SEC Issues FAQ Regarding Adviser Consideration of DEI Factors

SEC staff published guidance as an FAQ confirming that, consistent with its fiduciary duty and subject to certain conditions, an investment adviser can incorporate DEI factors when recommending or selecting an investment adviser for its clients. In the response, the SEC staff state “an adviser that recommends other investment advisers to or selects other advisers 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 [i] a client’s objectives, [ii] the scope of the relationship and [iii] the adviser’s disclosures.” While the guidance does not expressly reference registered funds, according to a Ropes & Gray alert the guidance appears to apply to recommendations involving sub-adviser selection for registered funds that operate in a manager-of-managers structure.

Click here to read a Ropes & Gray client alert analyzing the FAQ.