Page - 115 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Observations on Judicial Approaches to Discerning Investment Adviser Status 115 client and the client makes the ultimate decision; or discretionary, where the client authorizes an investment adviser to make investment decisions to purchase and sell securities on behalf of the client without the client first approving of each investment decision.110 Aspects of this personal one-on-one relationship were relied on by the Supreme Court in SEC v. Capital Gains Research Bureau, Inc.,111 which held that § 206(2) imposed on an investment adviser a fiduciary duty to its client.112 Moreover, the Advisers Act recognizes that some investment ad- visers offer personal advice, while others do not.113 Investment advisory business models based on offering personal advice, either on an advisory or discretionary basis, include individual client account management, financial planning services, certain sports and entertainment agent ser- vices, and certain internet advisory services.114 2. Allocation, Selection and Monitoring Personal Advice Although § 202(a)(11) speaks primarily in terms of advising others on purchasing and selling securi- ties, in SEC v. Washington Investment Network,115 (“WIN”), an enforcement action, the court recog- nized as investment advice three different forms of personal advice, which, in varying degrees, are removed from the traditional process of selecting securities on behalf of clients. The first form of advice focuses on how to allocate client funds among different types of securities invest- ments, essentially recommending what asset classes to invest in (equities, debt, and the like).116 The second form of advice is to assist the client in selecting another investment adviser to invest client funds consistent with the asset allocation advice. Lastly, the third type of advice provided by the adviser is the monitoring of the execution of the asset allocation plan by the selected in- vestment adviser. In WIN, this monitoring advice included periodically reviewing the investment 110 Lowe v. Sec. & Exch. Comm’n, 472 U.S. 181, 191–92 n. 31 (1985) (inter alia, describing advisory and discretionary forms of personal investment advice). 111 375 U.S. 180, 184 (1963). 112 See id. at 187 n.5, 191 (Court relied in part on the legislative history of the Advisers Act that described the “per- sonalized counseling,” and “personalized character” of providing investment advice on a “personal basis,” as well as describing the relationship between an adviser and client as one of “trust and confidence.”); see also Lowe, 472 U.S. 181, 192, n.31 (1985) (inter alia, discussing legislative history of the Advisers Act that addresses personal in- vestment advice, as opposed to impersonal investment advice, in holding that the “bona fide” publication ex- emption under § 202(a)(11)(D) for Publishing advisers was appropriate when applied to purely impersonal in- vestment advice). 113 See § 202(a)(13), 15 U.S.C. § 2(a)(13), (“‘Investment supervisory services’ means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client.”); § 208(c), General Prohibitions, 15 U.S.C. § 8(c) (prohibiting use of “investment counsel” as description of investment adviser business unless: “a sub- stantial part of his or its business consists of rendering investment supervisory services.”); see, e.g., § 203(c)(1)(H), Procedures for Registration; Filing of Applications; Effective Date of Registration; Amendment of Registration, 15 U.S.C. § 80b-3(c)(1)(H) (“[A] statement as to whether a substantial part of the business of such investment ad- viser, consists or is to consist of rendering investment supervisory services.”). 114 Rule 203A-2(e), Exemption from Prohibition on SEC Registration, 17 C.F.R. § 275.3A-2(e) (defines internet invest- ment adviser as “an investment adviser that provides investment advice to its clients exclusively through an in- teractive website. […] interactive website means a website in which computer software-based models or applica- tions provide investment advice to clients based on personal information each client supplies through the web- site.”); see also Sec. & Exch. Comm’n v. Terry’s Tips, Inc., 409 F. Supp. 2d 526 (D. Ver. 2006) (investment adviser advising client via telephone and e-mail meets definition of investment adviser); Sec. & Exch. Comm’n v. Park, 99 F. Supp. 2d 889 (N.D. Ill. 2000) (internet adviser meets definition of investment adviser under § 202(a)(11), 15 U.S.C. § 80b-2(a)(11)); Exemption for Certain Investment Advisers Operating Through the Internet, Investment Advisers Act Release No. 2091 (Dec. 12, 2002), 67 FR 77620-01 (Dec. 18, 2002). 115 475 F.3d. 392 (D.C. Cir. 2007). 116 Id. at 400 (“[B]ecause [WIN] also advised clients in regard to ‘asset allocation,’ we think WIN’s activities easily fall within the Act’s definition of investment adviser.”).