SEC Issues FAQ on Fiduciary DEI Duties

Dylan Bruce, financial services counsel at the Consumer Federation of America, told ThinkAdvisor in an email that the FAQ is an “important clarification for investment advisers that they may incorporate DEI considerations in their recommendations or selections of other advisers for their clients.”

As the two Democratic commissioners, Caroline Crenshaw and Jaime Lizárraga, noted in a joint statement Thursday, the SEC issued the FAQ in response to the 2021 Asset Management Advisory Committee’s report and recommendations to the agency on diversity and inclusion, which addressed the “well-known and widely acknowledged” lack of gender and racial diversity in the asset management industry.

The report’s goal was to shine a light on potential discrimination and barriers to women and minorities in the industry, and as the report stated, “its focus was on disclosure, not on mandating any business decisions or practices by SEC registrants,” the commissioners said.

“While today’s FAQ is a step in the right direction, we believe all of the recommendations laid out in the AMAC report deserve our prompt consideration,” Crenshaw and Lizárraga wrote.

Karen Barr, president and CEO of the Investment Adviser Association in Washington, said in another email that the FAQ affirms “the importance of allowing fiduciaries to consider a variety of factors to meet their clients’ financial objectives. The SEC’s explicit recognition that advisers may look at diversity, equity, and inclusion factors in their selection or recommendation of other advisers, provided they are consistent with a client’s objectives, is a significant step to removing barriers to entry and addressing the lack of gender and racial diversity in the asset manager industry.”

The FAQ, according to Bruce, also clarifies “that these considerations, like any considerations for adviser recommendations, cannot contravene the fiduciary duties that advisers owe to their clients. As the FAQ states, DEI considerations are part of a constellation of factors that investment advisers may use to make appropriate recommendations that are in their clients’ best interests.”