Many private fund advisers are wondering: How does the DOL Rule apply to my business? Why does it apply to my business?
The DOL Rule that went into effect on June 9, 2017 was intended to require those providing advice to certain investors to do so using a fiduciary standard of care. While arguably the biggest impact of the Rule falls on broker-dealers and investment advisers with retail clients, advisers to private funds may also be affected. The Rule has implications for private fund advisers that accept IRA and/or ERISA Plan investors, regardless of whether the private fund is considered to hold “plan assets.” While such advisers already must adhere to a fiduciary standard to their clients (here, private funds), the Rule regulates, among other things, when that private fund adviser may additionally become a fiduciary to the fund’s IRA and/or ERISA Plan investors.
To the extent the Rule may apply, the adviser may be limited in the way it can market investment products (i.e., interests in the private investment funds) to current and prospective IRA and ERISA Plan investors. The concern is that marketing communications, routine performance reporting, and other communications might cause the private fund adviser to become an ERISA fiduciary with respect to a decision by the IRA or ERISA Plan investor to invest in, continue holding, or redeem a private fund interest.
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