Page - 124 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Brian Carroll 124 court’s acceptance of the trust beneficiaries as clients of the trustee’s investment advice is an important step in light of Selzer. The court in Montana, however, relied primarily not on the sepa- rate legal status and roles of the trustee and beneficiary but on the strength of the holding in Abrahamson. In addition to the court’s analysis in Smith and Montana, provisions of the Advisers Act support holding that a trustee is an investment adviser.174 E. Engaged in the Business Section 202(a)(11) requires an investment adviser to “engage in the business” of providing in- vestment advice. In interpreting this element, the Commission staff in SEC Release 1092175 and courts176 have relied primarily on the decision in Zinn v. Parrish177. After reviewing Zinn, some observations are offered. 1. Zinn v. Parrish In Zinn v. Parrish, a private action, the court held that Zinn, a sports manager, provided services to Parish, a professional football player, that did not, among other things, satisfy the engaged in the business element. While providing sports management services, Zinn obtained a list of securities recommendations prepared by other persons, screened it and forwarded it to Parrish. The court acknowledged that had Zinn “made a business”178 of screening securities recommendations, he would be required to register as an investment adviser. However, this “isolated transaction”179 with Parrish was “incident”180 to the main purpose of the manager-client relationship. While Zinn’s holding has factual support, its legal analysis raises questions. The court in Zinn anal- ogized the sport manager’s role to that of the professional trustee described in In re Loring. Zinn characterized the trustee In re Loring as a “professional trustee whose advice to his clients is ‘sole- ly incidental’ to his duty as a professional trustee.”181 Also, as part of its discussion of In re Loring, the court in Zinn noted that the “SEC further concluded that the trustee was not an investment adviser because he did not ‘hold himself out as being engaged in the business of giving advice to others as to securities.’”182 Zinn went on to apply factors noted in Commission staff No-Action 174 Section 203, Registration of Investment Advisers, 15 U.S.C. § 80b-3, requires and exempts certain investment advis- ers (as defined under § 202(a)(11), 15 U.S.C. § 80b-2(a)(11)) to register with the Commission. Section 203(b)(4), 15 U.S.C. § 80b-3(b)(4), exempts from registration an investment adviser that is a trustee to a charitable organiza- tion. § 203(b)(5), 15 U.S.C. § 80b-3(b)(5), exempts from registration an investment adviser that is a trustee to a plan described under § 414(e) of the Internal Revenue Code of 1986 that provides investment advice exclusively to the plan. 175 SEC Release 1092, 4 & n.7 (“The ‘Business’ Standard [...] The staff considers a person to be ‘in the business’ of providing advice if the person: [...] (iii) on anything other than rare, isolated and non-periodic instances, provides specific investment advice. FN7 (Zinn v. Parris, 644 F.2d 360 (7th Cir. 1981)”). 176 See, e.g., Wang v. Gordon, 715 F.2d 1187, 1192-93 (7th Cir. 1983) (relying on the Zinn v. Parrish “engage in the business” approach); Pozez v. Ethanol Capital Mgmt., LLC, 2009 WL 2176574 6 (D. Ariz. 2009) (relying on the Zinn v. Parrish “isolated transactions” language). 177 644 F.2d 360 (7th Cir. 1981). 178 Id. at 364. 179 Zinn, 644 F.2d at 364. 180 Id. 181 Id. 182 Id.