The Securities and Exchange Commission released guidance Thursday clarifying an advisor's fiduciary duty when considering factors relating to diversity, equity and inclusion in selecting or recommending other advisors.
The question addressed in the FAQ: "Under its fiduciary duty, may an investment adviser that recommends other investment advisers to or selects other advisers for its clients consider 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?"
The SEC's answer: Yes.
An investment advisor, the SEC states, "is required to have a reasonable belief that the advice it provides is in the best interest of the client based on the client's objectives. Such a reasonable belief that advice is in the best interest of the client typically includes consideration of a variety of factors."
Accordingly, the FAQ continues, "an advisor that recommends other investment advisors to or selects other advisors for their clients may consider a variety of factors in making a recommendation or selection, 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."
Further, the advisor's fiduciary duty "does not mandate restricting such a recommendation or selection to investment advisers with certain specified characteristics, such as a minimum amount of assets under management or a minimum length of track record," the SEC said.
