SEC Division of Investment Management staff letter: George Colman

The SEC staff clarifies that the Investment Advisers Act of 1940 does not prohibit a voluntary, non-contractual refund of advisory fees by an investment adviser. While Section 205(a)(1) prohibits contracts providing compensation based on capital gains or appreciation, the staff confirms that returning prepaid fees for periods after contract termination is not prohibited. The adviser is not obligated to refund fees for services actually rendered, but generally must return fees prepaid for future periods upon contract termination.

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UNITED STATES ¡¡=~ ' ¡; ~j g ~ ~

f&!y-r. "/?/) 1 Jl~3 SECURITIES AND EXCHANGE COMMISSION IF" l .. !"" ~ ~~. ¡, .i")"", ,"'co, V ~ ....AlXø,... WASHINGTON. D.C. 20549 .ION OF

VES,. _.,T MANAGEMENT
July 18, 1995

'''' :,.-",. ...."1 ~. r ,..fl..JlI~~'"~¥~1i1i -JI1-; l"";y'(,~,,~~v....., :t r Ilii - 10 Mr. George Colman

44 Fox Hil Road
¡~eet1on Framingham, Massachusetts 01701 ~ ç(tL) (() ::.'~,D. ~ . RE: Refund of Advisory Fees ''.bl1c' ~,,~,'¡''' 7/1 g Dea Mr. Colman: :'::2.1,~biU ty I1Ç' 1 ~iil'R-~t .i'--..;.l.l~.,M~'.....i~~I,,::'_.;~:,'" I am writing in response to your letter of June 27, 1995. You state in your letter that you recently terminated a contract with an investment adviser because of poor performance, and requested that the adviser refund the advisory fee. You state that the adviser refuses to refund the fee on the basis that the Investment Advisers Act of 1940 ("Advisers Act") prohibits fee waivers related to the performance of an account. You question the adviser's reasonig and ask whether the Advisers Act actualy precludes hi from returng advisory fees.
Section 205(a)(I) of the Advisers Act prohibits a registered investment adviser from
enterig into an investment advisory contract that provides for compensation on the basis of

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Source: Securities and Exchange Commission — original document · Summary generated with machine assistance and reviewed before publication; the authoritative text is the regulator's original document. How RegAlert works