Information for Investment Advisors
The inspection staff of the United States Securities and Exchange Commission (the "Commission") has prepared this letter in 2000 to assist registered investment advisers in complying with the Investment Advisers Act of 1940 ("Advisers Act") and the rules thereunder.1 The Commission's examination staff conducts examinations of registered advisers to determine: 1) if advisers are conducting their activities in accordance with the law and disclosures made to clients; and 2) whether they have adequate systems and procedures in place to ensure that their operations are in compliance with the law.2 This letter summarizes select areas reviewed and violations of the Advisers Act found during compliance examinations of investment advisers. Our intent is to educate investment advisers about such practices, and to encourage strong compliance and internal control procedures to ensure compliance with the Advisers Act.3
Duty To Disclose
Fundamental to the Advisers Act is an adviser's fiduciary obligation to act in the best interests of its clients and to place its clients' interests before its own. As part of its fiduciary duty to clients, an adviser has an affirmative obligation of utmost good faith and full and fair disclosure of all material facts to clients.4 Advisers are required to disclose any facts that might cause the adviser to render advice that is not disinterested. When an adviser fails to disclose information regarding potential conflicts of interest, clients are unable to make informed decisions about entering into or continuing the advisory relationship.