Borrowing From & Lending To Clients
Prohibited except with financial institutions or affiliates in narrow cases.
What is Borrowing From & Lending To Clients?
An investment adviser may not borrow from a client unless the client is a broker-dealer, an affiliate of the adviser, or a financial institution in the business of lending; it may not lend to a client unless the adviser is a lender by business or the client is an affiliate. An agent may borrow from or lend to a customer only if the firm's written procedures allow it and the customer is an immediate family member, a lending institution, or fits another permitted category.
Borrowing From & Lending To Clients: a worked example
An IAR accepting a $20,000 personal loan from a wealthy client is committing a prohibited practice.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.