The new generation
18 Sep 2023
Broadridge’s Michael McPolin talks to Lucy Carter about the new trends in pass-through voting ahead of this year’s Sibos
![](https://www.assetservicingtimes.com/specialistfeatures/images/ThursdayOctober520231696500546.jpg)
Michael McPolin has been a managing director for market advocacy and business change at Broadridge since 2020 and began working in the securities services industry more than 30 years ago.
With such a wealth of experience, his assertion that “the markets have never been more accessible to retail investors” is one to take notice of.
Traditional and online brokers alike have tailored their online platforms to appeal to a new generation of retail investors, McPolin says, creating “a world where we can access and run portfolios effectively via a smartphone. For the new generation, that’s the standard.”
While ease of access has certainly drawn in a new retail investor demographic, these participants are also expressing a greater interest in governance and are more actively engaged with their investments.
Catalysts for change
“I attribute this drive toward governance to a number of things,” McPolin says. “Regulation, the global pandemic and social media have all been catalysts for change, with a view to making voting more accessible and enhancing society’s focus on ESG aspects of investing.” From a regulatory point of view, “the Shareholder Rights Directive (SRD II) and the Capital Markets Union (CMU) have both driven the expansion of corporate governance to the retail investor, providing a platform for the retail investor voice.”
“One of SRD II’s primary objectives was to enhance shareholder participation in corporate governance, encouraging investors to take more of an interest in the companies that they invest in.” This was achieved through mandating the provision of proxy voting services by intermediaries to shareholders both institutional and retail, “opening the door to retail investors who historically weren’t given voting opportunities” and finally giving them a say in the governance of the companies they’re invested in.
The CMU, he explains, “is focused upon supporting market resiliency and making financing more available for European companies.” Working towards this goal, the EU sees the retail investor as “a good source of liquidity” and is therefore pushing for the availability of corporate governance among this group. “There’s a lot of momentum around the CMU and a multi-point action plan,” McPolin says, “which is driving engagement.”
Although shareholder disclosure requirements are not new, “SRD II has provided a more defined and automated process for issuers to establish who their investors are, and to ensure that firms have a strategy to manage effective engagement with them.” This isn’t something that regulation can do alone: McPolin highlights the importance of digital communication and engagement tools, “an area that Broadridge is focused on”, as issuers adapt to the new climate.
“The global pandemic is never something you really want to remind people about, but it was influential in driving change,” he says. On an individual level, enforced working from home prompted many people to look at trading and “a lot of people decided to have a dabble and start trading to create their own portfolio,” McPolin explains.
On an institutional level, “the pandemic forged changes in legacy market practices,” he says. “We witnessed advances in adoption of the digital agenda probably more through necessity than choice, but the industry had to find a way to work around some of the historic challenges of wet signature processing to digital vote processing.”
At this juncture, social media was key to shaping public opinion “on what’s fair, right and just”, with online forums being used to spread ideas, engage the investor community and influence markets. Inevitably, discussions around moral and ethical rights tie into investors’ growing interest in ESG topics.
ESG covers a “broad scope of objectives” but McPolin explains that retail investors are particularly interested in topics such as sustainability, climate change and board diversity; “and they are actively using their voting capability to try to influence a company’s performance across the ESG agenda”. In the retail sector, he adds, ESG-related topics attract far more interest and participation than general agenda issues.
The next generation
Generation Z is having a considerable impact on the retail investment landscape as they begin to enter the market, and “they’re looking to leverage technology to access corporate governance.” McPolin states, “they want easy access, quick responses and easy-to-understand data.”
Just as their approach to the practical side of investing differs from their predecessors, so does their attitude towards investment. “They’re something of an activist generation, looking for an opportunity to influence change,” McPolin adds.
Although social media has shown itself to be an important presence across generations when it comes to investing, this is especially true when it comes to Gen Z.
“They can navigate social media quickly and use it to create social awareness, responding to news and events far more quickly than ever before,” McPolin says.
For issuers and asset managers, this has “really changed the dynamic about how important it is to communicate and manage your investors,” McPolin comments. “This generation is an important part of the industry going forward,” he adds, something that may be daunting to asset managers and issuers, who know that “an influencer with a negative Tweet can do significant damage to a company’s reputation and balance sheet.”
Pass-through voting perks
An increased use of pass-through voting “can bring corporate governance to the significant number of indirect investors”, something that was historically not available to this group. “It was out there, but they could never really get any influence over it,” McPolin explains. “They were dependent on whoever was managing the fund or the asset to do the right thing and invest to their benefit.”
