450 Lexington Avenue
New York, N.Y. 10017
June 13, 2000
Re: File No. S7-10-00
Electronic Filing by Investment Advisers;
Proposed Amendments to Form ADV
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Dear Mr. Katz:
The Securities and Exchange Commission ("Commission") recently proposed new rules and rule amendments (collectively, the "Proposed Rules") under the Investment Advisers Act of 1940 ("Advisers Act") in connection with the creation of an electronic filing system for investment advisers. The Proposed Rules would require advisers to (1) submit an initial Form ADV and subsequent amendments to the Commission electronically via the Internet-based Investment Adviser Registration Depository ("IARD"); (2) deliver Form ADV amendments to clients and (3) include additional disclosures on Part 2 of Form ADV in "plain English." We appreciate this opportunity to comment on the Proposed Rules. We do so on behalf of our many investment adviser clients and based in part on our participation in completing and amending their Form ADVs.
We fully support the Commission's efforts to ensure that investment advisory clients receive timely, accurate and relevant information about their investment adviser and its personnel. Thus, we welcome the creation of the IARD. We believe that a publically accessible Internet-based system will result in a more efficient method for submitting, revising and retrieving the form and making it available to clients and potential clients. Notwithstanding, we believe that certain aspects of the Proposed Rules should be altered to better realize the full potential of the IARD.
We also support the Commission's efforts to revise the scope, subject matter and format of Form ADV. We agree that the current form does not always elicit information that is meaningful to clients, nor are the instructions clear or completely applicable in all cases. In this regard, we find very helpful the expanded directions and glossary of terms attached to the proposed revised form. Nevertheless, we believe that some of the proposed revisions should be reconsidered to either provide further clarification or to strike a more reasonable balance between the amount of information provided to clients and the anticipated commitment of additional resources that would be necessary to meet the proposed requirements.
We view the Proposed Rules as falling into two broad categories, which we address separately in this letter. First, the Proposed Rules would add or alter certain procedural requirements placed on advisers, such as the frequency with which the Form ADV must be provided to clients and the supplements which must be attached to the form. Second, the Proposed Rules would change the substantive disclosures required to be made to clients and potential clients.
II. Proposed Procedural Requirements
A. Client Delivery Requirement for Form ADV Amendments
When information on an adviser's Form ADV becomes materially inaccurate, the Advisers Act rules currently require that an adviser submit amended pages to the Commission (which are then available in the Commission's public reference room). Advisers must also annually make a written offer to clients to deliver a current copy of the adviser's Form ADV. As part of the Proposed Rules, the Commission would require that for each material change to Part 2 of an adviser's Form ADV (the "Brochure") an adviser must amend the Brochure and either (1) resend its entire Brochure to clients or (2) send stickers reflecting the change and follow an elaborate set of related procedures.
We believe that the Commission's proposal to require actual client delivery of every Brochure amendment is unnecessary, particularly in light of other proposed changes and the potential costs to advisers. We note that under the Proposed Rules an adviser would be required to submit material changes via the Internet. These changes will then be publically and easily available through the Internet. We also point out that significant additional resources would be required for mailing or otherwise delivering Brochure amendments to clients, including (1) the time required for compliance personnel to prepare the Brochure in a format suitable for client delivery, (2) printing and mailing costs and (3) the time required for compliance personnel to oversee the delivery process. The related costs would be particularly significant for some of our investmentmanagement clients who have thousands of advisory clients. We believe on balance that the potential benefits do not outweigh the costs of the proposed approach.
We further note that the current requirements have been in place at least since January 1979 when the Commission adopted and declared effective Rule 204-3 requiring the initial delivery of Form ADV to clients.1 In the 1979 release, the Commission addressed a proposed requirement for advisers to deliver a revised Brochure to each client within 45 days of a material change. The Commission acknowledged industry concerns about the costs associated with providing revised Brochures and declined to adopt the requirement. The Commission instead chose to rely on an adviser's fiduciary duty to disclose to clients "major changes which would affect the investment advisory relationship." We believe that these same cost concerns continue to exist and that the Commission's reasoned approach adopted and followed since 1979 remains sound. Moreover, we are not aware of significant abuses or complaints by investors calling for a change to the current approach.2
We strongly urge the Commission to consider alternative approaches. As noted above, we believe that the ability of clients to access material changes through the Internet represents a significant advancement, which, combined with the annual offer requirement, ought to provide clients with sufficient access and notice. Nevertheless, the Commission might, for example, decide to also incorporate a requirement that advisers (1) include a statement, along with the initial Form ADV delivered to clients, that a current copy of the form is available via the Internet (including the Internet address) and (2) send a notice at least quarterly (which generally coincides with the frequency of account statements) reminding clients that the form is available via the Internet. In addition, as described below in more detail, we would urge the Commission to consider incorporating into the IARD a mechanism to indicate which items on a Form ADV have recently been amended. Finally, if the Commission nevertheless chooses to adopt this new delivery requirement, we urge the Commission to review and reduce significantly the types of information it believes are material (e.g., notices of disciplinary events ormaterial adverse changes in an adviser's financial condition as currently described in Rule 206(4)-4).
