I was speaking at an event for hedge fund managers the other day to introduce my new book, the Ultimate Guide to The Investment Advisers Act, a Practitioner’s Handbook. Dodd Frank introduced many changes to the existing rules that dramatically changed who needs to register with the SEC and the states and why, and added many lengthy, technical definitions to the exemptions from registration, among many other things. Frankly, the new framework confused many thoroughly. As always, on a mission to reduce complexities to simple principles, I wanted the audience to walk away with the one message that – even if they forgot all the new technical rules and definitions- could be the compass for an effective compliance program and elevate compliance to an asset rather than a drag for advisory firms.
Here is what I told the listeners. If you forget everything else about the Advisers Act, remember this: investment advisers are fiduciaries. Being a fiduciary simply means that you owe a duty of care and loyalty to your clients and must put your clients’ interests above your own. You should avoid conflicts of interests, but if they cannot be avoided, they must be disclosed. Everything else flows from that. The fiduciary duty has many facets, and you will not find it defined or even used in the Advisers Act. It was shaped by the Supreme Court, and is well defined by common law. Most of the technical rules in the Act are an outgrowth of it, such as the antifraud provisions, obviously, the rules regarding advertising, the principal trading rules. It is instinctive, in an "you know it when you see it" kind of way.
With the discussion around a new uniform standard in full bloom again, who knows what 2015 and beyond may mean for the technicalities. It is doubtful, though, that any reform will meaningfully lower the fundamental standard for advisors for servicing their clients. If you are interested to learn more about the post-Dodd Frank world of Advisers Act compliance, you may be interested in the book. It is available on Amazon. Whether or not you read the book, please take this away: when in doubt remember your role and the trust your clients place in you. I can guarantee you it will send you in the right direction and set you up for success.