“TORE & ASSOCIATES,” DOUGLAS R. HUGHES, STANDARDS OF PRACTICE C...

3. “Tore & Associates,” Douglas R. Hughes, Standards of Practice Casebook (AIMR, 1996)

Purpose:

To test the candidate’s understanding of the firm’s responsibility under AIMR Standards for proxy

voting.

LOS: The candidate should be able to

“Establishing a Proxy Voting Policy for Professional Investors” (Session 3)

• construct a written policy on proxy voting.

“Tore & Associates” (Session 4)

• demonstrate the appropriate responsive actions and show adequate compliance procedures for

each of the violations of the Code and Standards.

Guideline Answer

A. Because FIA has discretionary authority to manage fund assets, its approach can be critiqued on

the following grounds:

• FIA has a fiduciary duty to vote all proxies associated with the assets; the firm cannot refuse

to exercise its fiduciary duty because it is too expensive or too time consuming.

• FIA should have a firm-wide policy on proxy voting so that decisions are not left up to

individual managers.

• FIA’s policy must require portfolio managers to vote proxies in a way that will maximize

the economic value of plan holdings.

B. To ensure adherence to an adequate proxy voting policy, FIA should adopt the following

specific procedures:

• designate a policy-making body or individual to implement a proxy policy;

• provide a review mechanism that will monitor the proxy voting process on a regular basis;

• identify, when appropriate, preferences of clients regarding proxy voting issues;

• consider applying internal financial ratios or other criteria (for evaluating corporate

performance) to proxy decisions;

• develop adequate record-keeping procedures;

• educate and train staff regarding proxy voting policies;

• adequately disclose proxy voting procedures to clients.

Level III: Question 12

Topic: Institutional Portfolio Management

Minutes: 18

Reading References: