[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Rules and Regulations]
[Pages 33669-33681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12208]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 276

[Release No. IA-5248; File No. S7-07-18]
RIN 3235-AM36


Commission Interpretation Regarding Standard of Conduct for 
Investment Advisers

AGENCY: Securities and Exchange Commission.

ACTION: Interpretation.

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SUMMARY: The Securities and Exchange Commission (the ``SEC'' or the 
``Commission'') is publishing an interpretation of the standard of 
conduct for investment advisers under the Investment Advisers Act of 
1940 (the ``Advisers Act'' or the ``Act'').

DATES: Effective July 12, 2019.

FOR FURTHER INFORMATION CONTACT: Olawal[eacute] Oriola, Senior Counsel; 
Matthew Cook, Senior Counsel; or Jennifer Songer, Branch Chief, at 
(202) 551-6787 or [email protected], Investment Adviser Regulation 
Office, Division of Investment Management, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is publishing an 
interpretation of the standard of conduct for investment advisers under 
the Advisers Act [15 U.S.C. 80b].\1\
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the 
Advisers Act, or any paragraph of the Advisers Act, we are referring 
to 15 U.S.C. 80b of the United States Code, at which the Advisers 
Act is codified, and when we refer to rules under the Advisers Act, 
or any paragraph of these rules, we are referring to title 17, part 
275 of the Code of Federal Regulations [17 CFR 275], in which these 
rules are published.
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Table of Contents

I. Introduction
    A. Overview of Comments
II. Investment Advisers' Fiduciary Duty
    A. Application of Duty Determined by Scope of Relationship
    B. Duty of Care
    1. Duty To Provide Advice That Is in the Best Interest of the 
Client
    2. Duty To Seek Best Execution
    3. Duty To Provide Advice and Monitoring Over the Course of the 
Relationship
    C. Duty of Loyalty
III. Economic Considerations
    A. Background
    B. Potential Economic Effects

I. Introduction

    Under federal law, an investment adviser is a fiduciary.\2\ The 
fiduciary duty an investment adviser owes to its client under the 
Advisers Act, which comprises a duty of care and a duty of loyalty, is 
important to the Commission's investor protection efforts. Also 
important to the Commission's investor protection efforts is the 
standard of conduct that a broker-dealer owes to a retail customer when 
it makes a recommendation of any securities transaction or investment 
strategy involving securities.\3\ Both investment advisers and broker-
dealers play an important role in our capital markets and our economy 
more broadly. Investment advisers and broker-dealers have different 
types of relationships with investors, offer different services, and 
have different compensation models. This variety is important because 
it presents investors with choices regarding the types of relationships 
they can have, the services they can receive, and how they can pay for 
those services.
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    \2\ SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 
194 (1963) (``SEC v. Capital Gains''); see also infra footnotes 34-
44 and accompanying text; Investment Adviser Codes of Ethics, 
Investment Advisers Act Release No. 2256 (July 2, 2004); Compliance 
Programs of Investment Companies and Investment Advisers, Investment 
Advisers Act Release No. 2204 (Dec. 17, 2003); Electronic Filing by 
Investment Advisers; Proposed Amendments to Form ADV, Investment 
Advisers Act Release No. 1862 (Apr. 5, 2000). Investment advisers 
also have antifraud liability with respect to prospective clients 
under section 206 of the Advisers Act.
    \3\ See Regulation Best Interest, Exchange Act Release No. 34-
86031 (June 5, 2019) (``Reg. BI Adoption''). This final 
interpretation regarding the standard of conduct for investment 
advisers under the Advisers Act (``Final Interpretation'') 
interprets section 206 of the Advisers Act, which is applicable to 
both SEC- and state-registered investment advisers, as well as other 
investment advisers that are exempt from registration or subject to 
a prohibition on registration under the Advisers Act. This Final 
Interpretation is intended to highlight the principles relevant to 
an adviser's fiduciary duty. It is not, however, intended to be the 
exclusive resource for understanding these principles. Separately, 
in various circumstances, case law, statutes (such as the Employee 
Retirement Income Security Act of 1974 (``ERISA'')), and state law 
impose obligations on investment advisers. In some cases, these 
standards may differ from the standard enforced by the Commission.
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    On April 18, 2018, the Commission proposed rules and forms intended 
to enhance the required standard of conduct for broker-dealers \4\ and 
provide retail investors with clear and succinct information regarding 
the key aspects of their brokerage and advisory relationships.\5\ In 
connection with the publication of these proposals, the Commission 
published for comment a separate proposed interpretation regarding the 
standard of conduct for investment advisers under the Advisers Act 
(``Proposed Interpretation'').\6\ We stated in the Proposed 
Interpretation, and we continue to believe, that it is appropriate and 
beneficial to address in one release and reaffirm--and in some cases 
clarify--certain aspects of the fiduciary duty that an investment 
adviser owes to its clients under section 206 of the Advisers Act.\7\ 
After

[[Page 33670]]

considering the comments received, we are publishing this Final 
Interpretation with some clarifications to address comments.\8\
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    \4\ Regulation Best Interest, Exchange Act Release No. 83062 
(Apr. 18, 2018) (``Reg. BI Proposal'').
    \5\ Form CRS Relationship Summary; Amendments to Form ADV; 
Required Disclosures in Retail Communications and Restrictions on 
the use of Certain Names or Titles, Investment Advisers Act Release 
No. 4888 (Apr. 18, 2018) (``Relationship Summary Proposal'').
    \6\ Proposed Commission Interpretation Regarding Standard of 
Conduct for Investment Advisers; Request for Comment on Enhancing 
Investment Adviser Regulation, Investment Advisers Act Release No. 
4889 (Apr. 18, 2018).
    \7\ Further, the Commission recognizes that many advisers 
provide impersonal investment advice. See, e.g., Advisers Act rule 
203A-3 (defining ``impersonal investment advice'' in the context of 
defining ``investment adviser representative'' as ``investment 
advisory services provided by means of written material or oral 
statements that do not purport to meet the objectives or needs of 
specific individuals or accounts''). This Final Interpretation does 
not address the extent to which the Advisers Act applies to 
different types of impersonal investment advice.
    \8\ In the Proposed Interpretation, the Commission also 
requested comment on: Licensing and continuing education 
requirements for personnel of SEC-registered investment advisers; 
delivery of account statements to clients with investment advisory 
accounts; and financial responsibility requirements for SEC-
registered investment advisers, including fidelity bonds. We are 
continuing to evaluate the comments received in response.
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A. Overview of Comments

    We received over 150 comment letters on our Proposed Interpretation 
from individuals, investment advisers, trade or professional 
organizations, law firms, consumer advocacy groups, and bar 
associations.\9\ Although many commenters generally agreed that the 
Proposed Interpretation was useful,\10\ some noted the challenges 
inherent in a Commission interpretation covering the broad scope of the 
fiduciary duty that an investment adviser owes to its clients under the 
Advisers Act.\11\ Some of these commenters suggested modifications to 
or withdrawal of the Proposed Interpretation.\12\ Although most 
commenters agreed that an investment adviser's fiduciary duty comprises 
a duty of care and a duty of loyalty, as described in the Proposed 
Interpretation, they had differing views on aspects of the fiduciary 
duty and in some cases sought clarification on its application.\13\
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    \9\ Comment letters submitted in File No. S7-09-18 are available 
on the Commission's website at https://www.sec.gov/comments/s7-09-18/s70918.htm. We also considered those comments submitted in File 
No. S7-08-18 (Comments on Relationship Summary Proposal) and File 
No. S7-07-18 (Comments on Reg. BI Proposal). Those comments are 
available on the Commission's website at https://www.sec.gov/comments/s7-08-18/s70818.htm and https://www.sec.gov/comments/s7-07-18/s70718.htm.
    \10\ See, e.g., Comment Letter of North American Securities 
Administrators Association (Aug. 23, 2018) (``NASAA Letter'') 
(stating that the Proposed Interpretation is a ``useful resource''); 
Comment Letter of Invesco (Aug. 7, 2018) (``Invesco Letter'') 
(agreeing that ``there are benefits to having a clear statement 
regarding the fiduciary duty that applies to an investment 
adviser'').
    \11\ See, e.g., Comment Letter of Pickard Djinis and Pisarri LLP 
(Aug. 7, 2018) (``Pickard Letter'') (noting the Commission's 
``efforts to synthesize case law, legislative history, academic 
literature, prior Commission releases and other sources to produce a 
comprehensive explanation of the fiduciary standard of conduct''); 
Comment Letter of Dechert LLP (Aug. 7, 2018) (``Dechert Letter'') 
(``It is crucial that any universal interpretation of an adviser's 
fiduciary duty be based on sound and time-tested principles. Given 
the difficulty of defining and encompassing all of an adviser's 
responsibilities to its clients, while also accommodating the 
diversity of advisory arrangements, interpretive issues will arise 
in the future.''); Comment Letter of the Hedge Funds Subcommittee of 
the Federal Regulation of Securities Committee of the Business Law 
Section of the American Bar Association (Aug. 24, 2018) (``ABA 
Letter'') (``We note at the outset that it is difficult to capture 
the nature of an investment adviser's fiduciary duty in a broad 
statement that has universal applicability.'').
    \12\ See, e.g., Comment Letter of L.A. Schnase (Jul. 30, 2018) 
(urging the Commission not to issue the Proposed Interpretation in 
final form, or at least not without substantial rewriting or 
reshaping); Comment Letter of Money Management Institute (Aug. 7, 
2018) (``MMI Letter'') (urging the Commission to ``revise the 
interpretation so that it reflects the common law principles in 
which an investment adviser's fiduciary duty is grounded''); Dechert 
Letter (recommending that we withdraw the Proposed Interpretation 
and instead rely on existing authority and sources of law, as well 
as existing Commission practices for providing interpretive 
guidance, in order to define the source and scope of an investment 
adviser's fiduciary duty).
    \13\ See, e.g., Comment Letter of Cambridge Investment Research 
Inc. (Aug. 7, 2018) (``Cambridge Letter'') (stating that ``greater 
clarity on all aspects of an investment adviser's fiduciary duty 
will improve the ability to craft such policies and procedures, as 
well as support the elimination of confusion for retail clients and 
investment professionals''); Comment Letter of Institutional Limited 
Partners Association (Aug. 6, 2018) (``ILPA Letter 1'') 
(``Interpretation will provide more certainty regarding the 
fiduciary duties owed by private fund advisers to their clients.''); 
Comment Letter of New York City Bar Association (Jun. 26, 2018) 
(``NY City Bar Letter'') (stating that the uniform interpretation of 
an investment adviser's fiduciary duty is necessary).
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    Some commenters requested that we adopt rule text instead.\14\ The 
relationship between an investment adviser and its client has long been 
based on fiduciary principles not generally set forth in specific 
statute or rule text. We believe that this principles-based approach 
should continue as it expresses broadly the standard to which 
investment advisers are held while allowing them flexibility to meet 
that standard in the context of their specific services. In our view, 
adopting rule text is not necessary to achieve our goal in this Final 
Interpretation of reaffirming and in some cases clarifying certain 
aspects of the fiduciary duty.
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    \14\ Some commenters suggested that we codify the Proposed 
Interpretation. See, e.g., Comment Letter of Roy Tanga (Apr. 25, 
2018); Comment Letter of Financial Engines (Aug. 6, 2018) 
(``Financial Engines Letter''); ILPA Letter 1; Comment Letter of 
AARP (Aug. 7, 2018) (``AARP Letter''); Comment Letter of Gordon 
Donohue (Aug. 6, 2018); Comment Letter of Financial Planning 
Coalition (Aug. 7, 2018) (``FPC Letter'').
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II. Investment Advisers' Fiduciary Duty

    The Advisers Act establishes a federal fiduciary duty for 
investment advisers.\15\ This fiduciary duty is based on equitable 
common law principles and is fundamental to advisers' relationships 
with their clients under the Advisers Act.\16\ The investment adviser's 
fiduciary duty is broad and applies to the entire adviser-client 
relationship.\17\ The fiduciary duty to which advisers are subject is 
not specifically defined in the Advisers Act or in Commission rules, 
but reflects a Congressional recognition ``of the delicate fiduciary 
nature of an investment advisory relationship'' as well as a 
Congressional intent to ``eliminate, or at least to expose, all 
conflicts of interest which might incline an investment adviser--
consciously or unconsciously--to render advice which was not 
disinterested.'' \18\ An adviser's fiduciary duty is imposed under the 
Advisers Act in recognition of the nature of the relationship between 
an investment adviser and a client and the desire ``so far as is 
presently practicable

