition to rollbacks of transparency rules, the drive to identify ultimate beneficial owners is rooted in efforts to combat illicit finance and improve market integrity.

What’s emerging is a potential point of alignment: investors want visibility for influence, while regulators want visibility for accountability. If engagement tools like pass-through voting help investors feel empowered and better represented, they may, in turn, become more willing to be known –  to be counted  – for regulatory purposes. In this way, the SEC’s governance agenda may end up reinforcing, rather than conflicting with, the goals of financial transparency enforcement.