Investment Advisers' Duty Of Care

When Investment advisers provide advice to customers, they shall take on different degree of duty of care according to the specific situation. Whether an investment adviser have perform the duty of care depending on two aspects, the one is the standard of due diligence, the other is the criterion of due professional knowledge and skills.Firstly, investment advisers are the people who get professional knowledge and skill, they are in a stronger place that could be used to take advantage of the investors or clients.The investors who are in a weaker position usually trust in the investment advisers, and pay for their advice.Secondly, due diligence is imperatively contained in the duty of care. Due diligence refers to that investment advisers shall provide prudent and thoughtful advice, as to avoid undue damages to customers. The judging point of due diligence is different in stages of providing investment advice. In the process of making advice plan, investment advisers should take due diligence of the investment information, diversification, investment target, cost and the best execution.; When they transmit investment advise to clients they must ensure that customers understand and accept the information; After offering investment advice to clients, investment advisers should take due diligence of continuous supervision, track the condition of their clients who have followed the advice, and provide continuous investment advice. Different stages shall be distinguished, when judges decide whether the investment advisers has reached the standard of due diligence.Thirdly, possessing due professional knowledge and skills is a required element of the investment adviser's duty of care. Differing from ordinary investors, Investment advisers are the specialists in the field of investment, so they get a higher social status and income, and should get professional knowledge, skills and experience. Deciding whether investment advisers have gotten due professional knowledge skills, the combination of objective and subjective standard should be adopt, an investment adviser should reach the ordinary level of the investment advisers' community, as well as the lowest standard. If a higher professional knowledge and skills had been claimed to be owned by an adviser when he undertakes the business, he shall fulfill that higher subjective standard he had claimed once. Both of the objective and subjective standard should be considered when judges decide whether the investment advisers reach the standard of due professional knowledge skills.Fourthly, according to the specific situation, investment adviser shall take on different degree of duty of care. Under the condition of a certain relationship with the customer, investment advisers have a deeper understanding of the customer's financial situation and investment target, undertaking a higher degree of duty of care, compared to the circumstance unspecific relationship has been established; Due to differences in expertise, professional investment advisers undertake a higher degree of duty of care than those who are amateurish; The investment advisers who undertake a lower degree of duty of care when they provide investment advice to professional investors instead of ordinary investors. The judge shall use different standard to decide the degree that shall be undertaken by the investment adviser according to varies of situations.