The Costly Voting Structure for US Funds Needs an Overhaul

(Originally published in the Financial Times April 14,2026)

Millions of Americans rely on mutual funds and exchange traded funds to save for retirement, college and other long-term goals, and so the shareholders of these funds are largely everyday Americans.

Few realise that funds have to spend hundreds of millions of dollars chasing shareholder votes on non-controversial matters that most investors would view as technical, time-consuming and a nuisance, when they have entrusted professionals to make those decisions on their behalf.

The culprit is an outdated proxy voting system designed for a very different era of fund ownership. What was created in the 1940s to be a safeguard for investors has become an expensive exercise in pleading for votes from investors who find the outreach irritating and disconnected from their investing goals.

The Investment Company Institute found that between 2020 and 2025, total fund proxy campaign costs were as much as $1bn. Numerous campaigns cost tens of millions of dollars each, with a few in the hundreds of millions. Because these funds sit at the centre of America’s retirement system, the costs are ultimately borne by millions of US households in the form of higher fees or lower returns.

The problem is not disagreement among investors. It is the structure of the voting system itself. Under the law that governs registered funds such as mutual funds and exchange trade funds, many decisions require a quorum of more than 50 per cent of all outstanding shares to participate. When this quorum requirement was adopted during the second world war, funds had far fewer shareholders and investors often held shares directly. Further, funds then usually communicated with their investors by paper mail.

Today’s reality looks very different. Many funds have millions of investors, most of whom hold their shares through brokerage accounts or retirement plans. Retail investors vote proxies in low numbers not because they oppose the matter being proposed, but because they don’t view the issues as central to their investment decisions. Often, these votes involve non-controversial matters such as electing new directors to replace those who have retired, approving advisory contracts, merging similar funds (usually to reduce costs), or making technical updates to a fund’s investment policies.

As a result, when shareholders do vote, approval rates often exceed 80 per cent — overwhelming support. The main challenge is reaching quorum.

To do so, funds must hire proxy solicitors and send repeated mailings, email reminders and phone calls to shareholders. Meetings are frequently adjourned and reconvened multiple times while funds attempt to collect enough votes for the meeting to proceed.

The financial cost is significant. But the operational burden is just as real. Running a proxy campaign can take months of preparation, co-ordination with intermediaries and repeated shareholder outreach. Fund boards and management teams must devote substantial time and resources to the effort, which could otherwise be spent improving fund operations and investment outcomes.

In some cases, the expense and uncertainty of running a proxy campaign can also discourage changes that would benefit investors — for example, the merger of two funds with a similar investment strategy to lower costs.

So we must modernise the system while preserving meaningful shareholder oversight. One solution is to allow funds to use an alternative voting structure that would permit a lower participation threshold to establish quorum, such as one-third, while requiring a higher level of approval — such as 75 per cent — among the votes actually cast. All shareholders still would have the right to vote, but shareholders would be subject to fewer unwelcome solicitations.

Other modernisation steps could help as well, including improving the ability of funds to communicate with their shareholders directly and streamlining voting requirements for certain matters where board approval and advance shareholder notice would suffice.

Mutual funds and ETFs were designed to make investing simpler and more cost-effective for ordinary Americans. The regulatory framework governing them should do the same. Modernising the system would restore balance, preserving shareholder oversight while eliminating the worst parts of a costly ritual that benefits no one.