B. Brochure Supplement
The Proposed Rules would require that an adviser provide clients with "brochure supplements" containing certain information about an adviser's "supervised persons." The brochure supplements would be delivered along with the adviser's Brochure. Advisers would be required to give to each client a brochure supplement for every supervised person that provides advisory services to that client (or alternatively a group supplement containing the required information about each supervised person that provides advisory services to the particular client).
We note several concerns associated with this aspect of the Proposed Rules and urge the Commission to reconsider this requirement. First, this requirement would result in clients being inundated with brochure supplements or a lengthy group supplement. Typically, a client receives advisory services from many supervised persons. If an adviser must send to its clients a brochure supplement for each person servicing the client's account, a client could ultimately receive a dozen or more supplements, or an extensive group supplement. In addition, advisers may have difficultly determining whether a particular supervised person is providing advisory services to a specific client. We anticipate that advisers will err on the side of caution and send clients brochure supplements for every supervised person who actually provides or may provide them with advisory services, even tangentially. This practice will result in a client receiving numerous brochure supplements. As a result, clients are likely to receive so many brochure supplements, resulting in a voluminous Brochure, that the additional information is more likely to confuse clients and obscure more important information.3
Second, the requirement would result in clients being inundated with amended brochure supplements. Under the Proposed Rules advisers would be required to send clients amended brochure supplements for every material change. We note thatsupervised persons often change positions within an advisory firm or get reassigned to service new or different clients, thereby triggering amendments to brochure supplements. In addition, information about each supervised person may change with some frequency, even if no personnel changes occur. Again, advisers would be required to send to clients amended brochure supplements. Thus, the result of the proposed requirement will be client confusion or at least clients who are desensitized to more important information.
Third, the requirement would lead to an increase in advisory fees. In order to satisfy the proposed requirement, an adviser would need additional compliance resources to (1) draft and assemble brochure supplements (which for some advisory firms could number in the thousands); (2) determine and track changes regarding which supervised persons provide advisory services to which clients; (3) monitor the accuracy of previously disclosed information about supervised persons and (4) oversee any required client mailings or other acceptable forms of client notification. An adviser will also need additional legal resources to make determinations regarding (1) the sufficiency of particular disclosures; (2) the materiality of particular changes and (3) which supervised persons are actually providing advisory services to which accounts. Moreover, printing and mailing costs will add up quickly for advisers with thousands of clients. We believe that these additional compliance and legal resources will add up to significant costs which will be passed along to clients in the form or higher fees.
Accordingly, we urge the Commission to weigh carefully the level of interest clients have in the type and amount of information suggested in this aspect of the Proposed Rules against the potential for client confusion, obscuring of more significant information and increased advisory fees.4 We note that the Commission considered a similar requirement in 1985, but declined to adopt the requirement. Instead the Commission balanced all relevant factors and adopted the current approach of requiring disclosure of information about key personnel in response to Item 6 of Part II of the current Form ADV. We urge the Commission to reach a similar conclusion today.
C. Summary of Material Changes
The Proposed Rules would revise Form ADV to require that advisers include with their Brochure amendments a summary of material changes since the adviser's last annual update. The summary could be included on the cover page of the brochure orimmediately thereafter, or included in a separate letter to clients accompanying the Brochure. We believe that this requirement is unnecessary. Instead, we believe that the current system of identifying changes by circling the appropriate item number in the margin adequately alerts clients to changes. This approach also encourages clients to review the entire document. Otherwise, clients may only read the summary and fail to appreciate the significance of the actual changes. We also note that this proposed requirement would lead to additional compliance and legal costs which could result in increased fees to clients.
