The SEC Proposes Rules Governing Investment Advisers’ Dealings with Retail Investors

King & Spalding

In recent years, improving the protection of retail investors has been a main focus of the Securities and Exchange Commission (“SEC”). On October 26, 2017, Stephanie Avakian, co-director of the Division of Enforcement, referred to protecting retail investors as one of the SEC’s “more critical priorities.” The same sentiment was echoed by Jay Clayton, Chairman of the SEC, in a speech on May 2, 2018. As part of this endeavor, on April 18, 2018, the SEC proposed new regulations for investment advisers transacting with retail investors. This note discusses the proposed rules, which include an interpretation of fiduciary duty under the Investment Advisers Act of 1940 (the “Advisers Act”), enhanced investment adviser regulations borrowed from the existing broker-dealer regulatory framework, and a new disclosure requirement obligating investment advisers to provide a relationship summary to retail investors.


Under the Advisers Act, an investment adviser owes a fiduciary duty to its clients, which cannot be negotiated away or waived by the clients in any manner. In its proposal, the SEC sought to reaffirm and clarify the fiduciary duty standard to which an adviser should adhere, in particular with regard to its retail clients.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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