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to eliminate the abuses'' that led to the enactment of the Advisers 
Act.\19\ It is made enforceable by the antifraud provisions of the 
Advisers Act.\20\
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    \15\ Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 
17 (1979) (``Transamerica Mortgage v. Lewis'') (``Sec.  206 
establishes federal fiduciary standards to govern the conduct of 
investment advisers.'') (quotation marks omitted); Santa Fe 
Industries, Inc. v. Green, 430 U.S. 462, 471, n.11 (1977) (in 
discussing SEC v. Capital Gains, stating that the Supreme Court's 
reference to fraud in the ``equitable'' sense of the term was 
``premised on its recognition that Congress intended the Investment 
Advisers Act to establish federal fiduciary standards for investment 
advisers''); SEC v. Capital Gains, supra footnote 2; Amendments to 
Form ADV, Investment Advisers Act Release No. 3060 (July 28, 2010) 
(``Investment Advisers Act Release 3060'') (``Under the Advisers 
Act, an adviser is a fiduciary whose duty is to serve the best 
interests of its clients, which includes an obligation not to 
subrogate clients' interests to its own,'' citing Proxy Voting by 
Investment Advisers, Investment Advisers Act Release No. 2106 (Jan. 
31, 2003) (``Investment Advisers Act Release 2106'')).
    \16\ See SEC v. Capital Gains, supra footnote 2 (discussing the 
history of the Advisers Act, and how equitable principles influenced 
the common law of fraud and changed the suits brought against a 
fiduciary, ``which Congress recognized the investment adviser to 
be'').
    \17\ The Commission has previously recognized the broad scope of 
section 206 of the Advisers Act in a variety of contexts. See, e.g., 
Investment Advisers Act Release 2106, supra footnote 15; Timbervest, 
LLC, et al., Advisers Act Release No. 4197 (Sept. 17, 2015) 
(Commission Opinion) ('' [O]nce an investment advisory relationship 
is formed, the Advisers Act does not permit an adviser to exploit 
that fiduciary relationship by defrauding his client in any 
investment transaction connected to the advisory relationship.''); 
see also SEC v. Lauer, 2008 WL 4372896, at 24 (S.D. Fla. Sept. 24, 
2008) (``Unlike the antifraud provisions of the Securities Act and 
the Exchange Act, Section 206 of the Advisers Act does not require 
that the activity be `in the offer or sale of any' security or `in 
connection with the purchase or sale of any security.' ''); Thomas 
P. Lemke & Gerald T. Lins, Regulation of Investment Advisers (2013 
ed.), at Sec.  2:30 (``[T]he SEC has . . . applied [sections 206(1) 
and 206(2)] where fraud arose from an investment advisory 
relationship, even though the wrongdoing did not specifically 
involve securities.'').
    \18\ See SEC v. Capital Gains, supra footnote 2; see also In the 
Matter of Arleen W. Hughes, Exchange Act Release No. 4048 (Feb. 18, 
1948) (``Arleen Hughes'') (Commission Opinion) (discussing the 
relationship of trust and confidence between the client and a dual 
registrant and stating that the registrant was a fiduciary and 
subject to liability under the antifraud provisions of the 
Securities Act of 1933 and the Securities Exchange Act of 1934).
    \19\ See SEC v. Capital Gains, supra footnote 2 (noting that the 
``declaration of policy'' in the original bill, which became the 
Advisers Act, declared that ``the national public interest and the 
interest of investors are adversely affected . . . when the business 
of investment advisers is so conducted as to defraud or mislead 
investors, or to enable such advisers to relieve themselves of their 
fiduciary obligations to their clients. It is hereby declared that 
the policy and purposes of this title, in accordance with which the 
provisions of this title shall be interpreted, are to mitigate and, 
so far as is presently practicable to eliminate the abuses 
enumerated in this section'') (citing S. 3580, 76th Cong., 3d Sess., 
Sec.  202 and Investment Trusts and Investment Companies, Report of 
the Securities and Exchange Commission, Pursuant to Section 30 of 
the Public Utility Holding Company Act of 1935, on Investment 
Counsel, Investment Management, Investment Supervisory, and 
Investment Advisory Services, H.R. Doc. No. 477, 76th Cong. 2d 
Sess., 1, at 28) (emphasis added).
    \20\ Id.; Transamerica Mortgage v. Lewis, supra footnote 15 
(``[T]he Act's legislative history leaves no doubt that Congress 
intended to impose enforceable fiduciary obligations.''). Some 
commenters questioned the standard to which the Advisers Act holds 
investment advisers. See, e.g., Comment Letter of Stark & Stark, PC 
(undated) (``The duty of care at common law and under the Advisers 
Act only requires that advisers not be negligent in performing their 
duties.'') (internal citation omitted); Comment Letter of 
Institutional Limited Partners Association (Nov. 21, 2018) (``ILPA 
Letter 2'') (``The Advisers Act standard is a lower simple 
`negligence' standard.''). Claims arising under Advisers Act section 
206(2) are not scienter-based and can be adequately pled with only a 
showing of negligence. Robare Group, Ltd., et al. v. SEC, 922 F.3d 
468, 472 (D.C. Cir. 2019) (``Robare v. SEC''); SEC v. Steadman, 967 
F.2d 636, 643, n.5 (D.C. Cir. 1992) (citing SEC v. Capital Gains, 
supra footnote 2) (``[A] violation of Sec.  206(2) of the Investment 
Advisers Act may rest on a finding of simple negligence.''); SEC v. 
DiBella, 587 F.3d 553, 567 (2d Cir. 2009) (``the government need not 
show intent to make out a section 206(2) violation''); SEC v. Gruss, 
859 F. Supp. 2d 653, 669 (S.D.N.Y. 2012) (``Claims arising under 
Section 206(2) are not scienter-based and can be adequately pled 
with only a showing of negligence.''). However, claims arising under 
Advisers Act section 206(1) require scienter. See, e.g., Robare v. 
SEC; SEC v. Moran, 922 F. Supp. 867, 896 (S.D.N.Y. 1996); Carroll v. 
Bear, Stearns & Co., 416 F. Supp. 998, 1001 (S.D.N.Y. 1976).
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    An investment adviser's fiduciary duty under the Advisers Act 
comprises a duty of care and a duty of loyalty.\21\ This fiduciary duty 
requires an adviser ``to adopt the principal's goals, objectives, or 
ends.'' \22\ This means the adviser must, at all times, serve the best 
interest of its client and not subordinate its client's interest to its 
own. In other words, the investment adviser cannot place its own 
interests ahead of the interests of its client. This combination of 
care and loyalty obligations has been characterized as requiring the 
investment adviser to act in the ``best interest'' of its client at all 
times.\23\ In our view, an investment adviser's obligation to act in 
the best interest of its client is an overarching principle that 
encompasses both the duty of care and the duty of loyalty. As discussed 
in more detail below, in our view, the duty of care requires an 
investment adviser to provide investment advice in the best interest of 
its client, based on the client's objectives. Under its duty of 
loyalty, an investment adviser must eliminate or make full and fair 
disclosure of all conflicts of interest which might incline an 
investment adviser--consciously or unconsciously--to render advice 
which is not disinterested such that a client can provide informed 
consent to the conflict.\24\ We believe this is another part of an 
investment adviser's obligation to act in the best interest of its 
client.
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    \21\ See, e.g., Investment Advisers Act Release 2106, supra 
footnote 15. These duties were generally recognized by commenters. 
See, e.g., Comment Letter of Consumer Federation of America (Aug. 7, 
2018) (``CFA Letter''); Comment Letter of the Investment Adviser 
Association (Aug. 6, 2018) (``IAA Letter''); Comment Letter of 
Investments & Wealth Institute (Aug. 6, 2018); Comment Letter of 
Raymond James (Aug. 7, 2018); FPC Comment Letter. But see Dechert 
Letter (questioning the sufficiency of support for a duty of care).
    \22\ Arthur B. Laby, The Fiduciary Obligations as the Adoption 
of Ends, 56 Buffalo Law Review 99 (2008); see also Restatement 
(Third) of Agency, Sec.  2.02 Scope of Actual Authority (2006) 
(describing a fiduciary's authority in terms of the fiduciary's 
reasonable understanding of the principal's manifestations and 
objectives).
    \23\ Investment Advisers Act Release 3060, supra footnote 15 
(adopting amendments to Form ADV and stating that ``under the 
Advisers Act, an adviser is a fiduciary whose duty is to serve the 
best interests of its clients, which includes an obligation not to 
subrogate clients' interests to its own,'' citing Investment 
Advisers Act Release 2106, supra footnote 15). See SEC v. Tambone, 
550 F.3d 106, 146 (1st Cir. 2008) (``SEC v. Tambone'') (``Section 
206 imposes a fiduciary duty on investment advisers to act at all 
times in the best interest of the fund . . .''); SEC v. Moran, 944 
F. Supp. 286, 297 (S.D.N.Y 1996) (``SEC v. Moran'') (``Investment 
advisers are entrusted with the responsibility and duty to act in 
the best interest of their clients.''). Although most commenters 
agreed that an adviser has an obligation to act in its client's best 
interest, some questioned whether the Proposed Interpretation 
appropriately considered the best interest obligation as part of the 
duty of care, or whether it instead should be considered part of the 
duty of loyalty. See, e.g., MMI Letter; Comment Letter of Investment 
Company Institute (Aug. 7, 2018) (``ICI Letter'').
    \24\ See infra footnotes 67-70 and accompanying text for a more 
detailed discussion of informed consent and how it is generally 
considered on an objective basis and may be inferred.
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A. Application of Duty Determined by Scope of Relationship

    An adviser's fiduciary duty is imposed under the Advisers Act in 
recognition of the nature of the relationship between an adviser and 
its client--a relationship of trust and confidence.\25\ The adviser's 
fiduciary duty is principles-based and applies to the entire 
relationship between the adviser and its client. The fiduciary duty 
follows the contours of the relationship between the adviser and its 
client, and the adviser and its client may shape that relationship by 
agreement, provided that there is full and fair disclosure and informed 
consent.\26\ With regard to the scope of the adviser-client 
relationship, we recognize that investment advisers provide a wide 
range of services, from a single financial plan for which a client may 
pay a one-time fee, to ongoing portfolio management for which a client 
may pay a periodic fee based on the value of assets in the portfolio. 
Investment advisers also serve a large variety of clients, from retail 
clients with limited assets and investment knowledge and experience to 
institutional clients with very large portfolios and substantial 
knowledge, experience, and analytical resources.\27\ In our experience, 
the principles-based fiduciary duty imposed by the Advisers Act has 
provided sufficient flexibility to serve as an effective standard of 
conduct for investment advisers, regardless of the services they 
provide or the types of clients they serve.
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    \25\ See, e.g., Hearings on S. 3580 before Subcommittee of the 
Senate Committee on Banking and Currency, 76th Cong., 3d Sess. 
(leading investment advisers emphasized their relationship of 
``trust and confidence'' with their clients); SEC v. Capital Gains, 
supra footnote 2 (citing same).
    \26\ Several commenters asked that we clarify that an adviser 
and its client can tailor the scope of the relationship to which the 
fiduciary duty applies through contract. See, e.g., MMI Letter; 
Financial Engines Letter; ABA Letter.
    \27\ This Final Interpretation also applies to automated 
advisers, which are often colloquially referred to as ``robo-
advisers.'' Automated advisers, like all SEC-registered investment 
advisers, are subject to all of the requirements of the Advisers 
Act, including the requirement that they provide advice consistent 
with the fiduciary duty they owe to their clients. See Division of 
Investment Management, Robo Advisers, IM Guidance Update No. 2017-02 
(Feb. 2017), available at https://www.sec.gov/investment/im-guidance-2017-02.pdf (describing Commission staff's guidance as to 
three distinct areas under the Advisers Act that automated advisers 
should consider, due to the nature of their business model, in 
seeking to comply with their obligations under the Advisers Act).
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    Although all investment advisers owe each of their clients a 
fiduciary duty under the Advisers Act, that fiduciary duty must be 
viewed in the context of the agreed-upon scope of the relationship 
between the adviser and the client. In particular, the specific 
obligations that flow from the adviser's fiduciary duty depend upon 
what functions the adviser, as agent, has agreed to assume for the 
client, its principal. For example, the obligations

