Understanding Fiduciary Duties and a Sweep of Anti-Fraud Provisions of the Advisers Act
In 1963, the United States Supreme Court held in SEC v. Capital Gains Research Bureau, Inc., that Section 206 of the Investment Advisers Act of 1940 imposes a fiduciary duty on investment advisers by operation of law. Section 206 of the Act (generally referred to as the “anti-fraud” provision) makes it unlawful for an investment adviser to engage in fraudulent, deceptive, or manipulative conduct. The general purpose of an investment adviser’s fiduciary duty is to eliminate conflicts of interest, and to prevent an adviser from taking unfair advantage of a client’s trust. The SEC has continuously made it clear subsequent to Capital Gains that the Act imposes on investment advisers an affirmative duty to their clients of utmost good faith, full and fair disclosure of all material facts, and an obligation to employ reasonable care to avoid misleading their clients. This course will examine the many permutations of an investment adviser’s fiduciary duty as it has evolved and provide examples of how it impacts advisory operations.
This course will also address some of the more expansive SEC rules promulgated pursuant to Section 206 that define the parameters of an adviser’s fiduciary duties. Foremost among them, Rule 206(4)-1, “the Advertising Rule” prohibits certain advertising practices by advisers. Another important component of Section 206 deals with principal and agency cross transactions. The course will unravel and clarify this arcane and technical anti-fraud provision.
Rule 206(4)-8 prohibits advisers to pooled investment vehicles (such as hedge funds, private equity funds, or venture capital funds) from making false or misleading statements to current or prospective investors in such funds. The Rule, though superficially similar to other anti-fraud rules, is quite broad in that it covers prospective or current investors, rather than clients of the adviser, and it only requires a showing of negligence. The course will examine the Rule’s background and text, articulate standards that the SEC and courts might use to approach the questions the Rule raises, and provide some basic guidelines to avoid violating the Rule.
After attending this course, attendees should be able to:
- Incorporate fiduciary duty requirements into the firm’s ongoing and continuous compliance obligations
- Provide examples of how fiduciary duty impacts advisory operations
- Distinguish between principal and agency cross transactions
- Identify extra disclosure requirements for pooled investment vehicles
- Use the specific SEC advertising rule and performance presentation requirements to accurately disclose the firm’s operations and performance
- Identify important and diverse SEC no-action letters covering advertising and performance to gain guidance beyond the rule requirements
For whom: Designed to increase the professional competence of investment adviser professionals with legal, compliance and management responsibilities.
Suggested Skill Level: Intermediate
Instructional Method: Group Internet-Based and Group Live
Prerequisites for participation: No prerequisites are required. However, attendees can benefit by reviewing the Investment Advisers Act of 1940, especially Section 206 and Rules 206(3)-2, 206(3)-3T, 206(4)-1 and 206(4)-8 to become familiar with the structure and terms.
Advance Preparation: None
NRS Continuing Education Guide
Recommended CPE Credit: 2 in the Regulatory Ethics field of study
Recommended IACCP® CE Credit: 2
Recommended CA MCLE Credit: 2
Recommended CFP Credit: 2