Vedder Price

Vedder Thinking | Articles SEC Staff Issues FAQ Relating to Adviser Consideration of DEI Factors


Reader View

On October 13, 2022, the SEC staff issued guidance affirming that, under its fiduciary duty, an investment adviser may consider factors relating to diversity, equity and inclusion (DEI) when referring clients to other advisers—provided that the use of such DEI factors is
consistent with the client’s objectives, the scope of the relationship and the adviser’s disclosures.

The SEC staff’s guidance—in the form of a single question and answer—was issued in response to a July 2021 Asset Management Advisory Committee (AMAC) report addressing the “well-known and widely acknowledged” lack of gender and racial diversity in the asset management industry. In conjunction with the guidance, Commissioners Caroline A. Crenshaw and Jaime Lizárraga issued a joint statement noting that although the FAQ is a “step in the right direction,” all of the AMAC’s recommendations warrant “prompt consideration” by the SEC. Those recommendations include enhanced disclosures in SEC filings by advisers and investment companies intended to, among other things, provide transparency on issues of gender and racial diversity in the workforce and ownership ranks of advisers and on fund boards.

As to the staff’s guidance, the FAQ explains that an adviser is required to have a reasonable belief that its advice is in the client’s best interest based on the client’s objectives and that establishing such a reasonable belief typically includes consideration of various factors. Therefore, an adviser’s consideration of DEI factors in recommending or selecting other advisers is consistent with its fiduciary duty so long as the use of such factors aligns with a client’s objectives, the scope of the relationship and the adviser’s disclosures. Moreover, in the staff’s view, the fiduciary duty does not mandate restricting adviser referrals to firms with certain specified characteristics, such as a minimum assets under management or track record length—criteria which, according to the AMAC report, could disproportionately exclude advisers owned by members of underrepresented demographic groups.

The FAQ is available here. The statement of Commissioners Crenshaw and Lizárraga is available here. The AMAC’s July 2021 report and recommendations can be accessed here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt