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Understanding Fiduciary Duties and a Sweep of Certain Anti-Fraud Provisions of the Advisers Act
This is an in-person course being taught as part of the Scottsdale Investment Adviser Compliance Symposium.
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.
What does this mean? Certainly, an adviser’s fiduciary responsibility permeates its entire business operation and every aspect of its client relationships. An adviser’s fiduciary duty requires more than a mere attempt at compliance; it requires that the adviser undertake reasonable ongoing and continuous efforts to comply with its obligations under the Act and in its dealings with clients. This session will examine the many permutations of the adviser’s fiduciary duty as it has evolved and provide examples of how it impacts advisory operations.
This session 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.
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 panel of industry experts 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 tripping the Rule.
Another important component of Section 206 deals with principal and agency cross transactions. The experts will unravel and clarify this arcane and technical anti-fraud provision.
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
- Identify extra disclosure requirements for pooled investment vehicles
- Distinguish between principal and agency cross transactions
- 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