The SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers (Interpretation), which recently became effective, affirms that an adviser’s fiduciary duty comprises a duty of care and a duty of loyalty. Going forward, the Interpretation is expected to serve as a guide to private fund managers and their legal advisers on the SEC’s expectations regarding those duties. The Interpretation confirms that an adviser could meet its duty of loyalty by making full and fair disclosure to its clients of all material facts relating to the advisory relationship, including all conflicts of interest that might incline the adviser to render advice that was not disinterested. This three-part series examines the practical implications of the Interpretation for private fund managers. This second article outlines key tools that fund managers may employ to identify their conflicts of interest. The third article
will address best practices for investment advisers to manage their conflicts of interest. The first article
provided an overview of the Interpretation and explored six key takeaways for fund managers from the Interpretation. For more on conflicts of interest, see “Absence of Harm No Defense Against Conflicts of Interest: SEC Issues Lifetime Bar From Compliance Work to CCO
” (Sep. 13, 2018); and “Conflicts Remain an Overarching Concern for the SEC’s Asset Management Unit
” (Mar. 12, 2015).