On June 21, 2018, the United States Court of Appeals for the Fifth Circuit issued a mandate that officially vacated the Department of Labor’s advice fiduciary rule, which generally had gone into effect for investments made on or after June 9, 2017. For discussion of the Fifth Circuit’s March 15th, 2018, decision to vacate the advice fiduciary rule, please see our prior newsletter on this topic by clicking here.
Many hedge fund managers updated their subscription agreements and offering memoranda to include language regarding the advice fiduciary rule and obtain representations from benefit plan investors, including individual retirement accounts (IRAs), so that the managers would not be considered to be fiduciaries under the advice fiduciary rule. Many managers chose not to accept investments from IRAs and other benefit plan investors that could not make such representations.
With the ERISA advice fiduciary rule now gone, hedge fund managers are no longer limited in taking investments from benefit plan investors that cannot make such representations. Also, managers no longer need to obtain such representations or include disclosure of the advice fiduciary rule in their fund documents. Managers can delete the portions in their subscription agreements and offering memoranda relating to the advice fiduciary rule or we can do a more general update of your fund documents and delete any provisions relating to the advice fiduciary rule as part of the process.
The Securities and Exchange Commission has proposed “best interest” rules related to offering investment advice. These rules however, generally would only apply to broker/dealers selling securities to retail customers and would not apply to hedge fund managers.