Birdthistle Stresses Importance of Investor Participation, Fiduciary Duty under 36(b)

In remarks at an industry conference, the SEC’s Division of Investment Management Director stated that he celebrates  “funds and their central role in the U.S. economy” despite being called a “fund critic” in the past. Director William Birdthistle touched several topics in his speech, emphasizing the importance of investor participation and his  desire to see the industry reach its full potential. Birdthistle expressed concerns regarding investors remaining in high-fee, low-performing funds and the lack of transparency into the composition of fund fees. “If a substantial portion of costs are being drawn out of investment companies through revenue sharing, soft dollar, and other practices with little visibility and even less familiarity, how reasonable is our expectation that investors should know when to exit?” Birdthistle also expressed his desire to see investors use their voice in the proxy voting system. He commended the staff’s exploration of various initiatives such as consideration of comments on proposals to require streamlined shareholder reports, amending prospectus fee and expense disclosure, and enhancing the information funds report about their proxy votes.  Birdthistle then turned to adviser fiduciary duty and the Section 36(b) regime, pointing out that no plaintiff has yet won a 36(b) case. Birdthistle remarked that if no adviser can ever lose a 36(b) breach of fiduciary duty case, then “one wonders whether the duty enacted in the statute is truly being honored.”