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of an adviser providing comprehensive, discretionary advice in an 
ongoing relationship with a retail client (e.g., monitoring and 
periodically adjusting a portfolio of equity and fixed income 
investments with limited restrictions on allocation) will be 
significantly different from the obligations of an adviser to a 
registered investment company or private fund where the contract 
defines the scope of the adviser's services and limitations on its 
authority with substantial specificity (e.g., a mandate to manage a 
fixed income portfolio subject to specified parameters, including 
concentration limits and credit quality and maturity ranges).\28\
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    \28\ See, e.g., infra text following footnote 35.
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    While the application of the investment adviser's fiduciary duty 
will vary with the scope of the relationship, the relationship in all 
cases remains that of a fiduciary to the client. In other words, an 
adviser's federal fiduciary duty may not be waived, though it will 
apply in a manner that reflects the agreed-upon scope of the 
relationship.\29\ A contract provision purporting to waive the 
adviser's federal fiduciary duty generally, such as (i) a statement 
that the adviser will not act as a fiduciary, (ii) a blanket waiver of 
all conflicts of interest, or (iii) a waiver of any specific obligation 
under the Advisers Act, would be inconsistent with the Advisers 
Act,\30\ regardless of the sophistication of the client.\31\
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    \29\ Because an adviser's federal fiduciary obligations are 
enforceable through section 206 of the Advisers Act, we would view a 
waiver of enforcement of section 206 as implicating section 215(a) 
of the Advisers Act, which provides that ``any condition, 
stipulation or provision binding any person to waive compliance with 
any provision of this title . . . shall be void.'' See also 
Restatement (Third) of Agency, Sec.  8.06 Principal's Consent (2006) 
(``[T]he law applicable to relationships of agency as defined in 
Sec.  1.01 imposes mandatory limits on the circumstances under which 
an agent may be empowered to take disloyal action. These limits 
serve protective and cautionary purposes. Thus, an agreement that 
contains general or broad language purporting to release an agent in 
advance from the agent's general fiduciary obligation to the 
principal is not likely to be enforceable. This is because a broadly 
sweeping release of an agent's fiduciary duty may not reflect an 
adequately informed judgment on the part of the principal; if 
effective, the release would expose the principal to the risk that 
the agent will exploit the agent's position in ways not foreseeable 
by the principal at the time the principal agreed to the release. In 
contrast, when a principal consents to specific transactions or to 
specified types of conduct by the agent, the principal has a focused 
opportunity to assess risks that are more readily identifiable.'').
    \30\ See sections 206 and 215(a). Commenters generally agreed 
that a client cannot waive an investment adviser's fiduciary duty 
through agreement. See Dechert Letter; Comment Letter of Ropes & 
Gray LLP (Aug. 7, 2018) (``Ropes & Gray Letter''), at n.20; see also 
supra footnote 29. In the Proposed Interpretation, we stated that 
``the investment adviser cannot disclose or negotiate away, and the 
investor cannot waive, the federal fiduciary duty.'' One commenter 
disputed this broad statement, believing that it called into 
question ``the ability of an investment adviser and client to define 
the scope of the adviser's services and duties.'' ABA Letter; see 
also Financial Engines Letter. We have modified this statement to 
clarify that a general waiver of the fiduciary duty would violate 
that duty and to provide examples of such a general waiver.
    \31\ Some commenters mentioned a 2007 No-Action Letter in which 
staff indicated that whether a clause in an advisory agreement that 
purports to limit an adviser's liability under that agreement (a so-
called ``hedge clause'') would violate sections 206(1) and 206(2) of 
the Advisers Act depends on all of the surrounding facts and 
circumstances. Heitman Capital Management, LLC, SEC Staff No-Action 
Letter (Feb. 12, 2007) (``Heitman Letter''). A few commenters 
indicated that the Heitman Letter expanded the ability of investment 
advisers to private funds, and potentially other sophisticated 
clients, to disclaim their fiduciary duties under state law in an 
advisory agreement. See, e.g., ILPA Letter 1; ILPA Letter 2. The 
commenters' descriptions of the Heitman Letter suggest that it may 
have been applied incorrectly. The Heitman Letter does not address 
the scope or substance of an adviser's federal fiduciary duty; 
rather, it addresses the extent to which hedge clauses may be 
misleading in violation of the Advisers Act's antifraud provisions. 
Another commenter agreed with this reading of the Heitman Letter. 
See Comment Letter of American Investment Council (Feb. 25, 2019). 
In response to these comments, we express below the Commission's 
views about an adviser's obligations under sections 206(1) and 
206(2) of the Advisers Act with respect to the use of hedge clauses. 
Accordingly, because we are expressing our views in this Final 
Interpretation, the Heitman Letter is withdrawn.
    This Final Interpretation makes clear that an adviser's federal 
fiduciary duty may not be waived, though its application may be 
shaped by agreement. This Final Interpretation does not take a 
position on the scope or substance of any fiduciary duty that 
applies to an adviser under applicable state law. See supra footnote 
3. The question of whether a hedge clause violates the Advisers 
Act's antifraud provisions depends on all of the surrounding facts 
and circumstances, including the particular circumstances of the 
client (e.g., sophistication). In our view, however, there are few 
(if any) circumstances in which a hedge clause in an agreement with 
a retail client would be consistent with those antifraud provisions, 
where the hedge clause purports to relieve the adviser from 
liability for conduct as to which the client has a non-waivable 
cause of action against the adviser provided by state or federal 
law. Such a hedge clause generally is likely to mislead those retail 
clients into not exercising their legal rights, in violation of the 
antifraud provisions, even where the agreement otherwise specifies 
that the client may continue to retain its non-waivable rights. 
Whether a hedge clause in an agreement with an institutional client 
would violate the Advisers Act's antifraud provisions will be 
determined based on the particular facts and circumstances. To the 
extent that a hedge clause creates a conflict of interest between an 
adviser and its client, the adviser must address the conflict as 
required by its duty of loyalty.
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B. Duty of Care

    As fiduciaries, investment advisers owe their clients a duty of 
care.\32\ The Commission has discussed the duty of care and its 
components in a number of contexts.\33\ The duty of care includes, 
among other things: (i) The duty to provide advice that is in the best 
interest of the client, (ii) the duty to seek best execution of a 
client's transactions where the adviser has the responsibility to 
select broker-dealers to execute client trades, and (iii) the duty to 
provide advice and monitoring over the course of the relationship.
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    \32\ See Investment Advisers Act Release 2106, supra footnote 15 
(stating that under the Advisers Act, ``an adviser is a fiduciary 
that owes each of its clients duties of care and loyalty with 
respect to all services undertaken on the client's behalf, including 
proxy voting,'' which is the subject of the release, and citing SEC 
v. Capital Gains supra footnote 2, to support this point). This 
Final Interpretation does not address the specifics of how an 
investment adviser might satisfy its fiduciary duty when voting 
proxies. See also Restatement (Third) of Agency, Sec.  8.08 
(discussing the duty of care that an agent owes its principal as a 
matter of common law); Tamar Frankel & Arthur B. Laby, The 
Regulation of Money Managers (updated 2017) (``Advice can be divided 
into three stages. The first determines the needs of the particular 
client. The second determines the portfolio strategy that would lead 
to meeting the client's needs. The third relates to the choice of 
securities that the portfolio would contain. The duty of care 
relates to each of the stages and depends on the depth or extent of 
the advisers' obligation towards their clients.'').
    \33\ See, e.g., Suitability of Investment Advice Provided by 
Investment Advisers; Custodial Account Statements for Certain 
Advisory Clients, Investment Advisers Act Release No. 1406 (Mar. 16, 
1994) (``Investment Advisers Act Release 1406'') (stating that 
advisers have a duty of care and discussing advisers' suitability 
obligations); Interpretive Release Concerning the Scope of Section 
28(e) of the Securities Exchange Act of 1934 and Related Matters, 
Exchange Act Release No. 23170 (Apr. 28, 1986) (``Exchange Act 
Release 23170'') (``an adviser, as a fiduciary, owes its clients a 
duty of obtaining the best execution on securities transactions''). 
We highlight certain contexts, but not all, in which the Commission 
has addressed the duty of care. See, e.g., Investment Advisers Act 
Release 2106, supra footnote 15.
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1. Duty To Provide Advice That Is in the Best Interest of the Client
    The duty of care includes a duty to provide investment advice that 
is in the best interest of the client, including a duty to provide 
advice that is suitable for the client.\34\ In order to provide such

[[Page 33673]]

advice, an adviser must have a reasonable understanding of the client's 
objectives. The basis for such a reasonable understanding generally 
would include, for retail clients, an understanding of the investment 
profile, or for institutional clients, an understanding of the 
investment mandate.\35\ The duty to provide advice that is in the best 
interest of the client based on a reasonable understanding of the 
client's objectives is a critical component of the duty of care.
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    \34\ In 1994, the Commission proposed a rule that would have 
made express the fiduciary obligation of investment advisers to make 
only suitable recommendations to a client. Investment Advisers Act 
Release 1406, supra footnote 33. Although never adopted, the rule 
was designed, among other things, to reflect the Commission's 
interpretation of an adviser's existing suitability obligation under 
the Advisers Act. In addition, we do not cite Investment Advisers 
Act Release 1406 as the source of authority for the view we express 
here, which at least one comment letter suggested, but cite it 
merely to show that the Commission has long held this view. See 
Comment Letter of the Managed Funds Association and the Alternative 
Investment Management Association (Aug. 7, 2018) (indicating that 
the Commission's failure to adopt the proposed suitability rule 
means ``investment advisers are not subject to an express 
`suitability' standard under existing regulation''). We believe that 
this obligation to make only suitable recommendations to a client is 
part of an adviser's fiduciary duty to act in the best interest of 
its client. Accordingly, an adviser must provide investment advice 
that is suitable for its client in providing advice that is in the 
best interest of its client. See SEC v. Tambone, supra footnote 23 
(``Section 206 imposes a fiduciary duty on investment advisers to 
act at all times in the best interest of the fund. . . .''); SEC v. 
Moran, supra footnote 23 (``Investment advisers are entrusted with 
the responsibility and duty to act in the best interest of their 
clients.'').
    \35\ Several commenters stated that the duty to make a 
reasonable inquiry into a client's investment profile may not apply 
in the institutional client context. See, e.g., Comment Letter of 
BlackRock, Inc. (Aug. 7, 2018); Comment Letter of Teachers Insurance 
and Annuity Association of America (Aug. 7, 2018); Comment Letter of 
Allianz Global Investors U.S. LLC (Aug. 7, 2018) (``Allianz 
Letter''); Comment Letter of John Hancock Life Insurance Company 
(U.S.A.) (Aug. 3, 2018). Accordingly, we are describing the duty as 
a duty to have a reasonable understanding of the client's 
objectives. While not every client will have an investment profile, 
every client will have objectives. For example, an institutional 
client's objectives may be ascertained through its investment 
mandate.
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Reasonable Inquiry Into Client's Objectives
    How an adviser develops a reasonable understanding will vary based 
on the specific facts and circumstances, including the nature of the 
client, the scope of the adviser-client relationship, and the nature 
and complexity of the anticipated investment advice.
    In order to develop a reasonable understanding of a retail client's 
objectives, an adviser should, at a minimum, make a reasonable inquiry 
into the client's financial situation, level of financial 
sophistication, investment experience, and financial goals (which we 
refer to collectively as the retail client's ``investment profile''). 
For example, an adviser undertaking to formulate a comprehensive 
financial plan for a retail client would generally need to obtain a 
range of personal and financial information about the client such as 
current income, investments, assets and debts, marital status, tax 
status, insurance policies, and financial goals.\36\
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    \36\ Investment Advisers Act Release 1406, supra footnote 33. 
After making a reasonable inquiry into the client's investment 
profile, it generally would be reasonable for an adviser to rely on 
information provided by the client (or the client's agent) regarding 
the client's financial circumstances, and an adviser should not be 
held to have given advice not in its client's best interest if it is 
later shown that the client had misled the adviser concerning the 
information on which the advice was based.
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    In addition, it will generally be necessary for an adviser to a 
retail client to update the client's investment profile in order to 
maintain a reasonable understanding of the client's objectives and 
adjust the advice to reflect any changed circumstances.\37\ The 
frequency with which the adviser must update the client's investment 
profile in order to consider changes to any advice the adviser provides 
would itself turn on the facts and circumstances, including whether the 
adviser is aware of events that have occurred that could render 
inaccurate or incomplete the investment profile on which the adviser 
currently bases its advice. For instance, in the case of a financial 
plan where the investment adviser also provides advice on an ongoing 
basis, a change in the relevant tax law or knowledge that the client 
has retired or experienced a change in marital status could trigger an 
obligation to make a new inquiry.
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    \37\ Such updating would not be needed with one-time investment 
advice. In the Proposed Interpretation, we stated that an adviser 
``must'' update a client's investment profile in order to adjust the 
advice to reflect any changed circumstances. We believe that any 
obligation to update a client's investment profile, like the nature 
and extent of the reasonable inquiry into a retail client's 
objectives, turns on what is reasonable under the circumstances. 
Accordingly, we have revised the wording of this statement in this 
Final Interpretation.
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    By contrast, in providing investment advice to institutional 
clients, the nature and extent of the reasonable inquiry into the 
client's objectives generally is shaped by the specific investment 
mandates from those clients. For example, an investment adviser engaged 
to advise on an institutional client's investment grade bond portfolio 
would need to gain a reasonable understanding of the client's 
objectives within that bond portfolio, but not the client's objectives 
within its entire investment portfolio. Similarly, an investment 
adviser whose client is a registered investment company or a private 
fund would need to have a reasonable understanding of the fund's 
investment guidelines and objectives. For advisers acting on specific 
investment mandates for institutional clients, particularly funds, we 
believe that the obligation to update the client's objectives would not 
be applicable except as may be set forth in the advisory agreement.
Reasonable Belief That Advice Is in the Best Interest of the Client
    An investment adviser must have a reasonable belief that the advice 
it provides is in the best interest of the client based on the client's 
objectives. The formation of a reasonable belief would involve 
considering, for example, whether investments are recommended only to 
those clients who can and are willing to tolerate the risks of those 
investments and for whom the potential benefits may justify the 
risks.\38\ Whether the advice is in a client's best interest must be 
evaluated in the context of the portfolio that the adviser manages for 
the client and the client's objectives.
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    \38\ Item 8 of Part 2A of Form ADV requires an investment 
adviser to describe its methods of analysis and investment 
strategies and disclose that investing in securities involves risk 
of loss which clients should be prepared to bear. This item also 
requires that an adviser explain the material risks involved for 
each significant investment strategy or method of analysis it uses 
and particular type of security it recommends, with more detail if 
those risks are significant or unusual. Accordingly, investment 
advisers are required to identify and explain certain risks involved 
in their investment strategies and the types of securities they 
recommend. An investment adviser needs to consider those same risks 
in determining the clients to which the adviser recommends those 
investments.
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    For example, when an adviser is advising a retail client with a 
conservative investment objective, investing in certain derivatives may 
be in the client's best interest when they are used to hedge interest 
rate risk or other risks in the client's portfolio, whereas investing 
in certain directionally speculative derivatives on their own may not. 
For that same client, investing in a particular security on margin may 
not be in the client's best interest, even if investing in that same 
security without the use of margin may be in the client's best 
interest. However, for example, when advising a financially 
sophisticated client, such as a fund or other sophisticated client that 
has an appropriate risk tolerance, it may be in the best interest of 
the client to invest in such derivatives or in securities on margin, or 
to invest in other complex instruments or other products that may have 
limited liquidity.
    Similarly, when an adviser is assessing whether high risk 
products--such as penny stocks or other thinly-traded securities--are 
in a retail client's best interest, the adviser should generally apply 
heightened scrutiny to whether such investments fall within the retail 
client's risk tolerance and objectives. As another example,

