Registered Investment Advisers – Personal Account Dealing Guidance

In late June 2015, the United States Securities and Exchange Commission (SEC) Division of Investment Management released Guidance Update No. 2015-03 entitled “Personal Securities Transactions Reports by Registered Investment Advisers: Securities Held in Accounts Over Which Reporting Persons Had No Influence or Control.” Despite the title, Exempt Reporting Advisers should also take note of the Guidance.

Through the Guidance, the SEC expressed its views on the application of Rule 204A-1 in the context of any trust and third-party discretionary accounts of ‘access persons’ (see below). The end result is an increase in an adviser’s responsibilities under Rule 204A-1 of the Investment Advisers Act of 1940 (Advisers Act) with regard to administering its Code of Ethics.

Rule 204A-1 and the “Reporting Exception”

Section 204 of the Advisers Act and Rule 204A-1 thereunder compels an investment adviser to establish and enforce a written code of ethics that requires the adviser’s directors, officers and partners and its supervised persons who have access to non-public information regarding securities transactions (‘access persons’) to report their personal holdings and transactions. One caveat to Rule 204A-1 comes in the form of Rule 204A-1, subsection (b)(3)(i) (also known as the “reporting exception“) whereby an exception is made to rule 204A-1 when an access person’s securities are held in accounts over which he or she has “no direct or indirect influence or control.” Historically, advisers and access persons have relied on the reporting exception for trust accounts, managed accounts, and other similar third-party discretionary managed investment accounts.

Guidance Update

In the Guidance, the SEC takes the position that the fact an access person provides a trustee with management authority for which he or she is grantor or beneficiary, or provides a third-party manager discretionary investment authority over his or her personal account, by itself, is insufficient for an adviser to reasonably believe that the access person had no direct or indirect influence or control over the trust or account for purposes of relying on the reporting exception.

The SEC noted that providing a third-party discretionary investment authority would not prevent an access person from:

  • Suggesting purchases or sales of investments to the trustee or third-party discretionary manager;
  • Directing purchases or sales of investments; or
  • Consulting with the trustee or third-party discretionary manager as to the particular allocation of investments to be made in the account.

In the Guidance, the SEC staff state “an access person’s discussions with the trustee or third-party discretionary manager concerning account holdings may also, in certain circumstances, reflect direct or indirect control or influence.”

The SEC did provide some possible controls an adviser may consider to establish a reasonable belief that an access person has no direct or indirect influence or control (and hence eligible for the reporting exception) including:

  • Obtaining information about a trustee or third-party discretionary manager’s relationship to the access person (i.e. independent professional versus friend or relative; unaffiliated versus affiliated firm);
  • Obtaining periodic certifications by access persons and their trustees or third-party discretionary managers regarding the access persons’ influence or control over trusts or accounts;
  • Providing access persons with the exact wording of the reporting exception and a clear definition of “no direct or indirect influence or control” that the adviser consistently applies to all access persons; and
  • On a sample basis, requesting reports on holdings and/or transactions made in the trust or discretionary account to identify transactions that would have been prohibited pursuant to the adviser’s code of ethics, absent reliance on the reporting exception.

In the Guidance, the SEC definitively states a general certification that an access person did not exercise direct or indirect influence or control would, on its own, likely be insufficient. The SEC further suggests obtaining more specific certifications from a firm’s access persons and/or the third party discretionary manager confirming the access person has not exercised any direct or indirect influence over the account.


It will be appreciated that the SEC Guidance on such accounts goes further than the MiFID-based requirements in COBS – specifically see COBS 11.7.5. Firms that are also Registered Investment Advisers should therefore review their current personal dealing procedures to ensure that they are compliant with both COBS 11.7 and SEC Guidance.


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