In order to facilitate the alternative approach, we encourage the Commission to incorporate into the IARD a method for indicating the date of the original filing of the Form ADV and the dates when changes to each item were most recently made. We believe that this alternative could be achieved by incorporating a program into Part 1 that automatically indicates the date of the most recent change. Meanwhile, advisers could indicate at the end of each response on Part 2 the date of the most recent amendment.
III. Proposed Substantive Disclosure Requirements
A. Identification of Affiliated Investment Advisers
The Proposed Rules would revise Form ADV to require an adviser to disclose in response to proposed Item 7.A of Part 1 all investment advisers with whom the adviser is affiliated. This disclosure would be made on a Schedule D. We note that some advisers are part of large financial organizations, which may include numerous other affiliated advisers. Under the proposed disclosure in Item 7.A, an adviser would be required to submit a lengthy Schedule D, as well as amend its Schedule D every time the organization adds or eliminates another advisory entity. In addition, all of the other advisers in the organization would similarly be required to submit nearly identical Schedule Ds and make necessary amendments for every addition or elimination of an affiliated adviser.
We understand that the Commission may want information about affiliated advisers in order to assist the examination staff in arranging coordinated examinations, an approach we support. However, we believe the proposed Item 7.A disclosure requirement will result in lengthened filings, duplicative information from affiliated advisers and repetitive updates requiring additional compliance resources. For example, one of our clients has over two dozen affiliated advisers, all of whom would be required to list each other on their respective Form ADVs. Instead, we suggest that when an adviser is part of a financial organization with more than three affiliated advisers, the advisers may designate a single primary adviser as the entity that will report a full list ofaffiliated advisers. The other advisers could then reference the primary adviser's Schedule D for a complete list of all its affiliated advisers.
B. Participating Affiliates
In the context of affiliated advisers, we note that the SEC staff has given prior guidance on the use of a foreign affiliated adviser ("Participating Affiliate") for providing advice to U.S. clients. See, e.g., Mercury Asset Management, SEC no-action letter (Apr. 16, 1993). We believe that Schedule D may be an appropriate place to identify any Participating Affiliates and Proposed Part 2 may be an appropriate place to identify specific individuals associated with Participating Affiliates who provide investment advice to U.S. clients (perhaps in response to proposed Item 9 calling for information about other financial industry activities and affiliates). At a minimum, we believe that a statement should be made in any adopting release to the effect that disclosures required by prior no-action letters should be appropriately revised for consistency with changes in Form ADV.
C. Identification of Limited Partnerships
The Proposed Rules would revise Form ADV to require an adviser to disclose in response to proposed Item 7.B of Part 1 the identity of all limited partnerships in which the adviser or a related person is a general partner. An adviser would be required to make this disclosure on a Schedule D. The term "related person" is defined to include, among others, affiliated entities. We note again that some advisers are part of large financial organizations which may include numerous other entities that act as a general partner to limited partnerships. Under the proposed disclosure in Item 7.B, an adviser would be required to submit a lengthy Schedule D, as well as amend its Schedule D every time it or an affiliate begins or ceases serving as general partner to a limited partnership. In addition, all affiliated advisers in the organization would similarly be required to submit nearly identical Schedule Ds containing this information and make necessary amendments whenever it or an affiliate begins or ceases serving as general partner to a limited partnership. To avoid lengthy filings, duplicative information and expenditure of compliance resources, we suggest that the Commission require an adviser to list only those limited partnerships (1) for which it serves as a general partner or (2) it actually recommends to clients.
D. Disclosure of Brokerage and Custody Fees
The Proposed Rules would revise Form ADV to require an adviser to describe in response to proposed Item 5 of Part 2 the types and amounts (or ranges) of other costs, such as brokerage, custody fees and fund expenses, that clients may pay in connectionwith advisory services. While it may be helpful to certain clients to read that they may incur additional costs, we would propose limiting any disclosure in this area to (1) a notice stating this fact and (2) a short description of the source of these other costs.
