Bill Overview
Title: INDEX Act
Description: This bill establishes guidelines for passively managed funds (e.g., index funds) that vote shares on behalf of fund investors in proxy shareholder votes. Under the bill, these funds generally must vote shares on a proportional basis according to instructions from fund investors. The bill establishes an exemption for routine matters and matters requiring approval of a majority of outstanding securities. Additionally, the bill establishes a safe harbor from these requirements for investment advisers.
Sponsors: Rep. Huizenga, Bill [R-MI-2]
Target Audience
Population: Investors in passively managed investment funds
Estimated Size: 120000000
- Index funds are a significant segment of the global investment market, impacting a large number of individual investors and institutional entities.
- The global equity market capitalization is significant, with trillions of dollars in assets under management, involving millions of individuals worldwide.
- The bill specifically targets passively managed funds, such as index funds, which encompass a broad demographic of investors who choose these funds for their low costs and simplicity.
- Fund management companies and investment advisory firms globally will have to adapt their voting policies and procedures for shareholder meetings, potentially affecting how they operate and manage resources.
- Routine matters and certain security matters are exempt, limiting the scope of affected areas in investment governance.
Reasoning
- Index funds are a popular investment choice among American families due to their low fees and ease of management. Significant portions of 401(k) and retirement accounts are passively managed.
- The INDEX Act can lead to changes in how individual investors influence voting outcomes in large corporations. This impact will be more pronounced among those who are aware and proactive about their investments.
- The policy has administrative challenges, mainly concerning how investor instructions are gathered and implemented. The financial sector has infrastructures that may need resources and time to adapt.
- The policy budget would likely be utilized for informing investors, building necessary voting platforms or systems, and managing the procedural compliance.
- Although the policy targets American investors in index funds, its direct impact depends on the investors' engagement level with fund governance and their awareness of proxy voting rights.
Simulated Interviews
Financial Advisor (New York, NY)
Age: 45 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 12/20
Statement of Opinion:
- I think this policy is empowering for individual investors. It encourages them to take an active role in corporate governance.
- It may complicate things initially, but ultimately, it ensures better representation of investor interests.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 9 | 7 |
| Year 20 | 9 | 7 |
Tech Startup Employee (Los Angeles, CA)
Age: 30 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 1.0 years
Commonness: 15/20
Statement of Opinion:
- I'm not very aware of how these things work. If it means I have more say in my investment, it sounds good, but I'm not sure how much I would participate.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 6 | 6 |
Retired (Chicago, IL)
Age: 60 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 3.0 years
Commonness: 14/20
Statement of Opinion:
- I'm retired and mostly concerned with stability. If this policy makes things more complicated, I'm not sure how beneficial it would be for someone like me.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 4 | 5 |
Freelancer (Austin, TX)
Age: 28 | Gender: other
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 11/20
Statement of Opinion:
- I like the idea of my investments aligning more with my values. Hopefully, this policy can help drive more ESG change from the grassroots level.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Oil Industry Executive (Houston, TX)
Age: 52 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 9/20
Statement of Opinion:
- I believe it's about time shareholders have a direct say. Proxy voting by funds sometimes doesn't reflect individual shareholder choices.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 9 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 8 | 7 |
Teacher (Miami, FL)
Age: 40 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 2.0 years
Commonness: 13/20
Statement of Opinion:
- I need more understanding of how this policy will affect my investments. If it gives me more control, I'm interested, but I need guidance.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 6 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Software Engineer (Seattle, WA)
Age: 39 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 7.0 years
Commonness: 10/20
Statement of Opinion:
- It seems like a positive step for transparency and accountability. I might engage more in choosing how my shares are voted.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 7 | 6 |
Retired School Principal (Phoenix, AZ)
Age: 62 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 1.0 years
Commonness: 13/20
Statement of Opinion:
- My main concern is retirement income stability. This seems like a behind-the-scenes change that I might not notice.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 5 | 6 |
| Year 20 | 5 | 6 |
Data Scientist (San Francisco, CA)
Age: 35 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- I'm curious about how tech can facilitate shareholder voting. If this opens new tools and transparency, it could be quite impactful.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 8 | 7 |
Entrepreneur (Boston, MA)
Age: 50 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 6.0 years
Commonness: 11/20
Statement of Opinion:
- I think it's crucial for shareholder democracy. However, the execution needs to ensure that small businesses aren't overlooked by voting outcomes of large funds.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Cost Estimates
Year 1: $300000000 (Low: $250000000, High: $350000000)
Year 2: $280000000 (Low: $230000000, High: $330000000)
Year 3: $250000000 (Low: $220000000, High: $300000000)
Year 5: $200000000 (Low: $180000000, High: $250000000)
Year 10: $150000000 (Low: $120000000, High: $200000000)
Year 100: $50000000 (Low: $30000000, High: $70000000)
Key Considerations
- The complex adjustments required for compliance may initially soften investment fund performance, though increased investor engagement could mitigate this over time.
- Safe harbor provisions may help alleviate some compliance concerns but will not eliminate all costs associated with implementing instructions from a highly fragmented investor base.
- Potential lobbying by investment fund managers due to increased regulatory burden as they seek further amendments to instruction and voting alignment requirements.