How Funds Can Solve the Beneficial Ownership Communications Challenge

In the 1980s, the Securities and Exchange Commission (SEC) introduced the Objecting/Non-Objecting Beneficial Owner (OBO/NOBO) classification distinction for retail shareholders keeping their investments at brokerage firms. It sought to reconcile the interests between securities and funds to allow for direct communications with their investors, and balance that against the ability of brokers and shareholders to maintain the shareholders' rights to privacy. 

Under this framework, mutual fund and alternative investment issuers cannot access the personal information of investors who purchased their funds through a broker or financial intermediary that holds the shares in street name, unless specific permissions are granted.

Shareholders who instruct the intermediary not to provide their personal information become OBOs, which means that funds cannot directly communicate with this population. Funds can, however, access a limited amount of personal information, such as name, address and number of shares owned in the fund, from shareholders who specifically grant permission (NOBOs).

Today, almost an even split of retail accounts are held beneficially through a bank or broker that fall between these OBO/NOBO classifications.

Implications for shareholder communications

The OBO/NOBO distinction hinders company communications with beneficial owners. Outreach on any event (voting or otherwise) is initially only possible through the intermediary broker or bank that holds the shares in street name. As such, funds rely solely on third-parties for shareholder contact and communication strategies.

Shareholder communications are particularly critical in the solicitation of proxies. The solicitation process is aimed not only at informing investors about matters subject to a vote, but also at encouraging them to vote, and generally to vote a particular way.

When proxy communications are sent through brokers or banks, the fund's solicitation costs increase, which may deter them from communicating with shareholders beyond the minimum required by law. What's more, the fund does not know if its investors received and opened the materials.

These communications challenges create risks in shareholder meeting timelines, vote quorum passage and proposal passage.

For example, the unpredictable nature of voting opportunities for shareholders can cause low voting participation and apathy. This can be overcome through compelling outreach and education.

Funds have largely accepted these challenges, as well as the inevitable absorption of the higher proxy solicitation costs.

To help offset expenses, however, some funds do not distribute proxy voting materials at all, and in extreme cases, might decide to wind funds down entirely—as was the case with one asset manager's liquidation of 10 of its first free funds. Also, some funds may decide to simply liquidate the assets without the need for shareholder's approval, and do not hold a proxy vote at all.

Options for engagement

Funds can engage shareholders via fund-branded live calls, text messaging, prerecorded voice messages, emails, letter and social media campaigns, and video messaging in a fully integrated technology-driven platform.

When funds use Mediant's solicitation services, they can leverage their brand and messaging for all shareholders and meet the shareholder where they are by utilizing our modern technology with real-time voting capabilities that supports a multi-channel coordinated and targeted communications effort. We analyze data, which gives us the best possible intelligence to create and execute proven strategies that increase shareholder engagement.

Additionally, Mediant helps funds educate shareholders as we are communicating with them about their ownership type and proposals, as well as collect insights about the shareholders that funds can then use to inform their product strategies.

Working with Mediant, funds can build relationships with their own investors. In an age where companies across all industries are trying to learn as much as they can about their customers, Mediant provides the solutions for funds to drive engagement.

For more information, contact us today.