We do not believe that it is practical or necessary to disclose the amount (or a range) of additional costs associated with non-advisory services. With respect to brokerage costs, we note that these fees can vary greatly depending on the nature of a security, the market in which it trades and the amount of securities being traded. Thus, disclosing a specific fee may be difficult, while a range may be too wide to be helpful. In addition, negotiated fee schedules are considered proprietary information that gives an adviser a competitive advantage over other advisers. With respect to custody costs, clients typically arrange for a third-party custodian and negotiate custody fees without any involvement by the adviser. Thus, an adviser may not be in a position to know what fees, or even a reasonable range of fees, that its clients pay for custody services. Finally, with respect to expenses charged by any funds the adviser might recommend to its clients, these fees are disclosed in a fund's prospectus. In addition, an adviser might recommend several different funds, which charge a wide variety of fees, again making disclosure of a meaningful range difficult. Thus, an adviser ought to be able to include a simple statement that the funds it recommends charge separate expenses and that clients will find a detailed description of these expenses in each fund's prospectus. For these reasons, we believe that any disclosure regarding additional costs should be limited to a notice that clients will pay additional costs and a brief description of the source of those additional costs.
E. Incentive Fee Disclosures
The release accompanying the Proposed Rules requests comment as to whether, in response to proposed Item 5 of Part 2, an adviser should be required to discuss its conflict of interest in charging performance or incentive fees (collectively, an "incentive fee"). We believe that advisers should not be required to make this disclosure on Form ADV and that the Commission should continue to rely on anti-fraud provisions to require separate disclosure when this type of fee structure presents a material conflict. We note that an adviser may have many clients, only some of whom may be charged an incentive fee. In fact, Rule 205-3 greatly restricts the types of clients to whom an incentive fee may be charged.5 Thus, requiring incentive fee disclosure in Form ADV will lengthen the form with information that may not be relevant to most clients and may, in fact, confuseclients who are not charged these types of fees. We believe that a more effective method for bringing this potential conflict to the attention of clients who are actually charged an incentive fee is to allow advisers the option to include any necessary disclosure in a separate document, such as a side letter, or in the advisory contract.6
F. Disclosure of Arbitration Claims and Awards
The release accompanying the Proposed Rules requests comment on a potential requirement for advisers to disclose, in response to proposed Item 8 of Part 2, certain arbitration liability if a claim is in excess of $2,500, and if a disclosure requirement is adopted whether the Commission should limit the disclosure to arbitration awards for $2,500 rather than claims for $2,500. We urge the Commission not to adopt any arbitration disclosure requirement. Disclosure of arbitration claims or awards can be unduly prejudicial to advisers and have a chilling effect on the use of arbitration. Claims may be easily asserted, and arbitration awards can be made in cases where no violation of law has occurred. In addition, a requirement to disclose arbitration claims may provide disgruntled or unscrupulous clients with unfair leverage in forcing an adviser to pay money in pre-arbitration settlements. In any event, we believe that disclosure triggered by any amount of less than $50,000 could lead to numerous disclosures of minor matters that do not provide clients with meaningful information.
G. Disclosure of Commission Recapture
The release accompanying the Proposed Rules requests comment on whether to require, in response to proposed Item 11 of Part 2, disclosure of commission recapture, including how recapture works, an explanation of its benefits and an explanation of how clients could participate in recapture. Based on our experience, advisers are reluctant to participate in commission recapture for a number of reasons. For instance, clients may not fully understand the potential negative impact a commission recapture arrangement may have on the adviser's ability to obtain best execution. In addition, when dealing with an institutional client, particularly pension plans, advisers must conduct due diligence to assure themselves that they are not facilitating a violation of fiduciary duties owed to theaccount by the account's fiduciary or are not otherwise participating in a scheme to defraud the account. Thus, advisers generally only consider participating in commission recapture with a limited number of highly sophisticated clients. We are concerned that disclosure of commission recapture will encourage a practice that is not practical to implement on a wide scale and may ultimately be harmful to investors. We suggest instead that the Commission continue to address commission recapture through enforcement of an adviser's duties of full disclosure and best execution.
H. Disclosure of Performance Computation Standards
The Proposed Rules would revise Form ADV to require, in response to proposed Item 17 of Part 2, that advisers who advertise or report their investment performance must describe any standards used to calculate (or present) performance. Instructions to Item 17 state that these standards could include industry standards, or any proprietary standards used solely by the adviser. These types of disclosures are already required on any advertisement or report containing performance information and requiring similar disclosure on Form ADV is unnecessary and duplicative. The staff has previously stated that an adviser must present its performance fairly and make certain relevant disclosures as part of any advertisement or report. Standards used in calculating performance are part of the relevant disclosures and are necessary in order to make an advertisement or report not misleading. We believe the advertisement or report remains the appropriate place to make these disclosures because it draws the readers attention to important explanatory information. Finally, with regard to industry standards, we are aware only of efforts by the Association for Investment Management and Research ("AIMR") to create an industry standard. If the Commission is endorsing AIMR and its standards, we would prefer that the Commission consider adopting a rule on this topic, which would allow for full industry participation in establishing the standards.
