The Varieties of Investment Management Law


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
measuring fiduciary conduct have changed remarkably. Whereas the
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.


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Fordham Journal of Corporate & Financial Law