SEC Clarifies Investment Advisers’ Fiduciary Duties in Recent Interpretive Release

July 11th | 2019

On June 5, 2019, the SEC published an Interpretive Release clarifying an investment adviser’s fiduciary duties under the Advisers Act, reaffirming an adviser’s fiduciary duties of care and loyalty, and further elucidating its application and obligations. The release reminds advisers to act in the best interest of their clients at all times.

An adviser’s fiduciary duties of care and loyalty must be viewed in the context of the agreed-upon scope of the relationship between the adviser and the client. The particular obligations under each duty depend upon which functions the adviser has agreed to assume as the client’s agent, and may vary depending on the type of client and the scope of the client’s relationship with the adviser. For instance, an adviser’s duties owed to an institutional client with substantial knowledge and experience may likely vary from those owed to retail clients with limited knowledge and less experience or sophistication. Notwithstanding the foregoing, an adviser’s fiduciary duties may not be waived under any circumstances.

Although the release does not create any new obligations, it brings attention to important considerations regarding an adviser’s fiduciary duties, including the following:

  1. An adviser’s duty to provide advice and monitoring varies in frequency and comprehensiveness depending on the type of client and the scope of the relationship

  2. Informed consent and full and fair disclosure of all material facts relevant to the advisory relationship are no longer sufficient to satisfy an adviser’s fiduciary duty. Advisers may be required to eliminate conflicts of interest or provide policies and procedures to ensure compliance with their fiduciary obligations.

  3. Advisers must to seek “best execution” of transactions and maximize value for the client.

  4. Echoing a recent district court decision, the SEC re-iterated that the use of “may” language regarding conflicts of interest on Form ADVs is inappropriate if the conflict actually exists.

In light of fresh guidance from the SEC, advisers should review their Form ADV accordingly and consult their compliance professionals about continued adherence to the clarified duties and obligations outlined in the release. Please feel free to contact us to discuss your firm’s compliance with SEC rules and regulations, and find out why you should #tradeuptotitan.

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