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February 22, 2019 at 10:30 AM
Private fund managers, take heed: Under Nevada’s fiduciary plan, communications by fund managers with prospective and current investors regarding their interests in a fund along with the fund’s features may be fiduciary investment advice — mirroring requirements set out in the now-defunct 2016 Labor Department fiduciary rule, attorney George Michael Gerstein states.
(Related: Nevada’s ‘Expansive’ Fiduciary Plan Shocks BDs, RIAs )
In Stradley Ronon’s Friday Fiduciary Governance Blog, Gerstein states that while discretionary management of a client’s assets is fiduciary conduct, the Nevada proposal states that a security that is specifically contained in the security’s “offering documents” is presumptively not investment advice unless, as part of the discussion, there is a recommendation of one product over another; a recommendation to buy, hold or sell a security; or advice on the purchase, hold, sale, or value of a security, to a client or limited group of clients.
However, Gerstein writes that “it is unclear what, beyond an offering memorandum, constitutes ‘offering documents’ for purposes of this presumption.”
He wonders: “Would a pitch book suffice? Would the materials necessarily have to be in written form and would they have to be shared with all prospective/current investors?”
Other information that seems to be investment advice under Nevada’s plan includes information about a fund that is not “specifically” described in an offering memorandum or other material that is an “offering document,” Gerstein states.
His advice: “Consider whether communications with a prospective investor regarding the attributes of two or more funds would give rise to ‘investment advice’ under the proposed definition.”
