SEC v. Capital Gains Research Bureau and the Investment Advisers Act of 1940
54 Pages Posted: 30 Jul 2011
Date Written: March 7, 2011
This paper was prepared for a conference entitled The Role of Fiduciary Law and Trust in the Twenty-First Century: A Conference Inspired by the Work of Tamar Frankel, held at Boston University School of Law in October 2010. SEC v. Capital Gains Research Bureau was the Supreme Court’s first interpretation of the Investment Advisers Act of 1940 and it still stands as a leading case under the Act. The opinion is often cited for the proposition that the Advisers Act imposed a federal fiduciary duty on investment advisers. Yet a careful reading of the case and the underlying statute reveals that neither was intended to create a federal fiduciary standard. Rather, the doctrine developed through statements in subsequent Supreme Court decisions, which misread or disregarded Justice Goldberg’s disquisition in Capital Gains. This article reviews the history of the Capital Gains case and then explains when and how it was misinterpreted to state that Congress established a federal fiduciary duty in the Advisers Act. The last part of the paper discusses implications of this development, including the confusion provoked as Congress and the SEC grapple with whether to impose a fiduciary duty on broker-dealers commensurate with the duty imposed on advisers.
Keywords: investment advisers, fiduciary duty, Investment Advisers Act
JEL Classification: K22, K23
Suggested Citation: Suggested Citation