Misery Loves [Investment] Company?: Remarks at the 2026 Investment Company Institute Investment Management Conference

Thank you, Eric [Pan] for the kind introduction, and thank you to the Investment Company Institute for inviting me to deliver remarks this morning. Before I continue, I must remind you that my views are my own as a Commissioner and not necessarily those of the Commission or my fellow Commissioners.

I made my first speech as a Commissioner at this conference in 2018. Being back eight years later as my tenure on the Commission draws to a close is a nice bookend. As I reminisced in 2018, I first joined the Commission as a staff member in the Division of Investment Management, so these issues are near and dear to my heart.

In the years that have passed since that 2018 conference, your jobs have gotten even more important as funds have continued their phenomenal growth. Back then more than 95 million people in the US owned registered investment companies that managed more than $19 trillion in assets.[1] Just eight years later these numbers have grown to more than 125 million people and approximately $39 trillion in assets, respectively.[2] Similarly, back in 2018, over $7.5 trillion in retirement savings were invested in mutual funds.[3] Today, it is over $13 trillion.[4] Assets in Section 529 plans have grown from more than $250 billion to over $500 billion.[5] In short, this nation relies even more heavily than before on all of you to meet our critical financial needs, from paying for our children's education to being able to support ourselves in retirement.

With funds playing such an integral part in tens of millions of investors' well-being, good regulation is also more important than ever before. What is good regulation? I framed the last speech around glasses-pun intended. Nowadays, I often am searching for the glasses that I have taken off so I can read. In a memorable Calvin and Hobbes comic strip, Calvin's dad is on a similar quest. His search ends with Calvin, who is using the glasses to impersonate his father. He completes the imitation with these Dad-words: "Calvin, go do something you hate! Being miserable builds character."[6] Calvin's searing commentary on parental motives causes me to ask: Is misery the right way to build regulatory character? Will our rules yield a healthy industry culture only if they make all of you miserable in the process?

The answer to that question is, of course, "no." To the contrary, rules should accord well with what well-intentioned, well-run firms already do. Properly calibrated regulations should empower leadership to build a healthy, compliant culture without impeding firms from serving their customers well. I spoke recently to a woman who left her long-time job as a financial advisor because the rules turned her job into a compliance exercise divorced from the clients she so wanted to help. People and firms motivated by the desire to serve other people should find regulation supportive of that objective. If our rules instead drown investors in a sea of impenetrable paper and hook asset managers up to marionette strings so they can perform an SEC-choreographed dance, we have failed.

The SEC's approach at times might seem to embody the misery model of molding the asset management industry. I confess to supporting some of these rules, but the industry has suffered through mandates on fund names, derivatives, liquidity risk management, mandatory liquidity fees for money market funds, fund vote disclosures, marketing, tailoring shareholder reports, and more. Misery also comes from what we have not done: we have not accommodated e-delivery as the default,[7] addressed fund proxy voting issues, modified Rule 17a-7 to facilitate fund cross-trading following the valuation rule amendments, or leveled the playing field for affiliated securities lending programs. Examinations and enforcement actions sometimes add to the misery. The Commission's sparse use of its exemptive authority in recent years set back industry developments such as ETF share classes of mutual funds and co-investments for closed-end funds, both of which only recently got the green light.

Regulatory compliance in an industry of this importance and complexity is never going to be easy. The Commission, however, can facilitate compliance with smarter rule formulation, implementation, and enforcement. Several principles should guide us, though these are not meant to be exclusive. First, regulate in response to an identified problem. Second, actively listen to investors and industry to identify problems and craft solutions. Third, remember that investors bear the costs of regulation, and those costs can be hard to detect. Fourth, harness technological solutions rather than suppressing them. Fifth, one of the best ways to protect investors is to foster a dynamic environment that inspires new entrants and incumbents to cut costs and improve services. Let's look at each of these principles through some recent, current, and future examples.

