Page - 118 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Brian Carroll 118 one-on-one personal advice with its client. Abrahamson provides legal analysis to support applica- tion of § 202(a)(11) to a wide range of advisers offering impersonal advice as sub-advisers,132 advis- ers participating in wrap fee programs,133 and advisers to certain private investment funds134 and collateralized debt obligations.135 D. The Relationship between Investment Advice and Compensation: The Intertwined Purposes Issue The structure of § 202(a)(11) requires that an investment adviser be compensated for investment advice. In Elliott the court held that discrete fee for investment advice need not be paid in order to meet the compensation element. The ambiguity created by permitting payment for unspeci- fied services, however, has forced courts to unravel the intertwined purposes issue: whether compensation is paid for investment advice, as opposed to some other type of advice or service that is intertwined with investment advice. In addressing this intertwined purposes issue under § 202(a)(11), two different approaches have emerged: the “Purpose of the Partnership” and the “Primary v. Incidental” approaches. cept of impersonal advice. See, e.g., Rule 203A-3(a)(3)(ii), Definitions, 17 C.F.R. § 275.3A-3(a)(3)(ii) (“‘Impersonal in- vestment advice’ means investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts.”); Rule 204-3(h)(1), Deliv- ery of Brochures and Brochure Supplement, 17 C.F.R. § 275.4-3(h)(1) (“Impersonal investment advice means in- vestment advisory services that do not purport to meet the objectives or needs of specific individuals or ac- counts.”); Rule 206(4)-3(d)(3), Cash Payments for Client Solicitations, 17 C.F.R. § 275.6(4)-3(d)(3) (“Impersonal advi- sory services means investment advisory services provided solely by means of (i) written materials or oral state- ments which do not purport to meet the objectives or needs of the specific client […].”). 132 See Sec. & Exch. Comm’n v. Treadway, 430 F. Supp. 2d 293 (S.D.N.Y. 2006) (investment adviser as sub-adviser); see also Sec. & Exch. Comm’n Press Release, SEC, PIMCO equity Mutual Funds’ Adviser, Sub-Adviser, and Distributor Agree to Pay $ 50 Million to Settle Fraud Charges for Undisclosed Market Timing, No. 2004-127 (Sept. 13, 2004). 133 Rule 204-3(h)(5), Delivery of Brochures and Brochure Supplements, 17 C.F.R. § 275.4-3(h)(5), (“Wrap fee program means an advisory program under which a specified fee or fees not based directly upon transactions in a client’s account is charged for investment advisory services (which may include portfolio management or advice con- cerning the selection of other investment advisers) and the execution of client transactions.”); Sec. & Exch. Comm’n v. Washington Investment Network, 475 F.3d 392 (D.C. Cir. 2007) (discussing wrap fee program struc- ture); Geman v. Sec. & Exch. Comm’n, 334 F.3d 1183, 1185-86 (10th Cir. 2003) (“Under the wrap fee program, the firm’s customers paid an ‘all-inclusive’ fee calculated as a percentage of the customer’s assets under manage- ment. In return, the firm provided brokerage, advisory, and custodial services.”); see also Disclosure by Invest- ment Advisers Regarding Wrap Fee Programs, Investment Advisers Act Release No. 1411 (Apr. 19, 1994), 59 FR 21657 (Apr. 26, 1994) (adopting rule release). 134 See generally Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, Investment Advisers Act Release No. 3308 (Oct. 31, 2011), 76 FR 71128 (Nov. 16, 2011); Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $ 150 Million in Assets Under Management, and Foreign Private Advisers, Investment Advisers Act Release No. 3222 (June 22, 2011), 76 FR 39646 (July 6, 2011); STAFF OF THE DIVISION OF INVESTMENT MANAGEMENT, U.S. SECURITIES & EXCHANGE COMMISSION, ANNUAL STAFF REPORT RELATING TO THE USE OF DATA COLLECTED FROM PRIVATE FUND SYSTEMIC RISK REPORTS 6 (July 25, 2013) (listing private funds filing with the Commission under Form PF (private fund): hedge funds, private equity funds, other private funds, real estate funds, securities asset funds, venture capital funds and liquidity funds). 135 The Commission has initiated enforcement actions against investment advisers serving as collateral managers for collateralized debt obligations. See, e.g., In the Matter of Harding Advisory LLC and Wing F. Chau, Investment Advisers Act Release No. 3696, 2913 WL 5670841 (Oct. 18, 2013) (order instituting enforcement action alleging investment adviser serving as collateral manager violated, inter alia, § 206); In the Matter of Delaware Asset Ad- visers and Wei, Investment Advisers Act Release No. 3434, 104 S.E.C. Docket 651 (July 18, 2012) (settled enforce- ment action) (investment adviser serving as collateral manager and then portfolio manager found to have violated, inter alia, § 206(2)); In the Matter of GSCP (NJ), LP, Investment Advisers Act Release No. 3261101, S.E.C. Docket 3325 (Aug. 25, 2011) (settled enforcement action) (investment adviser serving as collateral manager found to have violated, inter alia, § 206(2)).