The Proposed Rules would also revise the same Item 17 of Part 2 to require advisers to disclose whether a third party reviews the adviser's performance information for accuracy or for compliance with presentation standards. Again, we believe that this disclosure would be made more appropriately on the advertisement or report containing performance information. We are also concerned that requiring advisers to disclose this information on its Form ADV amounts to a new requirement for advisers to obtain third-party reviews, as well as an endorsement of the organizations that provide these reviews. We suggest that the Commission not include this disclosure requirement and prefer that the Commission consider seeking further industry input as to whether such a requirement is necessary and if so to adopt such a requirement only through a separate rulemaking process.
I. Brochure Supplement Disclosures
As discussed previously, we strongly encourage the Commission to consider withdrawing the brochure supplement requirement. In addition to the practical challenges of compiling, distributing and updating brochure supplements, we are also concerned about certain of the proposed disclosure items, as described below.
1. Additional Compensation. The proposed brochure supplement would require advisers to disclose whether a supervised person receives an economic benefit for providing advisory services from someone other than a client. Economic benefits would include sales awards and other prizes, as well as any bonus that is based at least in part on the number or amount of sales, client referrals or new accounts. We believe that this type of disclosure is unnecessary and would compromise an adviser's proprietary, confidential business information, along with its competitive position within the investment management industry.
We also believe that employees and other supervised persons are entitled to certain privacy consideration. We believe that a person's compensation, or disclosure of information that would enable a third party to readily calculate a person's compensation, is a sensitive area that should receive privacy protection. Supervised persons would be justifiably concerned if the adviser was required to disclose their compensation.
Finally, we believe that clients understand that supervised persons receive compensation based in part on sales, client referrals or the opening of new accounts. In fact, the Commission previously agreed with this assumption in the analogous context of rule 206(4)-3 (i.e., the "cash solicitation rule"). Rule 206(4)-3 requires third party solicitors to provide potential clients for an adviser with a separate written disclosure document describing among other matters the solicitor's relationship with the adviser and the terms of the solicitor's compensation for referring clients. The Commission, however, did not also extend this requirement to solicitors affiliated with the adviser. Rather, the Commission assumed that prospective clients are aware of the "natural predilection" of affiliated persons to recommend their employers or affiliates and that this predilection is often the result of compensation for successful solicitations.7 We believe that this assumption applies equally in the present context. Thus, we urge the Commission not only to withdraw the proposed brochure supplement requirement but also to refrain from adopting a requirement that advisers disclose elsewhere in their Form ADV compensation arrangements with their supervised persons.
2. Bankruptcy Disclosures. As part of the proposed brochure supplement, advisers would be required to publically disclose whether a supervised person has been the subject of a bankruptcy petition at any time in the past ten years. While clients may have an interest in this information, we believe that on balance the importance of this information to a client or potential client does not outweigh the potential embarrassment to the supervised person. A better way to address the Commission's concern would be to require disclosure in response to Item 18 of Part 2 about a more limited group of persons. The group should include any individual or firm that directly controls or is controlled by the adviser and the adviser's management persons (i.e., those persons in a position to affect the adviser's financial condition). This approach is similar to that currently required in response to Item 11.K of Part 1.
IV. State Notice Filings
As proposed, an SEC registered adviser will be able to satisfy both its SEC filing requirements, as well as its state notice filing requirements, through the IARD. The National Securities Market Improvement Act of 1996 ("NSMIA") reserved for the states the ability to require SEC registered advisers to make "notice filings" with any state in which the adviser is "doing business." However, the conditions under which an SEC registered adviser must make a notice filing in a particular state and the exemptions that may be available are not uniform. This condition provides an ongoing source of confusion among SEC registered advisers and results in substantial legal fees to advisers as they attempt to determine whether a notice filing is required in a particular state. We believe this condition undermines the purpose of NSMIA. As a result, we urge the Commission to take this opportunity to adopt a rule standardizing both the conditions under which an adviser must make a notice filing in a particular state and a set of exemptions from the requirement.8
V. Compliance Date
Based on our experience in completing and revising Form ADVs for our clients, we believe that an adviser's initial revision to its Form ADV made to comply with the Proposed Rules would take a substantial amount of time, particularly the revisions necessary for drafting a new Brochure. In fact, we expect that the effort will takeconsiderably longer that the 11.02 hours per response suggested on page one of the proposed revised form. We also note that many of our clients have multiple entities that are each separately registered as investment advisers. Thus, meeting a single deadline for filing revised Form ADVs will create an acute short-term drain on an adviser's legal and compliance resources.
