SEC Adopts New Interpretation of Fiduciary Duty

Akin Gump investment management partners Jason M. Daniel (in Dallas) and Barbara Niederkofler (in New York) and litigation partner Michael A. Asaro (in New York)

On June 5, 2019, the Securities and Exchange Commission (SEC) adopted a comprehensive interpretation (the “Interpretation”)1 of the fiduciary duties that investment advisers owe to their clients under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).2 The Interpretation is part of a package of new interpretations, forms and rules of conduct for investment advisers and broker-dealers that focus on the relationship between financial professionals and their clients, which were originally proposed in April 2018.3

Fiduciary duty

While several Supreme Court rulings have recognised that the Advisers Act reflects the existence of a federal fiduciary standard for investment advisers,4 neither the cases that addressed fiduciary duty nor subsequent SEC pronouncements or enforcement actions clearly articulated the practical definition of fiduciary duties.5 The Interpretation defines investment advisers’ fiduciary duties under the Advisers Act to comprise both the duty of care and the duty of loyalty.6 The Interpretation provides guidance as to the SEC’s view of the components of those duties and regarding an investment adviser’s ability to vary or modify the fiduciary duty.7 Unlike in the proposed interpretation, the Interpretation acknowledges that differing applications of the fiduciary duties are appropriate for retail versus institutional clients.

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