While the benefits for the retail investor are clear, “pass-through voting has no real benefit to the investment manager” — other than giving them a competitive edge in the market as clients seek out more opportunities to engage with their investments. Whether managers are giving investors votes on key issues or are just taking their preferences into consideration, “being able to influence things is key for investors to feel valued in that community.”
Despite a strongly expressed desire to vote and have their voices heard, “this doesn’t mean that they’ll always vote,” McPolin warns — something that several managers have come to understand.
They’ve realised that they “need to catch investor interest” in order to encourage their engagement, and that “generic agenda items do not attract a lot of attention.”
Educating the investor
“The education of investors is really important,” McPolin affirms. While new regulations have given retail investors the opportunity to vote, there’s often a lack of information provided on why participating is important. As a result, “there will probably be less of a take up. Implementation, support and education around proxy voting is key to its ongoing development and enhanced usage.”
“A better understanding of corporate governance and the importance of the impact of voting, in conjunction with a convenience of voting, are all key to retail investors’ increased participation,” he adds.
Broadridge has taken a number of steps to improve awareness and education around corporate governance, McPolin mentions, including industry thought leadership, the publication of whitepapers, along with webinars and client presentations and engagement with industry bodies.
One factor that could be limiting the participation in proxy voting may be a lack of encouragement from the intermediaries under the remit of SRD II, he suggests. In these regions, “voting generates a cost for them.”
“The dynamics of that need to be thought about and understood during the development process,” he advises.
Technology and trust
As in most areas of the industry, technology has a key facilitation role to play. The number of indirect retail investors participating in votes will increase once investment managers can provide pass-through voting “in a simple and convenient way.”
Broadridge has developed technology-based solutions in response to the retail demand that allows retail investors to vote via their mobile device, either from home or on the go. This ease of access encourages voting — it’s “a lot easier to pick up my phone and vote than it is to fill out a proxy card, go to the post office, and post it back.”
A subtheme at this year’s Sibos conference is ‘merging technology and trust’, a task that increases in difficulty year on year as the industry continues its race towards the next innovation.
McPolin is enthusiastic about this year’s Sibos conference, to be held in Toronto. “It brings the whole industry together and is a great opportunity to see how the industry is evolving,” he says.
“It gives us an opportunity to talk to our clients and industry peers about their challenges, market opportunities, and our respective business strategies.”
“Sibos is a fantastic opportunity to communicate but also to learn,” he concludes, “bringing the industry together and providing the forum to promote new products, forge new collaborations and explore new solutions.”
With such a wealth of experience, his assertion that “the markets have never been more accessible to retail investors” is one to take notice of.
Traditional and online brokers alike have tailored their online platforms to appeal to a new generation of retail investors, McPolin says, creating “a world where we can access and run portfolios effectively via a smartphone. For the new generation, that’s the standard.”
While ease of access has certainly drawn in a new retail investor demographic, these participants are also expressing a greater interest in governance and are more actively engaged with their investments.
Catalysts for change
“I attribute this drive toward governance to a number of things,” McPolin says. “Regulation, the global pandemic and social media have all been catalysts for change, with a view to making voting more accessible and enhancing society’s focus on ESG aspects of investing.” From a regulatory point of view, “the Shareholder Rights Directive (SRD II) and the Capital Markets Union (CMU) have both driven the expansion of corporate governance to the retail investor, providing a platform for the retail investor voice.”
“One of SRD II’s primary objectives was to enhance shareholder participation in corporate governance, encouraging investors to take more of an interest in the companies that they invest in.” This was achieved through mandating the provision of proxy voting services by intermediaries to shareholders both institutional and retail, “opening the door to retail investors who historically weren’t given voting opportunities” and finally giving them a say in the governance of the companies they’re invested in.
The CMU, he explains, “is focused upon supporting market resiliency and making financing more available for European companies.” Working towards this goal, the EU sees the retail investor as “a good source of liquidity” and is therefore pushing for the availability of corporate governance among this group. “There’s a lot of momentum around the CMU and a multi-point action plan,” McPolin says, “which is driving engagement.”
Although shareholder disclosure requirements are not new, “SRD II has provided a more defined and automated process for issuers to establish who their investors are, and to ensure that firms have a strategy to manage effective engagement with them.” This isn’t something that regulation can do alone: McPolin highlights the importance of digital communication and engagement tools, “an area that Broadridge is focused on”, as issuers adapt to the new climate.
“The global pandemic is never something you really want to remind people about, but it was influential in driving change,” he says. On an individual level, enforced working from home prompted many people to look at trading and “a lot of people decided to have a dabble and start trading to create their own portfolio,” McPolin explains.
