The recent Nevada fiduciary proposal has its sights set on broker-dealers. But private fund managers, and other investment advisers, are covered, as well. Discretionary management of a client’s assets is fiduciary conduct. However, communications by fund managers with prospective and current investors regarding their interests in the fund may also amount to fiduciary investment advice under the proposal. Similarly, communications regarding the features of the fund may amount to fiduciary investment advice. Thus, the Nevada proposal seems to raise similar issues as the 2016 DOL Fiduciary Rule for private fund managers.
The proposal seeks to address these concerns by providing that information about 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) a recommendation of one product over another, (B) a recommendation to buy, hold, or sell a security, or (C) advice on the purchase, hold, sale, or value of a security, to a client or limited group of clients.
It is unclear what, beyond an offering memorandum, constitutes “offering documents” for purposes of this presumption. 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?
It is also worth mentioning that information about a fund that is not “specifically” described in an offering memorandum or other material that is an “offering document” seems to be considered investment 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.
The proposal raises a number of interpretive issues, including those described above. The comment period closes on March 1.
George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.