SEC Scrutinizes Evaluation of Fund Advisory Contracts

The SEC recently imposed sanctions against an investment adviser and board members of a mutual fund for their failure to evaluate thoroughly an advisory contract in violation of Section 15(c) of the Investment Company Act.

• The Gartenberg factors are still the appropriate framework to use during the evaluation of advisory contracts, but approval should reflect a thorough and thoughtful process from both the adviser and the mutual fund.
• The failure of an adviser to provide the requested information does not excuse board members from properly evaluating an advisory contract before approval.