Fund Managers Must Evaluate Their Claims Policies to Avoid Breaching Fiduciary Duty

In mid‑2019, the SEC released an Interpretation Regarding Standard of Conduct for Investment Advisers (Interpretation) that, among other things, specified that an investment adviser’s fiduciary duty applies to the entire adviser-client relationship. One aspect of that relationship that is sometimes overlooked is advice concerning clients’ claims against issuers of securities and other culpable parties (Claims). Those Claims, which are in essence putative assets within the client’s portfolio, often allege violations of the antifraud provisions of federal securities laws. In a guest article, Scott Pomfret, founder of Regulatory Counsel LLC, analyzes Claims in the context of the Interpretation and the SEC’s Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers and offers recommendations to investment advisers for examining their policies and procedures concerning Claims to avoid potential violations of the adviser’s fiduciary duty to ensure clients are pursuing – or at least aware of – opportunities to convert a putative asset into a tangible one. For more on navigating the Interpretation, see our three-part series: “What It Means to Be a Fiduciary” (Oct. 17, 2019); “Six Tools to Systematically Identify Conflicts of Interest” (Oct. 24, 2019); and “Three Tools to Systematically Monitor Conflicts of Interest” (Nov. 7, 2019).

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