[[Page 33674]]

complex products such as inverse or leveraged exchange-traded products 
that are designed primarily as short-term trading tools for 
sophisticated investors may not be in the best interest of a retail 
client absent an identified, short-term, client-specific trading 
objective and, to the extent that such products are in the best 
interest of a retail client initially, they would require daily 
monitoring by the adviser.\39\
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    \39\ See Exchange-Traded Funds, Securities Act Release No. 10515 
(June 28, 2018); SEC staff and FINRA, Investor Alert, Leveraged and 
Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold 
Investors (Aug. 1, 2009); SEC Office of Investor Education and 
Advocacy, Investor Bulletin: Exchange-Traded Funds (ETFs) (Aug. 
2012); see also FINRA Regulatory Notice 09-31, Non-Traditional 
ETFs--FINRA Reminds Firms of Sales Practice Obligations Relating to 
Leveraged and Inverse Exchange-Traded Funds (June 2009).
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    A reasonable belief that investment advice is in the best interest 
of a client also requires that an adviser conduct a reasonable 
investigation into the investment sufficient not to base its advice on 
materially inaccurate or incomplete information.\40\ We have taken 
enforcement action where an investment adviser did not independently or 
reasonably investigate securities before recommending them to 
clients.\41\
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    \40\ See, e.g., Concept Release on the U.S. Proxy System, 
Investment Advisers Act Release No. 3052 (July 14, 2010) (indicating 
that a fiduciary ``has a duty of care requiring it to make a 
reasonable investigation to determine that it is not basing its 
recommendations on materially inaccurate or incomplete 
information'').
    \41\ See, e.g., In the Matter of Larry C. Grossman, Investment 
Advisers Act Release No. 4543 (Sept. 30, 2016) (Commission Opinion) 
(``In re Grossman'') (in connection with imposing liability on a 
principal of a registered investment adviser for recommending 
offshore private investment funds to clients), stayed in part, 
Investment Advisers Act No. 4563 (Nov. 1, 2016), response to remand, 
Investment Advisers Act Release No. 4871 (Mar. 29, 2018) 
(reinstating the Sept. 30, 2016 opinion and order, except with 
respect to the disgorgement and prejudgment interest in light of the 
Supreme Court's decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017)).
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    The cost (including fees and compensation) associated with 
investment advice would generally be one of many important factors--
such as an investment product's or strategy's investment objectives, 
characteristics (including any special or unusual features), liquidity, 
risks and potential benefits, volatility, likely performance in a 
variety of market and economic conditions, time horizon, and cost of 
exit--to consider when determining whether a security or investment 
strategy involving a security or securities is in the best interest of 
the client. When considering similar investment products or strategies, 
the fiduciary duty does not necessarily require an adviser to recommend 
the lowest cost investment product or strategy.
    Moreover, an adviser would not satisfy its fiduciary duty to 
provide advice that is in the client's best interest by simply advising 
its client to invest in the lowest cost (to the client) or least 
remunerative (to the investment adviser) investment product or strategy 
without any further analysis of other factors in the context of the 
portfolio that the adviser manages for the client and the client's 
objective. Rather, the adviser could recommend a higher-cost investment 
or strategy if the adviser reasonably concludes that there are other 
factors about the investment or strategy that outweigh cost and make 
the investment or strategy in the best interest of the client, in light 
of that client's objectives. For example, it might be consistent with 
an adviser's fiduciary duty to advise a client with a high risk 
tolerance and significant investment experience to invest in a private 
equity fund with relatively higher fees and significantly less 
liquidity as compared with a fund that invests in publicly-traded 
companies if the private equity fund was in the client's best interest 
because it provided exposure to an asset class that was appropriate in 
the context of the client's overall portfolio.
    An adviser's fiduciary duty applies to all investment advice the 
investment adviser provides to clients, including advice about 
investment strategy, engaging a sub-adviser, and account type.\42\ 
Advice about account type includes advice about whether to open or 
invest through a certain type of account (e.g., a commission-based 
brokerage account or a fee-based advisory account) and advice about 
whether to roll over assets from one account (e.g., a retirement 
account) into a new or existing account that the adviser or an 
affiliate of the adviser manages.\43\ In providing advice about account 
type, an adviser should consider all types of accounts offered by the 
adviser and acknowledge to a client when the account types the adviser 
offers are not in the client's best interest.\44\
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    \42\ In addition, with respect to prospective clients, 
investment advisers have antifraud liability under section 206 of 
the Advisers Act, which, among other things, applies to 
transactions, practices, or courses of business which operate as a 
fraud or deceit upon prospective clients, including those regarding 
investment strategy, engaging a sub-adviser, and account type. We 
believe that, in order to avoid liability under this antifraud 
provision, an investment adviser should have sufficient information 
about the prospective client and its objectives to form a reasonable 
basis for advice before providing any advice about these matters. At 
the point in time at which the prospective client becomes a client 
of the investment adviser (e.g., at account opening), the fiduciary 
duty applies. Accordingly, while advice to prospective clients about 
these matters must comply with the antifraud provisions under 
section 206 of the Advisers Act, the adviser must also satisfy its 
fiduciary duty with respect to any such advice (e.g., regarding 
account type) when a prospective client becomes a client.
    \43\ We consider advice about ``rollovers'' to include advice 
about account type, in addition to any advice regarding the 
investments or investment strategy with respect to the assets to be 
rolled over, as the advice necessarily includes the advice about the 
account type into which assets are to be rolled over. As noted 
below, as a general matter, an adviser's duty to monitor extends to 
all personalized advice it provides to the client, including, for 
example, in an ongoing relationship, an evaluation of whether a 
client's account or program type (for example, a wrap account) 
continues to be in the client's best interest. See infra text 
accompanying footnote 52.
    \44\ Accordingly, in providing advice to a client or customer 
about account type, a financial professional who is dually licensed 
(i.e., an associated person of a broker-dealer and a supervised 
person of an investment adviser (regardless of whether the 
professional works for a dual registrant, affiliated firms, or 
unaffiliated firms)) should consider all types of accounts offered 
(i.e., both brokerage accounts and advisory accounts) when 
determining whether the advice is in the client's best interest. A 
financial professional who is only a supervised person of an 
investment adviser (regardless of whether that advisory firm is a 
dual registrant or affiliated with a broker-dealer) may only 
recommend an advisory account the adviser offers when the account is 
in the client's best interest. If a financial professional who is 
only a supervised person of an investment adviser chooses to advise 
a client to consider a non-advisory account (or to speak with other 
personnel at a dual registrant or affiliate about a non-advisory 
account), that advice should be in the best interest of the client. 
This same framework applies in the case of a prospective client, but 
any advice or recommendation given to a prospective client would be 
subject to the antifraud provisions of the federal securities laws. 
See supra footnote 42 and Reg. BI Adoption, supra footnote 3.
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2. Duty To Seek Best Execution
    An investment adviser's duty of care includes a duty to seek best 
execution of a client's transactions where the adviser has the 
responsibility to select broker-dealers to execute client trades 
(typically in the case of discretionary accounts).\45\ In meeting this 
obligation, an adviser must seek to obtain the execution of 
transactions for each of its clients such that the client's total cost 
or proceeds in each transaction are the most favorable under the 
circumstances. An adviser fulfills this duty by seeking to obtain the 
execution of securities transactions on behalf of a client with

[[Page 33675]]

