The Best Defense

An advisor named John posted the following question to my April 20^th “Definition of Character” blog: “In your scenario, does it preclude the RIA from talking paid trips to due diligence conferences, market support from suppliers, and a host of other incentives as long as they are disclosed? I am never sure, so I thought that I would call upon your expert knowledge of this complex situation.”

Much as I appreciate John’s confidence, my expertise in compliance law was well described by the preeminent columnist Will Rogers when he said: “All I know is what I read in the newspapers.” But one of the best things about being a journalist is that I do know many people who really are experts. One of them is Brian Hamburger, a seasoned investment advisory compliance attorney who’s also the founder and managing director of MarketCounsel, LLC, a firm that provides RIAs with start-up and ongoing guidance and advice.

Here’s what Brian had to say in response to John’s query and to other RIAs who wrestle with the same issue: “There are no rules or regulations that speak specifically to an investment advisor or its representatives being allowed to accept the types of benefits you have mentioned. There are, however, other regulations and general principles that must be considered. First and foremost, an adviser has a fiduciary duty to its clients under the Investment Advisers Act. In its simplest form, the fiduciary duty requires the adviser to act in the best interest of its clients. Accepting the benefits you mention would most likely be deemed a conflict of interest because you have an incentive to recommend the services or products of those giving you the benefits.