A new path to quorum: SEC staff open the door to directed voting programs for funds

On September 29, 2026, the staff of the Securities and Exchange Commission’s (SEC) Division of Investment Management issued a no-action letter to the Mutual Fund Directors Forum (MFDF) that, for the first time, allows registered investment companies and business development companies (BDCs) to offer shareholders a “directed voting program” (MFDF No-Action Letter). Under a directed voting program, and subject to certain conditions, fund shareholders can give revocable standing instructions to have their votes cast in line with recommendations approved by a fund’s board, including all of its independent directors.¹ For funds, which often must solicit proxies repeatedly to reach quorum on important matters such as electing directors or amending fundamental investment policies, this is welcome news.

The Investment Company Institute (ICI) conservatively estimates that fund proxy campaigns since 2020 have cost $675 million to $1.14 billion, costs that are often borne by shareholders.² As a means to improve the fund proxy system and reduce costs, the ICI has recommended that the SEC and its staff permit funds to adopt retail voting programs like the one approved for ExxonMobil.³ The MFDF No-Action Letter now makes that possible, allowing funds to offer directed voting programs similar to those the SEC’s Division of Corporation Finance has permitted for operating companies through a series of no-action letters issued beginning in September 2025 (Corp Fin No-Action Letters).⁴ The MFDF No-Action Letter provides similar proxy-rule relief, but adds conditions that address issues central to the Investment Company Act of 1940, as amended (1940 Act), that may present potential conflicts of interest. Those concerns arise largely from a fund’s relationship with its investment adviser, which operating companies do not have.

Specifically, in order to rely on the MFDF No-Action Letter, a fund’s directed voting program must be designed so that: 

1. Participation in the program is available to any retail shareholder, and full disclosure regarding the program is provided to a shareholder prior to the shareholder opting in to the program.
2. The revocable standing voting instruction provided by the shareholder only allows the shareholder’s votes to be cast in favor of any recommendation approved by the fund’s board, including all its independent directors (subject to the exclusions outlined below).
3. Shareholders may opt out of the program or cancel their standing voting instructions at any time, except that shareholders may only opt out of or cancel their standing voting instructions for meetings for which the fund has not yet filed a definitive proxy statement or registration statement on Form N-14.
4. Shareholders may override their standing voting instructions for any meeting by sending in completed proxy materials for that meeting.
5. A shareholder’s standing voting instruction will not apply to contested director elections or any changes to the fund’s advisory agreement with its primary adviser that require a shareholder vote, and shareholders are provided with the option to exclude additional matters from their standing voting instructions, including (i) fund mergers that require approval of a fund’s shareholders and (ii) the adoption of, or changes to, a fund’s Rule 12b-1 plan that would result in an increase in 12b-1 fees (together, Opt-Out Items).
6. All shareholders participating in the program must continue to receive all required information related to shareholder meetings (including the proxy statement). 
7. Full disclosure regarding the program is included on the fund’s website and in any proxy statement distributed to shareholders and filed with the SEC.
8. The fund provides participating shareholders with an annual reminder of the shareholder’s opt-in status and selection, and provides an additional notice to shareholders who did not exclude the Opt-Out Items, prior to any meeting involving one or more Opt-Out Items. 

Further, in order to rely on the MFDF No-Action Letter, any directed voting program for a fund would need to be approved by the fund’s board, including all the independent directors. The directed voting program would also need to be reexamined every three years, and reapproved by the fund’s board, including all the independent directors. Before implementation and at every reexamination, boards, including all the independent directors, should consider whether such a program is in the best interests of a particular fund and its shareholders. In making this determination, boards may want to consider the fund’s shareholder base, current and expected levels of participation in meetings, the frequency of shareholder meetings and the cost of implementing a program, among other things.

Several of the conditions in the MFDF No-Action Letter are tailored to address issues under the 1940 Act that may present potential conflicts of interest. For example, shareholders receive full disclosure of the program prior to making any election to opt in. Additionally, requiring unanimous independent director approval of the program and of each covered recommendation allows the independent directors to monitor conflicts of interest. Further, contested director elections and advisory agreement changes are excluded, and shareholders may opt out of providing instructions with respect to mergers and 12b-1 fee increases, because these matters are underlying tenets of the 1940 Act and the staff felt they needed additional protection.

Looking ahead, directed voting programs are still new and the process is continuing to be worked through, and fund programs may face scrutiny similar to the objections shareholder advocacy groups raised to the ExxonMobil relief. Fund sponsors and boards considering a directed voting program should evaluate the expected effect on quorum and solicitation costs, coordinate with intermediaries and proxy service providers on operational feasibility, and prepare the required disclosure and board materials. They should also monitor further staff letters and potential SEC rulemaking on fund proxy reform.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

_{1 Independent directors are those directors who are not “interested persons” of the fund, as that term is defined in the Investment Company Act of 1940, as amended.}

_{2 Paul Cellupica et al., Confronting the Growing Burden of Fund Proxy Campaigns: Analysis of Recent Fund Campaigns and Policy Solutions, Inv. Co. Inst. 1–2 (Mar. 2026).}

_{3 Id. at 7.}

_{4 See our prior Legal Alert, Green light for retail voting program: SEC issues no-action relief for ExxonMobil’s retail voting program (Oct. 16, 2025); Exxon Mobil Corporation, SEC Staff No-Action Letter (pub. avail. Sept. 15, 2025); The Goldman Sachs Group, Inc., SEC Staff No-Action Letter (pub. avail. Sept. 28, 2026); Tesla, Inc., SEC Staff No-Action Letter (pub. avail. Sept. 29, 2026).}