‘Say’ Helping Investors Be Heard

July 25, 2019

ETF.com: So what does that produce? Telling the ETF issuer how you’d want them to vote on an upcoming proxy?

Lebow: Yes; the output of that is delivered into two different places. One directly. So, for example, we do a lot of work with Tesla. Beyond Tesla, through a fund, you can upload questions for Elon Musk to answer at the annual meeting, like he did a few weeks ago, by virtue of your fund ownership.

Separately, there's another whole world of stewardship, and what we call “fund consultation,” which is when the people who do voting and engagement on behalf of the fund go to make their decisions. An additional valuable input source of data for them is, “What do the fund holders actually think about this?”

And it can be not necessarily a particular proxy voting question that’s probably too granular for people to be interested in—unless it’s something really kind of hot, like a shareholder proposal, or a merger, or something like that—but at a higher level of abstraction, such as, what do the fund holders think about this ESG [environmental, social, governance] issue?

What's the prevailing point of view on governance across the body of beneficiaries who we’re ultimately here to serve in the first place? How is it possible to vote and engage in the best interest of the fund holders without actually talking to the fund holders about what they want?

ETF.com: Do investors pay for this? 

Lebow: It’s free for retail shareholders. That just isn't part of our model or philosophy. The principal business that we’re in, from a revenue perspective, is the regulated communication distribution. That’s another line, which is facilitating the proxy materials, distribution and proxy funds, and fund reports, also annual and semiannual reports from ETFs and mutual funds. We do all of that.

ETF.com: Must companies and ETF issuers sign up for the program on their end to make the communication work?

Lebow: We don’t need fund issuers or companies to be committed to taking part. What we can do is just take the output of what we've done and give it to them, which is something we've actually started doing: “Your shareholders are out there. We have a bunch of them on our platform. Here’s what they want to ask you.” And also, “Here’s some basic information about who these people are.” We just give that to like the IR [investor relations] department at a public company or fund and say, “If you're interested, we can formally work with you.”

ETF.com: How do you authenticate what a user owns?

Lebow: It’s an extremely important point of differentiation for us that we actually confirm share ownership. There are two main channels. If the shareholder keeps their shares at a broker-dealer that we do proxy processing for, we get the data from the brokers every night about what positions data.

We have a formal link to the broker. It’s only for a few brokers. If you're not at one of those brokers, you enter your brokerage credentials, and we have an authentication layer. We partner with a third party that provides a service that authenticates brokerage holdings.

We never touch those credentials. Data security and privacy are important. Our philosophy is to keep as little as possible on our system. We don’t ever see brokerage credentials. We keep the positions for purposes of the product. We need to know what people own.

The data exists for purposes of facilitating the engagement experiences that the shareholders come to us for in the first place. A lot of the modern financial apps—Acorns, Robinhood, Mint.com—use this account linking technology.

ETF.com: Do you work with institutional investors?

Lebow: We've started out with the retail hub plans, and we’re moving more towards discovering what the institutional space looks like for us. It’s not the biggest. The stewardship function that I mentioned earlier, that works for Vanguard, BlackRock, Fidelity, because they have 20 million fund holders.

But for the engagement part, it’s like a shareholder directory. The big guys have a direct line to Tim Cook [Apple CEO] whenever they want. The smaller to middle-market endowments and family offices are underserved right now.

Contact Drew Voros at [email protected]

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