the goal of maximizing value for the client under the particular 
circumstances occurring at the time of the transaction. Maximizing 
value encompasses more than just minimizing cost. When seeking best 
execution, an adviser should consider ``the full range and quality of a 
broker's services in placing brokerage including, among other things, 
the value of research provided as well as execution capability, 
commission rate, financial responsibility, and responsiveness'' to the 
adviser.\46\ In other words, the ``determinative factor'' is not the 
lowest possible commission cost, ``but whether the transaction 
represents the best qualitative execution.'' \47\ Further, an 
investment adviser should ``periodically and systematically'' evaluate 
the execution it is receiving for clients.\48\
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    \45\ See Commission Guidance Regarding Client Commission 
Practices Under Section 28(e) of the Securities Exchange Act of 
1934, Exchange Act Release No. 54165 (July 18, 2006) (stating that 
investment advisers have ``best execution obligations''); Investment 
Advisers Act Release 3060, supra footnote 15 (discussing an 
adviser's best execution obligations in the context of directed 
brokerage arrangements and disclosure of soft dollar practices); see 
also Advisers Act rule 206(3)-2(c) (referring to adviser's duty of 
best execution of client transactions).
    \46\ Exchange Act Release 23170, supra footnote 33.
    \47\ Id.
    \48\ Id. The Advisers Act does not prohibit advisers from using 
an affiliated broker to execute client trades. However, the 
adviser's use of such an affiliate involves a conflict of interest 
that must be fully and fairly disclosed and the client must provide 
informed consent to the conflict. See also Interpretation of Section 
206(3) of the Investment Advisers Act of 1940, Investment Advisers 
Act Release No. 1732 (Jul. 17, 1998) (discussing application of 
section 206(3) of the Advisers Act to certain principal and agency 
transactions). Two commenters requested that we prescribe specific 
obligations related to best execution. Comment Letter of the Healthy 
Markets Association (Aug. 7, 2018); Comment Letter of ICE Data 
Services (Aug. 7, 2018). However, prescribing specific requirements 
of how an adviser might satisfy its best execution obligations is 
outside of the scope of this Final Interpretation.
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3. Duty To Provide Advice and Monitoring Over the Course of the 
Relationship
    An investment adviser's duty of care also encompasses the duty to 
provide advice and monitoring at a frequency that is in the best 
interest of the client, taking into account the scope of the agreed 
relationship.\49\ For example, when the adviser has an ongoing 
relationship with a client and is compensated with a periodic asset-
based fee, the adviser's duty to provide advice and monitoring will be 
relatively extensive as is consistent with the nature of the 
relationship.\50\ Conversely, absent an express agreement regarding the 
adviser's monitoring obligation, when the adviser and the client have a 
relationship of limited duration, such as for the provision of a one-
time financial plan for a one-time fee, the adviser is unlikely to have 
a duty to monitor. In other words, in the absence of any agreed 
limitation or expansion, the scope of the duty to monitor will be 
indicated by the duration and nature of the agreed advisory 
arrangement.\51\ As a general matter, an adviser's duty to monitor 
extends to all personalized advice it provides to the client, 
including, for example, in an ongoing relationship, an evaluation of 
whether a client's account or program type (for example, a wrap 
account) continues to be in the client's best interest.\52\
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    \49\ Cf. SEC v. Capital Gains, supra footnote 2 (describing 
advisers' ``basic function'' as ``furnishing to clients on a 
personal basis competent, unbiased, and continuous advice regarding 
the sound management of their investments'' (quoting Investment 
Trusts and Investment Companies, Report of the Securities and 
Exchange Commission, Pursuant to Section 30 of the Public Utility 
Holding Company Act of 1935, on Investment Counsel, Investment 
Management, Investment Supervisory, and Investment Advisory 
Services, H.R. Doc. No. 477, 76th Cong. 2d Sess., 1, at 28)). Cf. 
Barbara Black, Brokers and Advisers--What's in a Name?, 32 Fordham 
Journal of Corporate and Financial Law XI (2005) (``[W]here the 
investment adviser's duties include management of the account, [the 
adviser] is under an obligation to monitor the performance of the 
account and to make appropriate changes in the portfolio.''); Arthur 
B. Laby, Fiduciary Obligations of Broker-Dealers and Investment 
Advisers, 55 Villanova Law Review 701 (2010) (``Laby Villanova 
Article'') (stating that the scope of an adviser's activity can be 
altered by contract and that an adviser's fiduciary duty would be 
commensurate with the scope of the relationship) (internal citations 
omitted).
    \50\ However, an adviser and client may scope the frequency of 
the adviser's monitoring (e.g., agreement to monitor quarterly or 
monthly and as appropriate in between based on market events), 
provided that there is full and fair disclosure and informed 
consent. We consider the frequency of monitoring, as well as any 
other material facts relating to the agreed frequency, such as 
whether there will also be interim monitoring when there are market 
events relevant to the client's portfolio, to be a material fact 
relating to the advisory relationship about which an adviser must 
make full and fair disclosure and obtain informed consent as 
required by its fiduciary duty.
    \51\ See also Laby Villanova Article, supra footnote 49, at 728 
(2010) (``If an adviser has agreed to provide continuous supervisory 
services, the scope of the adviser's fiduciary duty entails a 
continuous, ongoing duty to supervise the client's account, 
regardless of whether any trading occurs. This feature of the 
adviser's duty, even in a non-discretionary account, contrasts 
sharply with the duty of a broker administering a non-discretionary 
account, where no duty to monitor is required.'') (internal 
citations omitted).
    \52\ Investment advisers also may consider whether written 
policies and procedures relating to monitoring would be appropriate 
under Advisers Act rule 206(4)-7, which requires any investment 
adviser registered or required to be registered under the Advisers 
Act to adopt and implement written policies and procedures 
reasonably designed to prevent violation of the Advisers Act and the 
rules thereunder by the adviser and its supervised persons.
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C. Duty of Loyalty

    The duty of loyalty requires that an adviser not subordinate its 
clients' interests to its own.\53\ In other words, an investment 
adviser must not place its own interest ahead of its client's 
interests.\54\ To meet its duty of loyalty, an adviser must make full 
and fair disclosure to its clients of all material facts relating to 
the advisory relationship.\55\ Material facts relating to the advisory 
relationship include the capacity in which the firm is acting with 
respect to the advice provided. This will be particularly relevant for 
firms or individuals that are dually registered as broker-dealers and 
investment advisers and who serve the same client in both an advisory 
and a brokerage capacity. Thus, such firms and individuals generally 
should provide full and fair disclosure about the circumstances in 
which they intend to act in their

[[Page 33676]]

brokerage capacity and the circumstances in which they intend to act in 
their advisory capacity. This disclosure may be accomplished through a 
variety of means, including, among others, written disclosure at the 
beginning of a relationship that clearly sets forth when the dual 
registrant would act in an advisory capacity and how it would provide 
notification of any changes in capacity.\56\ Similarly, a dual 
registrant acting in its advisory capacity should disclose any 
circumstances under which its advice will be limited to a menu of 
certain products offered through its affiliated broker-dealer or 
affiliated investment adviser.
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    \53\ Investment Advisers Act Release 3060, supra footnote 15 
(adopting amendments to Form ADV and stating that ``[u]nder the 
Advisers Act, an adviser is a fiduciary whose duty is to serve the 
best interests of its clients, which includes an obligation not to 
subrogate clients' interests to its own,'' citing Investment 
Advisers Act Release 2106, supra footnote 15). The duty of loyalty 
applies not just to advice regarding potential investments, but to 
all advice the investment adviser provides to an existing client, 
including advice about investment strategy, engaging a sub-adviser, 
and account type. See supra text accompanying footnotes 42-43.
    \54\ For example, an adviser cannot favor its own interests over 
those of a client, whether by favoring its own accounts or by 
favoring certain client accounts that pay higher fee rates to the 
adviser over other client accounts. The Commission has brought 
numerous enforcement actions against advisers that allocated trades 
to their own accounts and allocated less favorable or unprofitable 
trades to their clients' accounts. See, e.g., SEC v. Strategic 
Capital Management, LLC and Michael J. Breton, Litigation Release 
No. 23867 (June 23, 2017) (partial settlement) (adviser placed 
trades through a master brokerage account and then allocated 
profitable trades to adviser's account while placing unprofitable 
trades into the client accounts in violation of fiduciary duty and 
contrary to disclosures). In the Proposed Interpretation, we stated 
that the duty of loyalty requires an adviser to ``put its client's 
interest first.'' One commenter suggested that the requirement of an 
adviser to put its client's interest ``first'' is very different 
from a requirement not to ``subordinate'' or ``subrogate'' clients' 
interests, and is inconsistent with how the duty of loyalty had been 
applied in the past. See Comment Letter of the Asset Management 
Group of the Securities Industry and Financial Markets Association 
(Aug. 7, 2018) (``SIFMA AMG Letter''). Accordingly, we have revised 
the description of the duty of loyalty in this Final Interpretation 
to be more consistent with how we have previously described the 
duty. See Investment Advisers Act Release 3060, supra footnote 15 
(``Under the Advisers Act, an adviser is a fiduciary whose duty is 
to serve the best interests of its clients, which includes an 
obligation not to subrogate clients' interests to its own.'') 
(citing Investment Advisers Act Release 2106, supra footnote 15). In 
practice, referring to putting a client's interest first is a plain 
English formulation commonly used by investment advisers to explain 
their duty of loyalty in a way that may be more understandable to 
retail clients.
    \55\ See SEC v. Capital Gains, supra footnote 2 (``Failure to 
disclose material facts must be deemed fraud or deceit within its 
intended meaning.''); Investment Advisers Act Release 3060, supra 
footnote 15 (``as a fiduciary, an adviser has an ongoing obligation 
to inform its clients of any material information that could affect 
the advisory relationship''); see also General Instruction 3 to Part 
2 of Form ADV (``Under federal and state law, you are a fiduciary 
and must make full disclosure to your clients of all material facts 
relating to the advisory relationship.'').
    \56\ See also Reg. BI Adoption, supra footnote 3, at 99.
---------------------------------------------------------------------------

    In addition, an adviser must eliminate or at least expose through 
full and fair disclosure all conflicts of interest which might incline 
an investment adviser--consciously or unconsciously--to render advice 
which was not disinterested.\57\ We believe that while full and fair 
disclosure of all material facts relating to the advisory relationship 
or of conflicts of interest and a client's informed consent prevent the 
presence of those material facts or conflicts themselves from violating 
the adviser's fiduciary duty, such disclosure and consent do not 
themselves satisfy the adviser's duty to act in the client's best 
interest.\58\ To illustrate what constitutes full and fair disclosure, 
we are providing the following guidance on (i) the appropriate level of 
specificity, including the appropriateness of stating that an adviser 
``may'' have a conflict, and (ii) considerations for disclosure 
regarding conflicts related to the allocation of investment 
opportunities among eligible clients.
---------------------------------------------------------------------------

    \57\ In the Proposed Interpretation, we stated that an adviser 
must seek to avoid conflicts of interest with its clients. Proposed 
Interpretation, supra footnote 6. Some commenters requested clarity 
on what it means to ``seek to avoid'' conflicts of interest. See, 
e.g., Comment Letter of Schulte Roth & Zabel LLP (Aug. 8, 2018); ABA 
Letter (stating that this wording could be read to require an 
adviser to first seek to avoid a conflict, before addressing a 
conflict through disclosure, rather than being able to provide full 
and fair disclosure of a conflict, and only seek avoidance if the 
conflict cannot be addressed through disclosure). The Commission 
first used this phrasing when adopting amendments to the Form ADV 
Part 2 instructions. See Investment Advisers Act Release 3060, supra 
footnote 15 and General Instruction 3 to Part 2 of Form ADV (``As a 
fiduciary, you also must seek to avoid conflicts of interest with 
your clients, and, at a minimum, make full disclosure of all 
material conflicts of interest between you and your clients that 
could affect the advisory relationship.''). The release adopting 
this instruction clarifies the Commission's intent that it capture 
the fiduciary duty described in SEC v. Capital Gains and Arleen 
Hughes. See Investment Advisers Act Release 3060, supra footnote 15, 
at n.4 and accompanying text (citing SEC v. Capital Gains, supra 
footnote 2, and Arleen Hughes, supra footnote 18, as the basis of 
this language). Both of these cases emphasized that the adviser, as 
a fiduciary, should seek to avoid conflicts, but at a minimum must 
make full and fair disclosure of the conflict and obtain the 
client's informed consent. See SEC v. Capital Gains, supra footnote 
2 (``The Advisers Act thus reflects . . . a congressional intent to 
eliminate, or at least to expose, all conflicts of interest which 
might incline an investment adviser--consciously or unconsciously--
to render advice which was not disinterested.''); Arleen Hughes, 
supra footnote 18 (``Since loyalty to his trust is the first duty 
which a fiduciary owes to his principal, it is the general rule that 
a fiduciary must not put himself into a position where his own 
interests may come in conflict with those of his principal'' but if 
a fiduciary ``chooses to assume a role in which she is motivated by 
conflicting interests, . . . she may do so if, but only if, she 
obtains her client's consent after disclosure . . .''). We believe 
the Commission's reference to ``seek to avoid'' conflicts in the 
Form ADV Part 2 instructions is consistent with the Final 
Interpretation's statement that an adviser ``must eliminate or at 
least expose all conflicts of interest which might incline an 
investment adviser--consciously or unconsciously--to render advice 
which was not disinterested'' as well as the substantively identical 
statements in SEC v. Capital Gains, supra footnote 2, and Arleen 
Hughes, supra footnote 18. While an adviser may satisfy its duty of 
loyalty by making full and fair disclosure of conflicts of interest 
and obtaining the client's informed consent, an adviser is 
prohibited from overreaching or taking unfair advantage of a 
client's trust.
    \58\ As noted above, an investment adviser's obligation to act 
in the best interest of its client is an overarching principle that 
encompasses both the duty of care and the duty of loyalty. See SEC 
v. Tambone, supra footnote 23 (stating that Advisers Act section 206 
``imposes a fiduciary duty on investment advisers to act at all 
times in the best interest of the fund . . . and includes an 
obligation to provide `full and fair disclosure of all material 
facts' '') (emphasis added) (citing SEC v. Capital Gains, supra 
footnote 2). We describe above in this Final Interpretation how the 
application of an investment adviser's fiduciary duty to its client 
will vary with the scope of the advisory relationship. See supra 
section II.A.
---------------------------------------------------------------------------

