SEC Proposes New Rule For Outsourcing By Investment Advisers

The U.S. Securities and Exchange Commission (SEC) has recently proposed a new rule that would require certain “information providers” to register as investment advisers under the investment Advisers Act of 1940 (Advisers Act). This new rule seeks to amend Section 206(4) of the investment Advisers Act and make it unlawful for any investment adviser to engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative in connection with the provision of investment advice.

This new rule is expected to have significant impacts on the investment advisory industry, as it seeks to clarify the scope of activities that constitute investment advice. The purpose of the new rule is to ensure that investment advisers are not engaging in activities that would be considered fraudulent, deceptive, or manipulative. Additionally, the new rule seeks to protect investors from advisors who are providing advice outside of their scope of expertise or competence.

The proposed rule also seeks to clarify the definition of “information providers” and make it clear which providers must register as investment advisers. The proposed rule states that information providers are defined as “any person, including an individual, that provides investment advice or recommendations, or offers to do so, for compensation, or with the expectation of compensation”. The rule also clarifies that the compensation must be related to the provision of the investment advice or recommendation.

The SEC has noted that the new rule does not apply to all information providers. For example, information providers that are providing general advice or information about investment, such as financial advisors or brokers, do not need to register as investment advisers. Additionally, the SEC has stated that the new rule does not apply to “persons who merely provide factual information or analysis that could be used to make an investment decision”.

The proposed rule has been met with both support and criticism from the investment advisory industry. Supporters of the rule argue that it will help protect investors from fraudulent or deceptive advisers and ensure that only qualified advisers are providing advice. Critics, however, argue that the rule is overly burdensome and may limit the ability of smaller firms to compete in the investment advisory space.

The SEC is currently accepting comments on the proposed rule and is expected to issue a final ruling in the coming months. It is unclear at this time what the final ruling will look like, but it is likely that it will have far-reaching implications for the investment advisory industry and investors alike.