The duty of prudence enunciated by the Supreme Judicial Court of Massachusetts in 1830 in Amory v. Harvard College has come to stand as a talisman for the duties of investment managers. However, the variety of arrangements that are now used to manage other people’s money could not have been foreseen in 1830. Investment management is now subject to a collection of largely self-contained statutory and common-law systems. Although related in principle, they differ extensively in the investment management activities they affect and in the specific obligations they impose. Now seldom does a single statutory or common- law system cover all of an investment manager’s responsibilities, whether with respect to obtaining new business, setting proper investment objectives, choosing particular investments or obtaining execution of its investment decisions.
To understand modern investment management, it is necessary to deal with many and complex rules that, at least in spirit, cross jurisdictional bounds. This Article identifies some of the several statutory and common-law schemes directed at the regulation of investment managers and briefly explain how each applies to matters of concern to those managers. Some of these schemes attach to almost all managers, others only to certain types of managers and some others only to managers serving certain types of clients.
Notwithstanding the apparently ever-expanding variety of regulatory schemes, three principles that govern investment management law— the duty of care, the duty of loyalty and the public duty—remain the common conduct postulates underlying investment management law. In the fullness of time, however, the means for promoting and particulars of enforcement of fiduciary conduct and remedying breaches were once mainly the product of common-law developments and scholarly commentary, statutory controls and regulatory oversight in separately defined spheres of activity now dominate. Compliance seems both to govern the boundaries of investment responsibility for investment fiduciaries and to protect against after-the-fact challenges. To be sure, professionally indefensible investment management and classic self-dealing will likely transgress both statutory and regulatory requirements, on the one hand, and common-law precedent, on the other. Yet, satisfaction of legislative and administrative requirements, coupled with defined contractual undertakings are so much the focus of attention that often it is lost how dependent statutory and regulatory requirements are on the common-law history. Appreciation of this history should promote broader recognition that planning and structuring legal responsibilities and risks associated with new or evolving investment management practices depends on engineering that crosses jurisdictional lines.
Harvey Bines and Steve Thel,
The Varieties of Investment Management Law,
21 Fordham J. Corp. & Fin. L. 71
Available at: http://ir.lawnet.fordham.edu/jcfl/vol21/iss1/2