First, regulation should respond to a problem, and we have a problem that has been crying out for a solution for decades. Under the Investment Company Act regime, generally, funds need to receive the support of at least 67 percent of the voting securities from holders of more than 50 percent of the outstanding voting securities of the fund to approve a change to a fund's fundamental investment policies, certain agreements, 12b-1 plans, and mergers of affiliated funds.[8] In the retail-heavy world of investment companies,[9] this quorum requirement is a tall order because retail investors are much less likely to vote than institutional investors.[10] Adding further complexity to this issue is the fact that most fund investors acquire their interest through an intermediary, such as a broker-dealer, investment adviser, or a retirement plan. The asset manager trying to wrangle votes might not know who the beneficial owners with voting authority of its shares are. Investors may not even know they are invested in the fund because their relationship is with their intermediary. As far back as 1992, the Commission's Division of Investment Management noted that fund industry participants and observers had told its staff about the difficulty of obtaining a quorum.[11] The costs of this unresolved problem have continued to climb due to various factors, including brokers electing not to vote their customers' shares on a discretionary basis, and investors' greater reluctance to respond to unsolicited calls. The ICI recently estimated that total costs for fund proxy campaigns since 2020 have ranged from $675 million to $1.14 billion.[12] The costs of rounding up votes sometimes cause advisers to forgo making changes that would benefit the funds or delay making them until a number of matters can be grouped.

Here is where the second principle comes in-we need your advice on solving this problem. We also need the input of investors, which is why I was happy to see the Investor Advisory Committee grappling with this issue at its last meeting.[13] A fundamental investor right is at stake here, but, as the title of one of yesterday's conference panels suggests-Please Stop Calling Me-investors also feel put upon when they are asked to exercise that right.

The ICI has suggested reducing the quorum requirement and raising the affirmative vote requirement. Specifically, the ICI recommends setting the quorum at no less than 33⅓ percent with a higher affirmative vote requirement of at least 75 percent.[14] While this suggestion would make it easier to achieve a quorum, it could create a new problem. Even though voting shareholders usually favor approval of these matters by well more than the current 67 percent requirement, a higher approval requirement could result in a matter that would have been approved under the 67 percent requirement not reaching the 75 percent (or other) higher level suggested.

Another potential fix to the quorum issue is to replace the shareholder approval requirement with an alternative, such as board approval. Alternatively, or in addition, funds could provide advance notice to shareholders of the action for at least some of the matters for which the more than 50 percent quorum is required. Proponents of this solution[15] draw inspiration from the Names Rule under which a fund may change its investment policy if it provides fund shareholders with at least 60 days' advance notice.[16] While I appreciate the rationale behind this approach, depriving shareholders of their statutory voting rights is a serious matter. In fact, under the Names Rule if the 80% policy is a fundamental policy, changing it requires a shareholder vote.

A solution modeled on the Exxon-Mobil retail investor voting program might be preferable. Last year, Commission staff in the Division of Corporation Finance granted a no-action letter for Exxon Mobil Corporation's voting program that allows retail investors to provide a standing proxy to vote their shares at every shareholder meeting in line with the recommendations of the company's board if certain conditions are met. The program is voluntary, available to all retail investors at no cost, enables participating investors to opt out and cancel the standing voting instruction at no cost and to override the instruction for any particular proposal or proposals at no cost, and provides participants with annual reminders of their participation and ability to opt out and cancel their standing voting instruction.[17] This solution would solve the quorum problem without depriving investors of their voting rights. Presumably, retail investors invest in a particular fund, at least in part, because they have faith in the fund's management, and this solution would be a less burdensome means of expressing that faith than voting every proxy individually. This solution would not require an increase in the percentage of the vote required to approve a matter and could be implemented quickly.

Any of these three solutions would reduce the costs associated with proxy vote gathering. Money poured into those campaigns eats into shareholder returns. Fund returns may suffer when changes are not made because of quorum considerations. In addition, vote-chasing distracts advisers and boards from devoting efforts to other matters that would benefit the fund. These costs should concern us.

