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IAA Opposes SEC’s Private Fund Advisers Proposal; Offers More Tailored Alternatives

April 26, 2022

IAA VP of Communications & Marketing Janay Rickwalder.


Washington, DC (April 26, 2022) – Yesterday, the Investment Adviser Association (IAA) submitted a letter to the SEC largely opposing its proposal of the regulation of private fund advisers.

The proposal goes well beyond the SEC’s stated goals and imposes prescriptive one-size-fits-all requirements that allow little flexibility for tailoring to particular facts and circumstances and would be unduly burdensome for advisers and potentially costly for investors.

In particular, the framework of outright prohibitions represents a radical departure from the SEC’s longstanding and recently reaffirmed principles-based approach to the overarching fiduciary duty under the Investment Advisers Act.

“While we support increased transparency and addressing investor protection concerns, we do not believe that a departure from the principles-based approach to the Advisers Act is warranted,” stated IAA President and CEO Karen Barr. “In our view, the Commission’s proposed remedy is overbroad and there are more narrowly tailored solutions that would achieve the Commission’s objective without the many unintended consequences for investors likely to result from the Proposal.”

Barr also said that “The IAA believes that the SEC has significantly underestimated the potential impacts of this sweeping proposal and has provided insufficient time for thorough comment and consideration.”

The letter outlines the following issues:

  1. The IAA opposes the proposed private fund adviser prohibited activities and asks that they be withdrawn. We do not believe that the SEC has sufficiently justified this sweeping departure from how it has traditionally regulated investment advisers. If the Commission proceeds, we offer several more reasonable and less restrictive alternatives, including, for example, that the Commission require that an adviser have policies and procedures reasonably designed to ensure that the adviser is making good-faith judgments about what is fair and equitable under the specific facts and circumstances.
  2. Retroactive application of the proposed rules would be unfair and unduly burdensome to investment advisers and investors, neither of which would be able to enforce negotiated contractual provisions.
  3. We oppose the proposed prohibition of a private fund adviser’s use of a liability-limiting or indemnification provision. We agree that advisers may not purport to waive their fiduciary duty under the Advisers Act, but we cannot agree that advisers should be unable to limit their liability or be indemnified for negligence in their reasonable and good faith management of a private fund.
  4. We oppose the prohibition of adviser clawbacks for taxes, which would put advisers in a worse after-tax position than if no investor-protective clawback provision had been included at all.
  5. We urge the SEC to address its concerns on fees, expenses, allocations, and borrowings through a more tailored approach.
  6. We believe that the SEC significantly underestimates the complexity of its proposed preferential treatment provision and that, as proposed, it would be unworkable. We offer alternatives that in our view would be more practicable, investor favorable, and still achieve the SEC’s goals.
  7. We make several recommendations on the SEC’s proposal to require quarterly reporting that will allow advisers more time, reduce complexity, and better reflect current investor-beneficial market practices.
  8. We are concerned that the SEC’s proposed audit requirement will effectively amend the Advisers Act Custody Rule without sufficient notice and comment. Instead, the Commission should propose amendments as part of a holistic review of the outdated Custody Rule and provide adequate time for stakeholder feedback on the rule as a whole.
  9. We recommend alternatives to reduce the complexity and costs of the proposed requirement to obtain a fairness opinion for adviser-led secondary transactions.
  10. We support the SEC’s proposal to require all SEC-registered advisers to document their annual reviews under the Compliance Program Rule.

The IAA looks forward to providing further feedback and working with the Commission as it considers these important issues.

View full comment letter.


About the Investment Adviser Association

As the leading organization for fiduciary investment advisers, the IAA advances the interests of member firms by providing essential expertise, crucial connections, and powerful advocacy tailored to their needs. Together, the IAA’s members manage more than $35 trillion in assets for a wide variety of clients, including individuals, trusts, investment companies, private funds, pension plans, state and local governments, endowments, foundations, and corporations. For more information, visit or follow us on LinkedIn, Twitter, and YouTube.

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