D2C platforms are hindering shareholder engagement through laborious voting processes even as the majority of retail investors state they would like to make their voices heard among companies they hold in their portfolios.
This month Interactive Investor set out to ease the process by which its users can vote and ended up highlighting the surprisingly manual processes its rivals in the D2C platform space offer shareholders.
It announced all users would automatically be registered to vote on their holdings, including company stock and investment trusts, rather than the existing 19% of its investors that have currently opted into the service. The move means hundreds of thousands of retail investors will have one less hurdle when it comes to voting their shares and having a say on corporate actions, AGM resolutions and environmental, social and governance matters.
II hopes its move will be “the start of a tipping point in the wider platform industry”, says chief executive Richard Wilson.
II had already set itself apart from most of its rivals with its online voting service, with only AJ Bell appearing to offer a comparable service, according to a survey of firms conducted by Portfolio Adviser.
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‘Engagement shouldn’t be inhibited by red tape or time-consuming bureaucracy’
“Everyone deserves to be given the tools to make their voices heard by UK plc – and there is strength in numbers,” said Wilson in II’s press release announcing its shareholder voting changes. “Shareholder democracy and engagement shouldn’t be inhibited by red tape or time-consuming bureaucracy – especially in today’s world where technology provides simple, time-saving solutions.”
On most D2C platforms, investors have to contact their platform via secure messaging to issue an instruction on how they wish to cast their vote.
Hargreaves Lansdown, which accounts for 38% of assets under administration in the D2C platform market, alerts users to resolutions that could have a material impact on their holdings, such as a corporate actions. But clients have to contact HL via secure messaging, phone or letter with their instruction, which is then passed on to the registrar.
Bestinvest offers a similar process, although it notes the majority of its users hold funds with just 13% holding stocks.
Charles Stanley Direct users can instruct the platform how to vote its shares via secure messaging. It is working on the development of more detailed voting disclosure on its websites over the next year that will possibly include interactive tools for clients, a spokesperson says.
Fidelity Personal Investing users can vote via its third-party provider Broadridge.
AJ Bell’s online voting function is among the factors that saw it shortlisted in the inaugural Association of Investment shareholder engagement awards, alongside HL and Charles Stanley Direct. II ultimately swept the top gong.
The judges of the AIC awards suggested areas for improvement among the platform industry included: less manual voting processes; moving from ‘opt-in’ to ‘opt-out’ systems to ensure customers are kept informed about their shareholder rights unless they choose not to receive notifications; and notifying customers of all voting rights and AGMs, not just corporate actions.
Rectifying low shareholder engagement is low on platforms’ agendas
Lang Cat consulting director Steve Nelson believes the platform industry is in a “chicken or egg situation”. Voting functionality is not used by many investors, placing the issue low down platforms’ lists of priorities, but at the same time, the existing processes are hindering investors from becoming more active voters, Nelson says.
“There’s so much going on in terms of regulatory developments, societal demographical developments, keeping on top of pension freedoms and Mifid II and all those kinds of things that something that doesn’t carry an existing high level of engagement probably goes quite far down the agenda,” he says.
“It really takes someone like Interactive Investor to force it as an issue and say, ‘Look, we’re going to take the lead on this and do it’.”
AJ Bell says for corporate actions and special resolutions approximately 20% of available votes via its platform are cast. That goes down to 1% of cases for standard AGM resolutions.
Hargreaves Lansdown says outside corporate actions only 0.5% of users vote their shares, a figure that hasn’t shown any sign of budging. Charles Stanley Direct likewise sees less than 1% of its clients voting. Bestinvest and Fidelity Personal Investing did not provide figures on the proportion of users that vote.
Although higher engagement on corporate actions might be expected, platforms may be exacerbating the issue through their notification systems. With the exception of II, all platforms surveyed by Portfolio Adviser only automatically alert investors to a shareholder vote if it is a corporate action that could have a material effect on the holding.
Vast majority of retail investors think voting is important
The shareholder engagement rates at D2C platforms are at odds with research from Boring Money that suggests retail investors would like to vote their shares.
In a survey of 1,500 investors, conducted in July, 81% felt they should easily be able to vote on companies they are invested in, with 32% stating they strongly agreed and a further 49% stating they somewhat agreed.
Boring Money chief executive Holly Mackay says the voting process needs to be easy to thwart voter apathy.
“Admin is boring. For this to work well, it will need to be super easy to do, and well-integrated into the provider websites and apps,” she says. “If the platforms can turn it into an engaging process, which becomes not a chore but a pleasure, then I think we would see this become not just a nice-to-have, but a fundamental part of any share-dealing platform.”
Nelson agrees. “[Voting via secure messaging] is just going to turn off a certain percentage of people who are just never going to get around to something like that.”
Platforms failing to engage retail investors on ESG issues
While platforms notify their clients on corporate actions, Mackay says it is ESG issues that are firing up retail investors.
“Based on our research, I suspect the two biggest things which will galvanise retail investors to vote will be executive pay and all things climate related. These are the issues which press most investors’ buttons today,” she says.
But platforms are mostly notifying their users about corporate actions that take place at extraordinary general meetings rather than AGMs, where most ESG resolutions would be voted on.
Mackay says shareholder engagement is a powerful cause for Interactive Investor to be championing.
“A lack of both engagement and trust are two of the main things this industry needs to fight. Anything which helps people to feel involved, to peek into the corridors of power and to feel a sense of ownership is really positive.”
AJ Bell spokesperson Charlie Musson recognised ESG issues are becoming more important to the platform’s retail users.
Likewise, Rob Morgan at Charles Stanley Direct thought decarbonisation could motivate more shareholders to vote. He points out Exxon in the US was recently forced to make boardroom changes and address climate change issues due to coordinated investor pressure.
But Hargreaves Lansdown spokesperson Danny Cox says despite the attention ESG receives, the platform is yet to see this translate to more people voting.
Nelson says the ESG conversation among retail investors needs to move from a focus on exclusion to exercising influence. “If you’re an individual investor with a reasonable-to-modest-sized sum, you’re not going to change the world, but it will allow you to exercise your right to have your voice heard.”
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