The US Securities and Exchange Commission has, for some time, been reviewing the standard of conduct required of investment advisers and broker-dealers under the federal securities laws. On June 5, 2019, these various initiatives concluded with the publication of four final items of guidance:
• Commission Interpretation Regarding the Standard of Conduct for Investment Advisers (“Fiduciary Interpretation”);
• Form CRS Relationship Summary; Amendments to Form ADV (“Form CRS Release”);
• Regulation Best Interest; and
• Commission Interpretation Regarding the Solely Incidental Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser (“Solely Incidental Interpretation”)
The Fiduciary Interpretation is the most important of the four items for private fund advisers. In the proposing release, the SEC indicated that it was considering certain positions that would treat advisory clients and investors the same, regardless of their sophistication. For example, the SEC proposal stated that “disclosure of a conflict alone is not always sufficient to satisfy the adviser’s duty of loyalty and section 206 of the Advisers Act,” and consent would not be effective where “the material facts concerning the conflict could not be fully and fairly disclosed.”
The Hedge Fund Journal’s premium content is only available to subscribers and those on our complimentary 7-day trial. Join today for the latest in-depth profiles and commentary covering the full spectrum of the hedge fund industry.