So we come to our third guiding principle: a rule's investor protection benefits should be weighed against its costs. Too often the cost a rule imposes on funds-which eats into investor returns-is, at best, an afterthought. With over 125 million Americans invested in funds, even a small decrease in costs and associated increase in their investment returns can be meaningful. A natural candidate for discussion here is the antiquated and costly method of delivering fund documents to investors.

Currently, paper is the default delivery method for most fund disclosure documents. Because inundating investors with copious amounts of paper does not lead to shareholder engagement with the substance of those disclosures, the investor protection justification for the paper requirement is suspect.[18] Printing and mailing the material is costly.[19] Paper documents also expose investors to identity theft risk. Our flirtation with e-delivery in Rule 30e-3 was a positive step as long as it lasted, but a wholehearted embrace of e-delivery would be a better way to steward investor money and respond to the preferences of the post-COVID investor.[20] We should consider a proposal either to make electronic delivery the default or even to allow firms to offer disclosure in whatever form they prefer. Under the latter approach, firms would not have to offer a paper option to new shareholders. The cost savings for investors from funds (or intermediaries) not having to print and mail so many documents would increase shareholders' return on their investment, which is why they invest in the first place. As a corollary, we may need to address the rather absurd situation in which a fund must pay intermediaries higher fees not to send paper documents to investors.[21]

E-delivering documents that are designed primarily as paper documents is only a start. The real benefits lie in using technology to create interactive disclosures. So we come to the fourth principle: we should embrace, not fear, technological solutions. Technologies that have transformed our user experience elsewhere enable more interactive and personalized fund disclosures that are easier for investors to digest. Asset managers can use technology not only to deliver information but to layer and customize investor disclosure, particularly fee and expense information, and can do so in a way that invites investor engagement and understanding. Creating these kinds of investor-centric experiences is difficult in an environment shaped by regulatory prescriptions.

A welcoming attitude also should inform the way we consider other new technologies in this space. With my usual caveat not to count on regulatory renderings of the future coming to pass, artificial intelligence and tokenization could dramatically improve the ability of asset managers to serve investors' unique needs and to enable them to use their assets more efficiently. I commend the Commission staff for its work on tokenized money-market funds and face amount certificate companies, and look forward to continued developments. And I commend Investment Management Director Brian Daly's willingness to look at new technology with optimism for how it can improve the industry's ability to serve investors.[22]

An innovative industry requires . . . innovators. So we come to today's fifth and final principle. Barriers to entry are a problem in the asset management industry. As the registered investment company rulebook thickens, innovators find more rewarding outlets for their new ideas elsewhere. Why manage money for retail investors when regulatory constraints make innovation slow, costly, and-to borrow Calvin's word-miserable? Investment Company Act protections have served investors well but the Act gives the SEC exemptive authority for a reason. We should use it with a creativity that crafts commercially workable solutions that are consistent with the goals of the Act.

Speaking of creativity, particularly since the Commission adopted the ETF Rule, the industry has shown a lot of it. New products proliferate. Say the word-any word-and someone will package it into an ETF or other exchange-traded product. Many of these new products help produce returns or manage risk. Other new products seem closer to Calvin's preferred breakfast of chocolate frosted sugar bombs. As a non-merit regulator, the SEC focuses on accuracy and completeness of disclosure, rather than on product quality or probable market interest. Depriving people of their right to invest, speculate, or gamble away their own money as they see fit is not our role, and I strongly support people's freedom to choose for themselves. As I think back to my own early interest in the fund industry, however, I remember that what drew me to it was its potential to improve the lives of hardworking Americans. I suspect your commitment to the industry is rooted in similar awe at the power of pooled investment products to bring prosperity and security. The occasional bowl of chocolate frosted sugar bombs is not a cause for worry, but let's not forget that the industry made its mark on so many investors' lives by serving them oatmeal.[23]

Thank you for your time, and I look forward to my fireside chat with Eric.