Guarantees Against Loss
No one may guarantee a client against loss or promise a result.
What is Guarantees Against Loss?
Promising that a client will not lose money, or guaranteeing a specific return, is prohibited. The word 'guaranteed' can accurately describe a security whose payments are guaranteed by a third party - such as a parent company guaranteeing a subsidiary's bonds - but never the performance of an investment or account.
Guarantees Against Loss: a worked example
An agent promising to reimburse any losses on a recommended stock has violated the Act, even if no loss occurs.
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.