On an institutional level, “the pandemic forged changes in legacy market practices,” he says. “We witnessed advances in adoption of the digital agenda probably more through necessity than choice, but the industry had to find a way to work around some of the historic challenges of wet signature processing to digital vote processing.”
At this juncture, social media was key to shaping public opinion “on what’s fair, right and just”, with online forums being used to spread ideas, engage the investor community and influence markets. Inevitably, discussions around moral and ethical rights tie into investors’ growing interest in ESG topics.
ESG covers a “broad scope of objectives” but McPolin explains that retail investors are particularly interested in topics such as sustainability, climate change and board diversity; “and they are actively using their voting capability to try to influence a company’s performance across the ESG agenda”. In the retail sector, he adds, ESG-related topics attract far more interest and participation than general agenda issues.
The next generation
Generation Z is having a considerable impact on the retail investment landscape as they begin to enter the market, and “they’re looking to leverage technology to access corporate governance.” McPolin states, “they want easy access, quick responses and easy-to-understand data.”
Just as their approach to the practical side of investing differs from their predecessors, so does their attitude towards investment. “They’re something of an activist generation, looking for an opportunity to influence change,” McPolin adds.
Although social media has shown itself to be an important presence across generations when it comes to investing, this is especially true when it comes to Gen Z.
“They can navigate social media quickly and use it to create social awareness, responding to news and events far more quickly than ever before,” McPolin says.
For issuers and asset managers, this has “really changed the dynamic about how important it is to communicate and manage your investors,” McPolin comments. “This generation is an important part of the industry going forward,” he adds, something that may be daunting to asset managers and issuers, who know that “an influencer with a negative Tweet can do significant damage to a company’s reputation and balance sheet.”
Pass-through voting perks
An increased use of pass-through voting “can bring corporate governance to the significant number of indirect investors”, something that was historically not available to this group. “It was out there, but they could never really get any influence over it,” McPolin explains. “They were dependent on whoever was managing the fund or the asset to do the right thing and invest to their benefit.”
While the benefits for the retail investor are clear, “pass-through voting has no real benefit to the investment manager” — other than giving them a competitive edge in the market as clients seek out more opportunities to engage with their investments. Whether managers are giving investors votes on key issues or are just taking their preferences into consideration, “being able to influence things is key for investors to feel valued in that community.”
Despite a strongly expressed desire to vote and have their voices heard, “this doesn’t mean that they’ll always vote,” McPolin warns — something that several managers have come to understand.
They’ve realised that they “need to catch investor interest” in order to encourage their engagement, and that “generic agenda items do not attract a lot of attention.”
Educating the investor
“The education of investors is really important,” McPolin affirms. While new regulations have given retail investors the opportunity to vote, there’s often a lack of information provided on why participating is important. As a result, “there will probably be less of a take up. Implementation, support and education around proxy voting is key to its ongoing development and enhanced usage.”
“A better understanding of corporate governance and the importance of the impact of voting, in conjunction with a convenience of voting, are all key to retail investors’ increased participation,” he adds.
Broadridge has taken a number of steps to improve awareness and education around corporate governance, McPolin mentions, including industry thought leadership, the publication of whitepapers, along with webinars and client presentations and engagement with industry bodies.
One factor that could be limiting the participation in proxy voting may be a lack of encouragement from the intermediaries under the remit of SRD II, he suggests. In these regions, “voting generates a cost for them.”
“The dynamics of that need to be thought about and understood during the development process,” he advises.
Technology and trust
As in most areas of the industry, technology has a key facilitation role to play. The number of indirect retail investors participating in votes will increase once investment managers can provide pass-through voting “in a simple and convenient way.”
Broadridge has developed technology-based solutions in response to the retail demand that allows retail investors to vote via their mobile device, either from home or on the go. This ease of access encourages voting — it’s “a lot easier to pick up my phone and vote than it is to fill out a proxy card, go to the post office, and post it back.”
A subtheme at this year’s Sibos conference is ‘merging technology and trust’, a task that increases in difficulty year on year as the industry continues its race towards the next innovation.
McPolin is enthusiastic about this year’s Sibos conference, to be held in Toronto. “It brings the whole industry together and is a great opportunity to see how the industry is evolving,” he says.
“It gives us an opportunity to talk to our clients and industry peers about their challenges, market opportunities, and our respective business strategies.”
“Sibos is a fantastic opportunity to communicate but also to learn,” he concludes, “bringing the industry together and providing the forum to promote new products, forge new collaborations and explore new solutions.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Assegt Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Assegt Servicing Times
![Advertisement](../images/bull-252524.png)