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UNITED STATES ¡¡=~ ' ¡; ~j g ~ ~
 

f&!y-r. "/?/) 1 Jl~3 SECURITIES AND EXCHANGE COMMISSION IF" l .. !"" ~ ~~.

¡, .i")"", ,"'co, 
 V

~ ....AlXø,... WASHINGTON. D.C. 20549 

.ION OF
 

VES,. _.,T MANAGEMENT 

July 18, 1995
 

'''' :,.-",. ...."1 ~. r ,..fl..JlI~~'"~¥~1i1i -JI1-; l"";y'(,~,,~~v....., 

\:t r Ilii - 10
 Mr. George Colman
 

44 Fox Hil Road
 ¡~eet1on Framingham, Massachusetts 01701 ~ ç(tL) (() 

::.'~,D. ~ . RE: Refund of Advisory Fees '\'.bl1c' ~,,~,'¡''' 

7/1 g

Dea Mr. Colman: :'::2.1,~biU ty I1Ç' 1 ~iil'R-_~t .i'--_..;.l.l~.,M~'.....i~~I,,::'_.;~:,'" 

I am writing in response to your letter of June 27, 1995. You state in your letter

that you recently terminated a contract with an investment adviser because of poor 

performance, and requested that the adviser refund the advisory fee. You state that the 

adviser refuses to refund the fee on the basis that the Investment Advisers Act of 1940 

("Advisers Act") prohibits fee waivers related to the performance of an account. You

question the adviser's reasonig and ask whether the Advisers Act actualy precludes hi

from returng advisory fees. 

Section 205(a)(I) of the Advisers Act prohibits a registered investment adviser from 

enterig into an investment advisory contract that provides for compensation on the basis of
 

a share of the capital gais or capita appreciation in a client's account. The staff of the 

Commission has interpreted this section to prohibit investment advisers from enterig into 

contingent advisory fee argements, such as agreements under which fees are waived or
 

refunded if a client's account does not meet a specifed level of performance. 1/ :l 

e: 

We believe, however, that the Advisers Act does not prohibit a volunta, non­ contractual refund of advisory fees by an investment adviser. You state that your contract 

with the adviser does not in any maner base advisory fees on the adviser's performance.
 

Assuming you had no other understading with the adviser regarding a fee refund or waiver 

related to investment performance, the return of your advisory fees would not be prohibited. 

Of course, an adviser is not obligated under the Advisers Act to refund fees for 

advisory services actualy rendered. An adviser, however, is generally required to return 

advisory fees that were prepaid for periods afer the termination of the contract. 

I hope the information discussed above is usefuL. If you have additional questions, 

you may contact us at (202) 942-0660. 

Sincerely, 

r " \ '_'. _ -:\'-. 

. ,.i.'\.Y',....( i \.-~""~'~- J'~' '~J- ..'-- ~.. \.. \, _

Barbara Chretien-Dar 

Senior Counsel 

1/ See Investment Advisers Act Release No. 721 (May 16, 1980) .:":,
 
.._'..."'&..'~ 11111'0. ....1'..'
 Page 1 of1 

Aar 1- _
 I/l/T i' ¡;-S---(CLJ--(T)­

SECTION :)Û ::,- ( c) (( \ 

GEORGE COLMAN RULE

44 FOX HILL ROAD PUBLIC FRAMINGHAM, MA 01701 USA A V AIL 
 ABILIT -t - l 8 - -1 ,~'­

TELEPHONE (508) 872-9087
 

TELEFAX (508) 879-4031
 

INVSTMENT ADVISORS, INTERPRETIVE MATTERS
 June 27, 1995


U. S. Securities & Exchange Commission
 

450 5th Street, NW
 

Washington, DC 20549 FAX # 202-942-9659
 

ATTENTION: Chief Counsel 

Dear Sir: 

I signed an investment advisory contract in August of 1993 that
 

provided for discretionary management of my account, along with
 

quarterly advisory fee withdrawals. The contract did not in any
 way connect advisory fees to the advisor i s performance. 

I terminated the contract on May 3 because of poor performance
 

by the advisor and, on May 31, I asked for a fee refund, which
 

he refuses to give me. His reason is that he "must adhere to
 

the Investment Advisors Act of 1940, which clearly states that
 

we cannot waive fees based on performance related matters."
 

In my opinion, a more complete and appropriate extract from the
 

Act would be, "Section 205 (1) generally prohibits an investment
 

~ advisor from being a party to any advisory contract which makes
 ~	 advisory fees contingent on investment performance." Further,

Sec. 205 (1) expressly applies ~ to compensation arrangements 

based upon a share of capital gains or appreciation of the funds 

of an advisory client. As I stated above, the contract I signed 

made no connection between advisor performance and advisory fees 

and a fee refund subsequent to the terminated contract could not 

create a "conflict of interest," which is what Sec. 205 (1) seeks 

to avoid. 

Al though the contract I signed clearly permi ts him to keep the
 

fees, I believe the Investment Advisors Act of 1940 does not in
 

any way preclude him from returning the fees if he believesit
 

is morally correct to do so. May I tell him that the SEe would
 

not see a problem if he chooses to return my fees?
 

I welcome your early reply since I am right now discussing this
 

issue wi th the advisor.
 

Sincerely i

heN C~ 

George Colman