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SEC States That Considering Diversity When Recommending Investment Advisers Is Consistent With An Advisor's Fiduciary Duty

Earlier this month, the SEC issued an FAQ concerning "an adviser's fiduciary duty when considering factors relating to diversity, equity, and inclusion (DEI) in the selection or recommendation of other investment advisers."  Specifically, the SEC stated that diversity could be considered when selecting an investment advisor.  The SEC proclaimed that "an adviser . . . may consider a variety of factors in making a recommendation or selection [of another adviser], including, but not limited to, factors relating to diversity, equity, and inclusion, provided that the use of such factors is consistent with a client's objectives, the scope of the relationship, and the adviser's disclosures."

This development is particularly noteworthy when considering the recent spate of activity by certain states precluding the consideration of ESG criteria by various investment vehicles or advisors.  In effect, there is a looming confrontation between a federal regulatory agency that permits--or mandates--its regulated entities to utilize various ESG criteria, whether diversity or environmental, and states that prohibit the inclusion of such ESG criteria.  Regardless of how this contradiction is ultimately resolved, whether by the courts or in the political arena, businesses operating in the United States will have to navigate these competing legal regimes carefully until the regulatory landscape is harmonized.

The staff has issued an FAQ on an adviser’s fiduciary duty when considering factors relating to diversity, equity, and inclusion (DEI) in the selection or recommendation of other investment advisers.

 

©1994-2023 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XII, Number 301
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About this Author

Jacob Hupart Commercial Attorney Litigation Mintz Levin Cohn Ferris Glovsky and Popeo PC
Member

Jacob has a multifaceted litigation practice that encompasses complex commercial litigation, including cases involving securities, employment, and environmental claims, as well as class action litigation, white-collar criminal defense, and regulatory investigations. He has extensive experience handling all phases of litigation before federal and state courts, managing discovery, and conducting settlement negotiations. Jacob has represented clients in a variety of industries, including financial services, energy, education, and the media.

Prior to joining Mintz, he was an associate...

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