To alleviate this possibility, we suggest that the Commission adopt rolling compliance dates for advisers to file their revised Brochure. We suggest that the Commission stagger the compliance date over a period of 10 weeks based on the last digit of an adviser's "801" registration number. We propose that the Commission require that advisers having a registration number ending with "1" file by the end of the first week, while advisers having a registration number ending with "2" file by the end of the second week, etc. This approach will allow organizations with more than one adviser to better manage the process. It will also enable the Commission to identify and correct any errors in the filing system before the errors affect the entire process.
We support the efforts of the Commission to modernize Form ADV by converting to an Internet-based filing system. We also support the Commission's efforts to revise the form so that it is more readable and elicits information more relevant to clients and prospective clients. Nevertheless, we are concerned by certain elements of the Proposed Rules and urge that the Commission carefully consider their full impact prior to any final action. If you have any questions, please feel free to contact me at (212) 450-4684 or Terrance J. O'Malley at (212) 450-4419.
Very truly yours,
Nora M. Jordan
|1||See Investment Adviser Requirements Concerning Disclosure, Recordkeeping, Applications for Registration and Annual Filings, Investment Advisers Act Release No. 664 (Jan. 30, 1979).|
|2||The Commission cites an enforcement case in endnote 120 of the accompanying release - Renaissance Capital Advisory, Inc., Advisers Act Release No. 1688 (Dec.22, 1997) - as evidence that advisers sometimes fail to disclose to clients new material conflicts of interest. We note, however, that in Renaissance Capital the adviser not only failed to inform clients of a material change, but also failed to amend its Form ADV. Thus, it is not clear that the Commission's proposal here would have resulted in clients being informed of the change.|
|3||The Commission proposed and withdrew a similar requirement when it last made significant revisions to Form ADV in 1985. See Uniform Investment Adviser Registration Application Form, Investment Advisers Act Release No. 991 (Oct. 15, 1985). At that time, the Commission acknowledged numerous concerns cited by commentators. Commentators suggested that the Brochure should be a concise document, capable of being easily understood by clients and that the requirement to include information about a multitude of individuals providing advisory services would result in the creation of a voluminous disclosure document that may confuse investors and obscure more important information. We believe that the concerns raised in 1985 regarding the potential for client confusion and the obscuring of more important information remain valid.|
|4||In the Proposing Release, the Commission states its belief that "clients want and need information about the individuals on whom they rely for investment advice." Our experience and that of our clients suggests that clients are satisfied with the amount of information they currently receive. As a practical matter, advisers typically provide additional material to clients or prospective clients regarding the persons who will service their account, if requested.|
|5||Under Rule 205-3, an adviser may only charge an incentive fee to "qualified clients," which is generally limited to persons who have (1) $750,000 in assets under management with the adviser or (2) a net worth of $1.5 million at the time of entering into the advisory contract.|
|6||Prior to the Commission's revision of Rule 205-3 in 1998, advisers were required to include certain specified disclosure language in advisory contracts with clients who were charged an incentive fee. Although the revised rule no longer requires the specified disclosure language, advisers remain under a fiduciary obligation to adequately disclose the conflict that an incentive fee raises. See Exemption to Allow Investment Advisers to Charge Fees Based Upon a Share of Capital Gains Upon or Capital Appreciation of a Client's Account, Investment Advisers Act Release No. 1731 (July 15, 1998). It is our experience that advisers satisfy this fiduciary obligation by continuing to make incentive-fee related disclosures in advisory contracts.|
|7||See Requirements Governing Payments of Cash Referral Fees by Investment Advisers, Investment Advisers Act Release No. 1103 (July 12, 1979).|
|8||For instance, many but not all states have exemptions for advisers who provide advice only to particular types of clients, including for instance, investment companies, insurance companies or institutional investors.|