    In order for disclosure to be full and fair, it should be 
sufficiently specific so that a client is able to understand the 
material fact or conflict of interest and make an informed decision 
whether to provide consent.\59\ For example, it would be inadequate to 
disclose that the adviser has ``other clients'' without describing how 
the adviser will manage conflicts between clients if and when they 
arise, or to disclose that the adviser has ``conflicts'' without 
further description.
---------------------------------------------------------------------------

    \59\ Arleen Hughes, supra footnote 18, at 4 and 8 (stating, 
``[s]ince loyalty to his trust is the first duty which a fiduciary 
owes to his principal, it is the general rule that a fiduciary must 
not put himself into a position where his own interests may come in 
conflict with those of his principal. To prevent any conflict and 
the possible subordination of this duty to act solely for the 
benefit of his principal, a fiduciary at common law is forbidden to 
deal as an adverse party with his principal. An exception is made, 
however, where the principal gives his informed consent to such 
dealings,'' and adding that, ``[r]egistrant has an affirmative 
obligation to disclose all material facts to her clients in a manner 
which is clear enough so that a client is fully apprised of the 
facts and is in a position to give his informed consent.''); see 
also Hughes v. Securities and Exchange Commission, 174 F.2d 969 
(1949) (affirming the SEC decision in Arleen Hughes); General 
Instruction 3 to Part 2 of Form ADV (stating that an adviser's 
disclosure obligation ``requires that [the adviser] provide the 
client with sufficiently specific facts so that the client is able 
to understand the conflicts of interest [the adviser has] and the 
business practices in which [the adviser] engage[s], and can give 
informed consent to such conflicts or practices or reject them''); 
Investment Advisers Act Release 3060, supra footnote 15; Restatement 
(Third) of Agency Sec.  8.06 (``Conduct by an agent that would 
otherwise constitute a breach of duty as stated in Sec. Sec.  8.01, 
8.02, 8.03, 8.04, and 8.05 [referencing the fiduciary duty] does not 
constitute a breach of duty if the principal consents to the 
conduct, provided that (a) in obtaining the principal's consent, the 
agent (i) acts in good faith, (ii) discloses all material facts that 
the agent knows, has reason to know, or should know would reasonably 
affect the principal's judgment unless the principal has manifested 
that such facts are already known by the principal or that the 
principal does not wish to know them, and (iii) otherwise deals 
fairly with the principal; and (b) the principal's consent concerns 
either a specific act or transaction, or acts or transactions of a 
specified type that could reasonably be expected to occur in the 
ordinary course of the agency relationship.''). See infra footnotes 
67-70 and accompanying text for a more detailed discussion of 
informed consent and how it is generally considered on an objective 
basis and may be inferred.
---------------------------------------------------------------------------

    Similarly, disclosure that an adviser ``may'' have a particular 
conflict, without more, is not adequate when the conflict actually 
exists.\60\ For example, we would consider the use of ``may'' 
inappropriate when the conflict exists with respect to some (but not 
all) types or classes of clients, advice, or transactions without 
additional disclosure specifying the types or classes of clients, 
advice, or transactions with respect to which the conflict exists. In 
addition, the use of ``may'' would be inappropriate if it simply 
precedes a list of all possible or potential conflicts regardless of 
likelihood and obfuscates

[[Page 33677]]

actual conflicts to the point that a client cannot provide informed 
consent. On the other hand, the word ``may'' could be appropriately 
used to disclose to a client a potential conflict that does not 
currently exist but might reasonably present itself in the future.\61\
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    \60\ We have brought enforcement actions in such cases. See, 
e.g., In the Matter of The Robare Group, Ltd., et al., Investment 
Advisers Act Release No. 4566 (Nov. 7, 2016) (Commission Opinion) 
(finding, among other things, that adviser's disclosure that it may 
receive a certain type of compensation was inadequate because it did 
not reveal that the adviser actually had an arrangement pursuant to 
which it received fees that presented a potential conflict of 
interest); aff'd in part and rev'd in part on other grounds Robare 
v. SEC, supra footnote 20; In re Grossman, supra footnote 41 
(indicating that ``the use of the prospective `may' in [the relevant 
Form ADV disclosures] is misleading because it suggested the mere 
possibility that [the broker] would make a referral and/or be paid 
`referral fees' at a later point, when in fact a commission-sharing 
arrangement was already in place and generating income''). Cf. 
Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634, 640 (D.C. Cir. 2008) 
(``The Commission noted the critical distinction between disclosing 
the risk that a future event might occur and disclosing actual 
knowledge the event will occur.'') (emphasis in original). For Form 
ADV Part 2 purposes, advisers are instructed that when they have a 
conflict or engage in a practice with respect to some (but not all) 
types or classes of clients, advice, or transactions, to indicate as 
such rather than disclosing that they ``may'' have the conflict or 
engage in the practice. General Instruction 2 to Part 2 of Form ADV.
    \61\ We have added this example of a circumstance where ``may'' 
could be appropriately used in response to the request of some 
commenters. See, e.g., Pickard Letter; ICI Letter; Ropes & Gray 
Letter; IAA Letter.
---------------------------------------------------------------------------

    Whether the disclosure is full and fair will depend upon, among 
other things, the nature of the client, the scope of the services, and 
the material fact or conflict. Full and fair disclosure for an 
institutional client (including the specificity, level of detail, and 
explanation of terminology) can differ, in some cases significantly, 
from full and fair disclosure for a retail client because institutional 
clients generally have a greater capacity and more resources than 
retail clients to analyze and understand complex conflicts and their 
ramifications.\62\ Nevertheless, regardless of the nature of the 
client, the disclosure must be clear and detailed enough for the client 
to make an informed decision to consent to the conflict of interest or 
reject it.
---------------------------------------------------------------------------

    \62\ Arleen Hughes, supra footnote 18 (the ``method and extent 
of disclosure depends upon the particular client involved,'' and an 
unsophisticated client may require ``a more extensive explanation 
than the informed investor'').
---------------------------------------------------------------------------

    When allocating investment opportunities among eligible clients, an 
adviser may face conflicts of interest either between its own interests 
and those of a client or among different clients.\63\ If so, the 
adviser must eliminate or at least expose through full and fair 
disclosure the conflicts associated with its allocation policies, 
including how the adviser will allocate investment opportunities, such 
that a client can provide informed consent.\64\ When allocating 
investment opportunities, an adviser is permitted to consider the 
nature and objectives of the client and the scope of the 
relationship.\65\ An adviser need not have pro rata allocation 
policies, or any particular method of allocation, but, as with other 
conflicts and material facts, the adviser's allocation practices must 
not prevent it from providing advice that is in the best interest of 
its clients.\66\
---------------------------------------------------------------------------

    \63\ See Restatement (Third) of Agency, Sec.  8.01 General 
Fiduciary Principle (2006) (``Unless the principal consents, the 
general fiduciary principle, as elaborated by the more specific 
duties of loyalty stated in Sec. Sec.  8.02 to 8.05, also requires 
that an agent refrain from using the agent's position or the 
principal's property to benefit the agent or a third party.'').
    \64\ The Commission has brought numerous enforcement actions 
alleging that advisers unfairly allocated client trades to preferred 
clients without making full and fair disclosure. See Staff of the 
U.S. Securities and Exchange Commission, Study on Investment 
Advisers and Broker-Dealers As Required by Section 913 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Jan. 2011), 
available at https://www.sec.gov/news/studies/2011/913studyfinal.pdf, at 23-24 (citing enforcement actions). This Final 
Interpretation sets forth the Commission's views regarding what 
constitutes full and fair disclosure. See, e.g., supra text 
accompanying footnote 59; see also Barry Barbash and Jai Massari, 
The Investment Advisers Act of 1940; Regulation by Accretion, 39 
Rutgers Law Journal 627 (2008) (stating that under section 206 of 
the Advisers Act and traditional notions of fiduciary and agency 
law, an adviser must not give preferential treatment to some clients 
or systematically exclude eligible clients from participating in 
specific opportunities without providing the clients with 
appropriate disclosure regarding the treatment).
    \65\ An adviser and a client may even agree that certain 
investment opportunities or categories of investment opportunities 
will not be allocated or offered to a client.
    \66\ In the Proposed Interpretation, we stated that ``in 
allocating investment opportunities among eligible clients, an 
adviser must treat all clients fairly.'' Some commenters interpreted 
this statement to mean that it would be impermissible for an adviser 
to allocate a particular investment to one eligible client instead 
of a second eligible client, even when the second client had 
received full and fair disclosure and provided informed consent to 
such an investment being allocated to the first client. See, e.g., 
Ropes & Gray Letter; SIFMA AMG Letter. We have removed that sentence 
from this Final Interpretation and replaced it with this discussion 
that clarifies our views regarding allocation of investment 
opportunities.
---------------------------------------------------------------------------

    While most commenters agreed that informed consent is a component 
of the fiduciary duty, a few commenters objected to what they saw as 
subjectivity in the use of the term ``informed'' to describe a client's 
consent to a disclosed conflict.\67\ The fact that disclosure must be 
full and fair such that a client can provide informed consent does not 
require advisers to make an affirmative determination that a particular 
client understood the disclosure and that the client's consent to the 
conflict of interest was informed. Rather, disclosure should be 
designed to put a client in a position to be able to understand and 
provide informed consent to the conflict of interest. A client's 
informed consent can be either explicit or, depending on the facts and 
circumstances, implicit.\68\ We believe, however, that it would not be 
consistent with an adviser's fiduciary duty to infer or accept client 
consent where the adviser was aware, or reasonably should have been 
aware, that the client did not understand the nature and import of the 
conflict.\69\ In some cases, conflicts may be of a nature and extent 
that it would be difficult to provide disclosure to clients that 
adequately conveys the material facts or the nature, magnitude, and 
potential effect of the conflict sufficient for a client to consent to 
or reject it.\70\ In other cases, disclosure may not be specific enough 
for a client to understand whether and how the conflict could affect 
the advice it receives. For retail clients in particular, it may be 
difficult to provide disclosure regarding complex or extensive 
conflicts that is sufficiently specific, but also understandable. In 
all of these cases where an investment adviser cannot fully and fairly 
disclose a conflict of interest to a client such that the client can 
provide informed consent, the adviser should either eliminate the 
conflict or adequately mitigate (i.e., modify practices to reduce) the 
conflict such that full and fair disclosure and informed consent are 
possible.
---------------------------------------------------------------------------

    \67\ See, e.g., Comment Letter of LPL Financial LLC (Aug. 7, 
2018); Ropes & Gray Letter.
    \68\ We do not interpret an adviser's fiduciary duty to require 
that full and fair disclosure or informed consent be achieved in a 
written advisory contract or otherwise in writing. For example, an 
adviser could provide a client full and fair disclosure of all 
material facts relating to the advisory relationship as well as full 
and fair disclosure of all conflicts of interest which might incline 
the adviser, consciously or unconsciously, to render advice that was 
not disinterested, through a combination of Form ADV and other 
disclosure and the client could implicitly consent by entering into 
or continuing the investment advisory relationship with the adviser.
    \69\ See Arleen Hughes, supra footnote 18 (``Registrant cannot 
satisfy this duty by executing an agreement with her clients which 
the record shows some clients do not understand and which, in any 
event, does not contain the essential facts which she must 
communicate.''). In the Proposed Interpretation, we stated that 
inferring or accepting client consent to a conflict would not be 
consistent with the fiduciary duty where ``the material facts 
concerning the conflict could not be fully and fairly disclosed.'' 
Some commenters expressed agreement with this statement. See, e.g., 
CFA Letter (agreeing that ``advisers should be precluded from 
inferring or accepting client consent to a conflict'' where the 
material facts concerning the conflict could not be fully and fairly 
disclosed). Other commenters expressed doubt that such disclosure 
could be impossible. See, e.g., Allianz Letter (``[W]e have not 
encountered a situation in which we could not fully and fairly 
disclose the material facts, including the nature, extent, magnitude 
and potential effects of the conflict.''). In response to 
commenters, we have replaced the general statement about an 
inability to fully and fairly disclose material facts about the 
conflict with more specific examples of how advisers can make such 
full and fair disclosure. See supra text accompanying footnotes 59-
66.
    \70\ As discussed above, institutional clients generally have a 
greater capacity and more resources than retail clients to analyze 
and understand complex conflicts and their ramifications. See supra 
text accompanying footnote 62.
---------------------------------------------------------------------------

