Request for Comment on Certain Information Providers Acting as Investment Advisers

The Securities and Exchange Commission on June 15, 2022 requested comments related to information providers (such as index providers, model portfolio providers and pricing services) whose activities the SEC believes may bring them within the definition of “investment adviser” under the Investment Advisers Act of 1940 (Request).¹ The Request follows comments by the Director of the Division of Investment Management in a recent speech, in which he asserted that the traditional role of investment advisers has “splintered” among various service providers (including “Information Providers” or “Providers,” as defined below).² The Request focuses on whether such information providers are acting as investment advisers in ways that might warrant regulation under the Advisers Act and the Investment Company Act of 1940.

In Brief

The Request focuses on three types of Providers.

• Index providers. The Request points to the growth and variety of indexes, including specialized indexes developed for particular users. The Request posits, in particular, that index providers may be making active decisions that, in turn, drive investment advisers’ purchase and sale decisions.
  
  
• Model providers. The Request observes increasing demand for models, including ones that are customized or have a specialized focus, such as ESG investing. The Request then notes SEC concerns regarding: investors’ understanding of the fees that they are paying; the separate services performed by the investment adviser and the model portfolio provider; and conflicts of interest.
  
  
• Pricing services. The Request: recalls SEC observations concerning the importance of pricing services; asserts that pricing services often exercise discretion in the pricing process; and states that the SEC staff has observed compliance issues arising from registrants’ interactions with third-party pricing services.
  

Read the full OnPoint here.

Footnotes

1) SEC, Press Release, SEC Requests Information and Comment on Advisers Act Regulatory Status of Index Providers, Model Portfolio Providers, and Pricing Services (June 15, 2022). At times, this OnPoint tracks language in the Press Release and the Request without the use of quotation marks.

2) William Birdthistle, Remarks at the IAA Investment Adviser Compliance Conference (Mar. 3, 2022) (IAA Speech).