Hedge Clause
Contract language that tries to waive the client's legal rights - prohibited.
What is Hedge Clause?
A provision suggesting the client has waived rights they cannot waive under securities law, such as the right to sue for negligence or fraud. Any condition purporting to make a client waive compliance with the Act is void.
Hedge Clause: a worked example
'The adviser is not liable for any losses, however caused' is a prohibited hedge clause.
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.