    Full and fair disclosure of all material facts relating to the 
advisory relationship, and all conflicts of interest which might 
incline an investment adviser--consciously or unconsciously--to render 
advice which was not disinterested, can help clients and prospective 
clients in evaluating and selecting investment advisers. Accordingly, 
we require advisers to deliver to their clients a ``brochure,'' under 
Part 2A of Form ADV, which sets

[[Page 33678]]

out minimum disclosure requirements, including disclosure of certain 
conflicts.\71\ Investment advisers are required to deliver the brochure 
to a prospective client at or before entering into a contract so that 
the prospective client can use the information contained in the 
brochure to decide whether or not to enter into the advisory 
relationship.\72\ In a concurrent release, we are requiring all 
investment advisers to deliver to retail investors, at or before the 
time the adviser enters into an investment advisory agreement, a 
relationship summary, which would include, among other things, a plain 
English summary of certain of the firm's conflicts of interest, and 
would encourage retail investors to inquire about those conflicts.\73\
---------------------------------------------------------------------------

    \71\ Investment Advisers Act Release 3060, supra footnote 15; 
General Instruction 3 to Part 2 of Form ADV (``Under federal and 
state law, you are a fiduciary and must make full disclosure to your 
clients of all material facts relating to the advisory relationship. 
As a fiduciary, you also must seek to avoid conflicts of interest 
with your clients, and, at a minimum, make full disclosure of all 
material conflicts of interest between you and your clients that 
could affect the advisory relationship. This obligation requires 
that you provide the client with sufficiently specific facts so that 
the client is able to understand the conflicts of interest you have 
and the business practices in which you engage, and can give 
informed consent to such conflicts or practices or reject them.''). 
See also Robare v. SEC, supra footnote 20 (``[R]egardless of what 
Form ADV requires, [investment advisers have] a fiduciary duty to 
fully and fairly reveal conflicts of interest to their clients.'').
    \72\ Investment Advisers Act rule 204-3. See Investment Advisers 
Act Release 3060, supra footnote 15 (adopting amendments to Form ADV 
and stating that, ``A client may use this disclosure to select his 
or her own adviser and evaluate the adviser's business practices and 
conflicts on an ongoing basis. As a result, the disclosure clients 
and prospective clients receive is critical to their ability to make 
an informed decision about whether to engage an adviser and, having 
engaged the adviser, to manage that relationship.''). To the extent 
that the information required for inclusion in the brochure does not 
satisfy an adviser's disclosure obligation, the adviser ``may have 
to disclose to clients information not specifically required by Part 
2 of Form ADV or in more detail than the brochure items might 
otherwise require'' and this disclosure may be made ``in [the] 
brochure or by some other means.'' General Instruction 3 to Part 2 
of Form ADV.
    \73\ Form CRS Relationship Summary; Amendments to Form ADV; 
Required Disclosures in Retail Communications and Restrictions on 
the use of Certain Names or Titles, Investment Advisers Act Release 
No. 5247 (June 5, 2019) (``Relationship Summary Adoption'').
---------------------------------------------------------------------------

III. Economic Considerations

    As noted above, this Final Interpretation is intended to reaffirm, 
and in some cases clarify, certain aspects of an investment adviser's 
fiduciary duty under the Advisers Act. The Final Interpretation does 
not itself create any new legal obligations for advisers. Nonetheless, 
the Commission recognizes that to the extent an adviser's practices are 
not consistent with the Final Interpretation provided above, the Final 
Interpretation could have potential economic effects. We discuss these 
potential effects below.

A. Background

    The Commission's interpretation of the standard of conduct for 
investment advisers under the Advisers Act set forth in this Final 
Interpretation would affect investment advisers and their associated 
persons as well as the clients of those investment advisers, and the 
market for financial advice more broadly.\74\ As of December 31, 2018, 
there were 13,299 investment advisers registered with the Commission 
with over $84 trillion in assets under management as well as 17,268 
investment advisers registered with states with approximately $334 
billion in assets under management and 3,911 investment advisers who 
submit Form ADV as exempt reporting advisers.\75\ As of December 31, 
2018, there are approximately 41 million client accounts advised by 
SEC-registered investment advisers.\76\
---------------------------------------------------------------------------

    \74\ See Relationship Summary Proposal, supra footnote 5, at 
section IV.A (discussing the market for financial advice generally).
    \75\ Data on investment advisers is based on staff analysis of 
Form ADV, particularly Item 5.F.(2)(c) of Part 1A for Regulatory 
Assets under Management. Because this Final Interpretation 
interprets an adviser's fiduciary duty under section 206 of the 
Advisers Act, this interpretation would be applicable to both SEC- 
and state-registered investment advisers, as well as other 
investment advisers that are exempt from registration or subject to 
a prohibition on registration under the Advisers Act.
    \76\ Item 5.F.(2)(f) of Part 1A of Form ADV.
---------------------------------------------------------------------------

    These investment advisers currently incur ongoing costs related to 
their compliance with their legal and regulatory obligations, including 
costs related to understanding the standard of conduct. We believe, 
based on the Commission's experience, that the interpretations set 
forth in this Final Interpretation are generally consistent with 
investment advisers' current understanding of their fiduciary duty 
under the Advisers Act.\77\ However, we recognize that as the scope of 
the adviser-client relationship varies and in many cases can be broad, 
there may be certain current circumstances where investment advisers 
interpret their fiduciary duty to require something less, and other 
current circumstances where they interpret their fiduciary duty to 
require something more, than this Final Interpretation. We lack data to 
identify which investment advisers currently understand their fiduciary 
duty to require something different from the standard of conduct 
articulated in this Final Interpretation. Based on our experience over 
decades of interacting with the investment management industry as its 
primary regulator, however, we generally believe that it is not a 
significant portion of the market.
---------------------------------------------------------------------------

    \77\ See supra section II.B.i. For example, some commenters 
asked that we clarify from the Proposed Interpretation that an 
adviser and its client can tailor the scope of the relationship to 
which the fiduciary duty applies, through contract. See, e.g., MMI 
Letter; Financial Engines Letter; ABA Letter. See supra footnotes 
67-69 and accompanying text, including clarifications addressing 
these commenters' concerns. More generally, some commenters 
requested clarifications from the Proposed Interpretation, and we 
are issuing this Final Interpretation to address those issues raised 
by commenters, as discussed in more detail above.
---------------------------------------------------------------------------

    One commenter suggested that the Proposed Interpretation's 
discussion of how an adviser fulfills its fiduciary duty appeared to be 
based in the context of having as a client an individual investor, and 
not a fund.\78\ This commenter indicated its concerns about the ability 
of a fund manager to infer consent from a client that is a fund, and 
that issues regarding inferring consent from funds could significantly 
increase compliance costs for venture capital funds.\79\ Our discussion 
above in this Final Interpretation includes clarifications to address 
comments, and expressly acknowledges that while all investment advisers 
owe each of their clients a fiduciary duty, the specific application of 
the investment adviser's fiduciary duty must be viewed in the context 
of the agreed-upon scope of the adviser-client relationship.\80\ This 
Final Interpretation, as compared to the Proposed Interpretation, 
includes significantly more examples of the application of the 
fiduciary duty to institutional clients, and clarifies the Commission's 
interpretation of what constitutes full and fair disclosure and 
informed consent, acknowledging a number of comments on this topic.\81\ 
We believe that these clarifications will help address some of this 
commenter's concerns with respect to increased compliance costs for 
venture capital funds, in part by clarifying how the fiduciary duty can 
apply to institutional clients. We continue to believe, based on our 
experience with investment advisers to different types of clients, that 
advisers understand their fiduciary

[[Page 33679]]

duty to be generally consistent with the standards of this Final 
Interpretation.
---------------------------------------------------------------------------

    \78\ See Comment Letter of National Venture Capital Association 
(Aug. 7, 2018) (``NVCA Letter'').
    \79\ Id.
    \80\ See supra section II.A.
    \81\ In particular, this Final Interpretation expressly notes 
our belief that a client generally may provide its informed consent 
implicitly ``by entering into or continuing the investment advisory 
relationship with the adviser'' after disclosure of a conflict of 
interest. See supra footnote 68.
---------------------------------------------------------------------------

B. Potential Economic Effects

    Based on our experience as the long-standing regulator of the 
investment adviser industry, the Commission's interpretation of the 
fiduciary duty under section 206 of the Advisers Act described in this 
Final Interpretation generally reaffirms the current practices of 
investment advisers. Therefore, we expect there to be no significant 
economic effects from this Final Interpretation. However, as with other 
circumstances in which the Commission speaks to the legal obligations 
of regulated entities, we acknowledge that affected firms, including 
those whose practices are consistent with the Commission's 
interpretation, incur costs to evaluate the Commission's interpretation 
and assess its applicability to them. Further, to the extent certain 
investment advisers currently understand the practices necessary to 
comply with their fiduciary duty to be different from those discussed 
in this Final Interpretation, there could be some economic effects, 
which we discuss below.
Clients of Investment Advisers
    The typical relationship between an investment adviser and a client 
is a principal-agent relationship, where the principal (the client) 
hires an agent (the investment adviser) to perform some service 
(investment advisory services) on the principal's behalf.\82\ Because 
investors and investment advisers are likely to have different 
preferences and goals, the investment adviser relationship is subject 
to agency problems, including those resulting from conflicts: That is, 
investment advisers may take actions that increase their well-being at 
the expense of investors, thereby imposing agency costs on 
investors.\83\ A fiduciary duty, such as the duty investment advisers 
owe their clients, can mitigate these agency problems and reduce agency 
costs by deterring investment advisers from taking actions that expose 
them to legal liability.\84\
---------------------------------------------------------------------------

    \82\ See, e.g., James A. Brickley, Clifford W. Smith, Jr. & 
Jerold L. Zimmerman, Managerial Economics and Organizational 
Architecture (2004), at 265 (``An agency relationship consists of an 
agreement under which one party, the principal, engages another 
party, the agent, to perform some service on the principal's 
behalf.''); see also Michael C. Jensen & William H. Meckling, Theory 
of the Firm: Managerial Behavior, Agency Costs and Ownership 
Structure, 3 Journal of Financial Economics 305-360 (1976) (``Jensen 
and Meckling'').
    \83\ See, e.g., Jensen and Meckling, supra footnote 82.
    \84\ See, e.g., Frank H. Easterbrook & Daniel R. Fischel, 
Contract and Fiduciary Duty, 36 Journal of Law & Economics 425-46 
(1993).
---------------------------------------------------------------------------

    To the extent this Final Interpretation causes a change in behavior 
of those investment advisers, if any, who currently interpret their 
fiduciary duty to require something different from this Final 
Interpretation, we expect a potential reduction in agency problems and, 
consequently, a reduction of agency costs to the client.\85\ For 
example, an adviser that, as part of its duty of loyalty, fully and 
fairly discloses \86\ a conflict of interest and receives informed 
consent from its client with respect to the conflict may reduce agency 
costs by increasing the client's awareness of the conflict and 
improving the client's ability to monitor the adviser with respect to 
this conflict. Alternatively, the client may choose to not consent 
given the information the adviser discloses about a conflict of 
interest if the perceived risk associated with the conflict is too 
significant, and instead try to renegotiate the contract with the 
adviser or look for an alternative adviser or other financial 
professional. In addition, the obligation to fully and fairly disclose 
a current conflict may cause the adviser to take other actions, for 
example eliminating or adequately mitigating (i.e., modifying practices 
to reduce) that conflict rather than taking the risk that the client 
will not provide informed consent or will look for an alternative 
adviser or other financial professional. The extent to which agency 
costs would be reduced by such a disclosure is difficult to assess 
given that we are unable to ascertain the total number of investment 
advisers that currently interpret their fiduciary duty to require 
something different from the Commission's interpretation,\87\ and 
consequently we are not able to estimate the agency costs such advisers 
currently impose on investors. In addition, we believe that there may 
be potential benefits for clients of those investment advisers, if any, 
to the extent this Final Interpretation is effective at strengthening 
investment advisers' understanding of their obligations to their 
clients. Further, to the extent that this Final Interpretation enhances 
the understanding of any investment advisers of their duty of care, it 
may potentially raise the quality of investment advice and also lead to 
increased compliance with the duty to monitor, for example whether 
advice about an account or program type remains in the client's best 
interest, thereby increasing the likelihood that the advice fits with a 
client's objectives.
---------------------------------------------------------------------------

