Adviser Duties

The duty to seek the most favorable terms reasonably available when executing client transactions, considering all qualitative and quantitative factors beyond just price. Factors include speed of execution, certainty of settlement, commission costs, and market impact. Broker-dealers have explicit best execution obligations under FINRA rules. Investment advisers, while not subject to specific best execution rules, must seek favorable execution terms as part of their broader fiduciary duty to act in clients' best interests.

Example: An adviser executing a large block trade evaluates three broker-dealers: Broker A offers $0.01/share...

Rule 206(4)-2 under the Investment Advisers Act of 1940 and corresponding state regulations governing investment advisers who have custody or possession of client funds or securities. Custody includes direct possession, any authority to withdraw funds/securities, or acting as trustee or with power of attorney. Advisers with custody must use qualified custodians, provide account statements at least quarterly, and undergo annual surprise examinations by an independent public accountant.

Example: An investment adviser that has authority to automatically deduct advisory fees directly from client ...

An account where the investment adviser or IAR has written authorization to make trading decisions without obtaining prior client approval for each transaction, including selecting the security, number of shares or units, and whether to buy or sell. Investment advisers may accept oral discretionary authorization but must obtain written authorization within 10 business days of the first discretionary trade. Broker-dealers must obtain written authorization before exercising any discretion. Time and price discretion (deciding when to execute within a day) is not considered discretion.

Example: An adviser with written discretionary authority can decide to sell 500 shares of Apple and buy 300 s...

A legal obligation to act in another party's best interest with utmost good faith. Investment advisers and IARs must put client interests ahead of their own and either eliminate or fully disclose all material conflicts of interest. This encompasses both duty of care (providing competent, diligent advice) and duty of loyalty (prioritizing client interests). Investment advisers owe fiduciary duty to all clients.

Example: An adviser must recommend the lowest-cost share class when two mutual fund options are otherwise ide...

A transaction in which an investment adviser trades securities with a client from the adviser's own account, acting as a principal (dealer) rather than an agent. Principal transactions create inherent conflicts of interest and are prohibited unless the adviser obtains written disclosure and client consent (written or oral) before completion of each transaction. The disclosure must explain the adviser's capacity as principal and any potential conflicts, ensuring the client understands the adviser is trading for their own benefit rather than merely facilitating a transaction.

Example: ABC Advisory wants to sell 500 shares of XYZ Corp from its own inventory to client Jane. **Proper ap...