How does a multifamily office identify, disclose, and manage conflicts of interest?
A multifamily office should identify conflicts that could affect its advice or services, clearly disclose material conflicts, and maintain written policies for addressing them. SEC-registered investment advisers have fiduciary obligations that include full and fair disclosure of material conflicts. SEC fiduciary interpretation
Identify potential conflicts
We review relationships and business practices that could reasonably affect advice, recommendations, or services. For an SEC-registered investment adviser, the compliance program must address applicable legal obligations and be reviewed at least annually. Investment Advisers Act Rule 206(4)-7
Disclose material conflicts clearly
An SEC-registered investment adviser must provide full and fair disclosure of material conflicts in a way clients can understand. The SEC explains that disclosure should be specific enough for clients to evaluate the conflict and its effect on the advisory relationship. SEC fiduciary interpretation
We've told people they should create master due diligence questionnaires for the last 18 years, and almost nobody does. As you can see in the room, two people have, and it gives you an edge because every investor would rather have more things disclosed.
Use policies to address conflicts
Disclosure alone may not be sufficient when a conflict creates a serious risk that advice will be affected. Advisers should maintain policies and procedures reasonably designed to prevent violations of the Advisers Act, review those procedures, and update them when circumstances change. Investment Advisers Act Rule 206(4)-7
Related guides
- Family Office Due Diligence: A Practical Guide for Multifamily Offices
- Family Governance With a Multifamily Office
- Access to Alternatives Through an MFO: A Practical Guide for Families