Fiduciary Duties: The SEC Weighs In Again

18 June 2019
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Key takeaways:
  • On June 5, 2019, the SEC voted to adopt a package of rules and interpretations (the “Releases”) designed to “elevate, enhance and clarify” the duties that investment advisers and broker-dealers owe to their customers/clients when providing investment advice and services, particularly to retail customers/clients. Of particular interest to investment advisers, including private fund managers, one of the Releases “reaffirms—and in some cases clarifies—certain aspects of the fiduciary duty” that an investment adviser owes to its clients under Section 206 of the Advisers Act (the “Final Interpretation”). The Final Interpretation includes several notable clarifications made in response to comments to the interpretation that the SEC initially proposed in April 2018.
  • The Final Interpretation emphasizes the differences between retail clients and institutional clients, recognizing that institutional clients “generally have greater capacity and more resources than retail clients to analyze and understand complex conflicts and their ramifications,” and that their objectives are commonly “shaped by [their] specific investment mandates.” The Final Interpretation also provides guidance on disclosures regarding conflicts. Finally, the Final Interpretation reaffirms that an adviser need not allocate investment opportunities among clients on a pro rata basis so long as it provides full and fair disclosure to clients so they may provide informed consent, but notes that an adviser’s allocation policies must not prevent it from acting in the best interest of its clients.
  • While the Final Interpretation reaffirms existing law and disclosure practices, investment advisers should continue to review their disclosures, particularly with respect to conflicts of interest, to determine whether they should be supplemented or clarified in light of the guidance in the Final Interpretation.