    \85\ To the extent that this Final Interpretation clarifies the 
fiduciary duty for investment advisers, one commenter suggested it 
may then clarify what clients expect of their investment advisers. 
See Cambridge Letter (stating that ``greater clarity on all aspects 
of an investment adviser's fiduciary duty will improve the ability 
to craft such policies and procedures, as well as support the 
elimination of confusion for retail clients and investment 
professionals'').
    \86\ As discussed above, whether such a disclosure is full and 
fair will depend upon, among other things, the nature of the client, 
the scope of the services, and the conflict. See supra section II.C.
    \87\ One commenter did not agree that the discussion of 
fiduciary obligations in the Proposed Interpretation applied to 
advisers to funds as well as advisers to retail investors. See NVCA 
Letter. As discussed above, this Final Interpretation has clarified 
the discussion to address this commenter's concerns and acknowledges 
that the application of the fiduciary duty of an adviser to a retail 
client would be different from the specific application of the 
fiduciary duty of an adviser to a registered investment company or 
private fund.
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    In addition, to the extent that this Final Interpretation causes 
some investment advisers to properly identify circumstances in which 
conflicts may be of a nature and extent that it would be difficult to 
provide disclosure to clients that adequately conveys the material 
facts or nature, magnitude, and potential effect of the conflict 
sufficient for clients to consent to it or reject it, or in which the 
disclosure may not be specific enough for clients to understand whether 
and how the conflict could affect the advice they receive, this Final 
Interpretation may lead those investment advisers to take additional 
steps to improve their disclosures or to determine whether adequately 
mitigating (i.e., modifying practices to reduce) the conflict may be 
appropriate such that full and fair disclosure and informed consent are 
possible. This Final Interpretation may also cause some investment 
advisers to conclude in some circumstances that they cannot fully and 
fairly disclose a conflict of interest to a client such that the client 
can provide informed consent. We would expect that these advisers would 
either eliminate the conflict or adequately mitigate (i.e., modify 
practices to reduce) the conflict such that full and fair disclosure 
and informed consent would be possible. Thus, to the extent this Final 
Interpretation would cause investment advisers to better understand 
their obligations and therefore to modify their business practices in 
ways that (i) reduce the likelihood that conflicts and other agency 
costs will cause an adviser to place its interests ahead of the 
interests of the client or (ii) help those advisers to provide full and 
fair disclosure, it would be expected to ameliorate the agency conflict 
between investment advisers and their clients. In

[[Page 33680]]

turn, this may improve the quality of advice that the clients receive 
and therefore produce higher overall returns for clients and increase 
the efficiency of portfolio allocation. However, as discussed above, we 
would generally expect these effects to be minimal because we believe 
that the interpretations we are setting forth in this Final 
Interpretation are generally consistent with investment advisers' 
current understanding of their fiduciary duty under the Advisers Act. 
Finally, this Final Interpretation would also benefit clients of 
investment advisers to the extent it assists the Commission in its 
oversight of investment advisers' compliance with their regulatory 
obligations.
Investment Advisers and the Market for Investment Advice
    In general, we expect this Final Interpretation to affirm 
investment advisers' understanding of the fiduciary duty they owe their 
clients under the Advisers Act, reduce uncertainty for advisers, and 
facilitate their compliance. Further, by addressing in one release 
certain aspects of the fiduciary duty that an investment adviser owes 
to its clients under the Advisers Act, this Final Interpretation could 
reduce investment advisers' costs associated with comprehensively 
assessing their compliance obligations. We acknowledge that, as with 
other circumstances in which the Commission speaks to the legal 
obligations of regulated entities, affected firms, including those 
whose practices are consistent with the Commission's interpretation, 
incur costs to evaluate the Commission's interpretation and assess its 
applicability to them. Moreover, as discussed above, there may be 
certain investment advisers who currently understand their fiduciary 
duty to require something different from the fiduciary duty described 
in this Final Interpretation. Those investment advisers would 
experience an increase in their compliance costs as they change their 
systems, processes, disclosures, and behavior, and train their 
supervised persons, to align with this Final Interpretation. However, 
this increase in costs would be mitigated by potential benefits in 
efficiency for investment advisers that are able to understand aspects 
of their fiduciary duty by reference to a single Commission release 
that reaffirms--and in some cases clarifies--certain aspects of the 
fiduciary duty.\88\ In addition, and as discussed above, in the case of 
an investment adviser that believed it owed its clients a lower 
standard of conduct, there will be client benefits from the ensuing 
adaptation of a higher standard of conduct and related change in 
policies and procedures.
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    \88\ As noted above, supra footnote 3, this Final Interpretation 
is intended to highlight the principles relevant to an adviser's 
fiduciary duty. It is not, however, intended to be the exclusive 
resource for understanding these principles.
---------------------------------------------------------------------------

    Moreover, to the extent any investment advisers that understood 
their fiduciary duty to require something different from the fiduciary 
duty described in this Final Interpretation change their behavior to 
align with this Final Interpretation, there could also be some economic 
effects on the market for investment advice. For example, any improved 
compliance may not only reduce agency costs in current investment 
advisory relationships and increase the value of those relationships to 
current clients, it may also increase trust in the market for 
investment advice among all investors, which may result in more 
investors seeking advice from investment advisers. This may, in turn, 
benefit investors by improving the efficiency of their portfolio 
allocation. To the extent it is costly or difficult, at least in the 
short term, to expand the supply of investment advisory services to 
meet an increase in demand, any such new demand for investment advisory 
services could put some upward price pressure on fees. At the same 
time, however, if any such new demand increases the overall 
profitability of investment advisory services, then we expect it would 
encourage entry by new investment advisers--or hiring of new 
representatives by current investment advisers--such that competition 
would increase over time. Indeed, the recent growth in the investment 
adviser segment of the market, both in terms of number of firms and 
number of representatives,\89\ may suggest that the costs of expanding 
the supply of investment advisory services are currently relatively 
low.
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    \89\ See Relationship Summary Proposal, supra footnote 5, at 
section IV.A.1.d.
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    Additionally, we acknowledge that to the extent certain investment 
advisers recognize, as a result of this Final Interpretation, that 
their fiduciary duty is stricter than the fiduciary duty as they 
currently interpret it, it could potentially affect competition. 
Specifically, this Final Interpretation of certain aspects of the 
standard of conduct for investment advisers may result in additional 
compliance costs for investment advisers seeking to meet their 
fiduciary duty. This increase in compliance costs, in turn, may 
discourage competition for client segments that generate lower 
revenues, such as clients with relatively low levels of financial 
assets, which could reduce the supply of investment advisory services 
and raise fees for these client segments. However, the investment 
advisers who already are complying with the understanding of their 
fiduciary duty reflected in this Final Interpretation, and who may 
therefore currently have a comparative cost disadvantage, could find it 
more profitable to compete for the clients of those investment advisers 
who would face higher compliance costs as a result of this Final 
Interpretation, which would mitigate negative effects on the supply of 
investment advisory services. Further, as noted above, there has been a 
recent growth trend in the supply of investment advisory services, 
which is likely to mitigate any potential negative supply effects from 
this Final Interpretation.\90\
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    \90\ Beyond having an effect on competition in the market for 
investment adviser services, it is possible that this Final 
Interpretation could affect competition between investment advisers 
and other providers of financial advice, such as broker-dealers, 
banks, and insurance companies. This may be the case if certain 
investors base their choice between an investment adviser and 
another provider of financial advice, at least in part, on their 
perception of the standards of conduct each owes to their customers. 
To the extent that this Final Interpretation increases investors' 
trust in investment advisers' overall compliance with their standard 
of conduct, certain of these investors may become more willing to 
hire an investment adviser rather than one of their non-investment 
adviser competitors. As a result, investment advisers as a group may 
become more competitive compared to that of other types of providers 
of financial advice. On the other hand, if this Final Interpretation 
raises costs for investment advisers, they could become less 
competitive with other financial advice providers.
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    One commenter discussed that, in its view, any statement in the 
Proposed Interpretation that certain circumstances may require the 
elimination of material conflicts, rather than full and fair disclosure 
or the mitigation of such conflicts, could lead to an effect on the 
market and costs to advisers, if such a requirement would cause 
advisers who had not shared that interpretation to change their 
business models or product offerings or the ways in which they interact 
with clients.\91\ We disagree that this Final Interpretation includes a 
requirement to eliminate conflicts of interest. As discussed in more 
detail above, elimination of a conflict is one method of addressing 
that conflict; when appropriate advisers may also address the conflict 
by providing full and fair disclosure such that a client can provide 
informed consent to the

[[Page 33681]]

conflict.\92\ Further, we believe that any potential costs or market 
effects resulting from investment advisers addressing conflicts of 
interest may be decreased by the flexibility advisers have to meet 
their federal fiduciary duty in the context of the specific scope of 
services that they provide to their clients, as discussed in this Final 
Interpretation.
---------------------------------------------------------------------------

    \91\ See Dechert Letter.
    \92\ See supra section II.C.
---------------------------------------------------------------------------

    The commenter also drew particular attention to the question of 
whether the Commission's discussion of the fiduciary duty in the 
Proposed Interpretation applied to advisers to institutional clients as 
well as those to retail clients. The same commenter indicated that 
failing to accommodate the application of the concepts in the Proposed 
Interpretation to sophisticated clients could risk changing the 
marketplace or limiting investment opportunities for sophisticated 
clients, increasing compliance burdens for advisers to sophisticated 
clients, or chilling innovation. As explained above, this Final 
Interpretation, as compared to the Proposed Interpretation, discusses 
in more detail the ability of investment advisers and different types 
of clients to shape the scope of the relationship to which the 
fiduciary duty applies.\93\ In particular, this Final Interpretation 
acknowledges that while advisers owe each of their clients a fiduciary 
duty, the specific obligations of, for example, an adviser providing 
comprehensive, discretionary advice in an ongoing relationship with a 
retail client will be significantly different from the obligations of 
an adviser to an institutional client, such as a registered investment 
company or private fund, where the contract defines the scope of the 
adviser's services and limitations on its authority with substantial 
specificity.\94\
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    \93\ See supra footnotes 78-81 and accompanying text.
    \94\ See supra section II.A.
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    Finally, to the extent this Final Interpretation causes some 
investment advisers to reassess their compliance with their duty of 
loyalty, it could lead to a reduction in the expected profitability of 
advice relating to particular investments for which compliance costs 
would increase following the reassessment.\95\ As a result, the number 
of investment advisers willing to advise a client to make these 
investments may be reduced. A decline in the supply of investment 
adviser advice regarding these types of investments could affect 
efficiency for investors; it could reduce the efficiency of portfolio 
allocation for those investors who might otherwise benefit from 
investment adviser advice regarding these types of investments and are 
no longer able to receive such advice. At the same time, if providing 
full and fair disclosure and appropriate monitoring for highly complex 
products (e.g., those with a complex payout structure, such as those 
that include variable or contingent payments or payments to multiple 
parties) results in these products becoming less profitable for 
investment advisers, investment advisers may be discouraged from 
supplying advice regarding such products. However, investors may 
benefit from (1) no longer receiving inadequate disclosure or 
monitoring for such products, (2) potentially receiving advice 
regarding other, less complex or expensive products that may be more 
efficient for the investor, and (3) only receiving recommendations for 
highly complex or high cost products for which an investment adviser 
can provide full and fair disclosure regarding its conflicts and 
appropriate monitoring.
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    \95\ For example, such products could include highly complex, 
high cost products with risk and return characteristics that are 
hard for retail investors to fully understand, or where the 
investment adviser and its representatives receive complicated 
payments from affiliates that create conflicts of interest that are 
difficult for retail investors to fully understand.
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List of Subjects in 17 CFR Part 276

    Securities.

Amendments to the Code of Federal Regulations

    For the reasons set out above, the Commission is amending Title 17, 
chapter II of the Code of Federal Regulations as set forth below:

PART 276--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 
ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

0
1. Part 276 is amended by adding Release No. IA-5428 and the release 
date of June 5, 2019, to the end of the list of interpretive releases 
to read as follows''

----------------------------------------------------------------------------------------------------------------
                Subject                   Release No.              Date                   FR vol. and page
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
Commission Interpretation Regarding            IA-5248  June 5, 2019.............  [Insert FR Volume Number] FR
 Standard of Conduct for Investment                                                 [Insert FR Page Number].
 Advisers.
----------------------------------------------------------------------------------------------------------------


    By the Commission.

    Dated: June 5, 2019.
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-12208 Filed 7-11-19; 8:45 am]
BILLING CODE 8011-01-P