SUPPORTING STATEMENT:
Controversy over proxy voting - especially over environmental, social, and governance (“ESG”) proposals - is regularly reported on, debated, and enshrined in state law.1
Much debate centers on intermediaries, such as SCHWAB, and their role in casting votes for clients and beneficial owners. Every vote opens SCHWAB to controversy, either for failing to adhere to ESG principles or being too “woke.”
The divergence between the interests of asset managers like SCHWAB and their investors and clients is an issue that has been taken up at the highest levels of government. A proposed bill would require asset managers like SCHWAB to pass votes through to investors under certain conditions.2 President Biden’s first veto was about consideration of ESG factors in retirement plans.3
The landscape has shifted: SCHWAB can only execute votes in clients' best interests (and avoid controversy) by first soliciting their preferences4 on ESG topics.
Votes are now filed in machine-readable format, which makes it easier for clients to identify votes misaligned with their preferences.5 Reliance on traditional proxy advisors invites further criticism, as their conflicts of interest are scrutinized.6
SCHWAB offers extensive portfolio customization through Schwab Intelligent Portfolios7 and Personalized Indexing,8 but not for proxy voting, a core advisor responsibility subject to fiduciary duties.9 In its commingled funds, SCHWAB does not offer voting choices.
Criticism of BlackRock, Vanguard, and State Street10 led them to provide voting choices. However, these programs are denounced as limited false choices, over-relying on traditional proxy advisors.11 In October 2022, SCHWAB announced piloting a proxy polling solution for three funds.12 However, prospectus materials omit mention of using investor preferences,13 instead describing general policies deferring to management’s recommendations and utilizing traditional proxy advisors ISS and Glass Lewis. New technologies can tailor proxy voting on important issues such as climate change, diversity, executive pay, and political expenditures to the unique preferences of each investor.14
Investors want a voice. Approximately 83% of investors, irrespective of age, life stage, or ideological bent, want managers to consider their preferences when voting on environmental issues.15
Financial services companies that fail to engage clients on important voting preferences will be subject to ever-increasing legal and reputational jeopardy.
Vote FOR Ascertain Client Voting Preferences - Proposal [4*]
1 https://corpgov.law.harvard.edu/2023/03/11/esg-battlegrounds-how-the-states-are-shaping-the-regulatory-landscape-in-the-u-s/ 
2 https://www.sullivan.senate.gov/newsroom/press-releases/sullivan-introduces-index-act-to-empower- investors-and-neutralize-wall-streets-biggest-investment-firms 
3 https://www.nbcnews.com/politics/white-house/biden-issues-first-veto-congress-blocks-new-investment-rule-rcna72997 
4 https://ssrn.com/abstract=4360428 
5 https://www.sec.gov/news/press-release/2022-198 
6 https://www.texasattorneygeneral.gov/sites/default/files/images/press/Utah%20%26%20Texas%20Letter%20to%20Glass%20Lewis%20%26%20ISS%20FINAL.pdf, https://www.wsj.com/articles/blackrocks-false-voting- choice-proxy-esg-ballots-iss-glass-lewis-66652357?mod=opinion_lead_pos1, and https://www.wsj.com/articles/proxy-advisers-errors-accf-study-glass-lewis-iss-sec-gary-gensler-431939c5 7 https://advisorservices.schwab.com/intelligent-advisor/how-to-build-and-manage-your-customized-portfolios 
8 https://www.schwab.com/direct-indexing 
9 See 14 CFR 275.206(4)-6 and accompanying staff bulletins. 
10 https://ssrn.com/abstract=4580206 
11 https://www.wsj.com/articles/blackrocks-false-voting-choice-proxy-esg-ballots-iss-glass-lewis-66652357 
12 https://www.schwabassetmanagement.com/resource/schwab-asset-management-pilots-new-proxy-polling-solution-to-gain-insight-into-shareholder. The poll asked investors, for example, if they’d rather support independent directors or reduction of “fur production,” a difficult comparison. 
13 https://connect.rightprospectus.com/Schwab/TADF/808517106/SP?site=Funds and https://connect.rightprospectus.com/Schwab/TADF/808524664/SP?site=Funds 
14 https://ssrn.com/abstract=4360428 
15 https://www.gsb.stanford.edu/sites/default/files/publication/pdfs/survey-investors-retirement-savings-esg.pdf