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SEC Clarifies Clayton’s Advisors' Ability to “Contract Around” Comment

December 26, 2018

A remark made by SEC Chairman Jay Clayton earlier this month, which suggested investment advisors bound by the fiduciary duty can in fact get around it, has left many experts confused, according to news reports. And that’s exactly what the SEC hopes to address as part of its proposed overhaul of the investment advisor and broker standards, an SEC director tells InvestmentNews.

Clayton appeared earlier this month in front of the Senate Banking Committee, in part to discuss the SEC’s proposed Regulation Best Interest. And in reply to Sen. Elizabeth Warren, D-Mass., about the proposal, he called the requirement placed on advisors to put their clients’ interests first a “baseline standard” that advisors were allowed to “contract around” in their agreements with clients, InvestmentNews wrote at the time.

It was also something Clayton said the SEC wished people were better able to understand. Dalia Blass, director of the SEC's Division of Investment Management, confirms to InvestmentNews the regulator’s intention to help bring that about.

"Although the investment adviser fiduciary duty is not waivable, it is long established that the terms of the investment adviser relationship — and therefore the scope of the investment adviser's fiduciary duty — may be shaped by disclosure and informed consent," Blass says in a statement to the publication.

Jay Clayton

"This process, including through account agreements and Form ADV, is widely accepted in the industry and provides for arrangements such as limited account services and certain third-party compensation to the investment adviser. The Commission's interpretation, if adopted, will bring greater clarity to these arrangements."

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.