The SEC's 2022–2023 Staff Bulletins establish specific, operational obligations that most advisory practices do not satisfy. This 105-page evidentiary report provides the analytical framework, the documented case studies, and the regulatory citations that connect a fiduciary's failure to measure risk with the client's resulting loss — using the Commission's own published language.
Between March 2022 and April 2023, the SEC's Division of Trading and Markets published three Staff Bulletins that collectively articulate the most specific operational guidance the Commission has issued on the care obligations of broker-dealers and investment advisers. The report analyzes each Bulletin in detail and identifies four core obligations they establish:
The April 2023 Care Obligations Bulletin requires understanding "the expected returns, expected payout rates, and potential losses" and "likely performance in a variety of market and economic conditions." An advisor who recommends a security at historically extreme valuations without analyzing the probability and magnitude of loss under reversion scenarios has not satisfied this standard as the SEC has defined it.
Both the March 2022 and April 2023 Bulletins require consideration of alternatives — and the Commission has pursued enforcement actions against advisors who recommended higher-cost products when lower-cost alternatives were available. For a client whose primary objectives are income and capital preservation, the alternatives include Treasury securities, FDIC-insured deposits, and fixed annuities — products where catastrophic loss is not possible.
The 2023 Bulletin states that "reasonable investigation will require continued analysis after purchase." Release IA-5248 (2019) independently establishes the same continuous duty. An advisor who has no predefined quantitative thresholds triggering review has no mechanism to fulfill this obligation.
The August 2022 Conflicts Bulletin states that conflict management "should not be merely a 'check-the-box' exercise." The Bulletin further establishes that "it would be difficult for an investment adviser to demonstrate how it complies with its fiduciary obligations in the absence of records related to how the adviser addresses its conflicts." The absence of documentation is itself evidence of non-compliance.
The SEC's 2022 Conflicts Bulletin establishes a principle with direct implications for any proceeding: the absence of records is not a neutral fact — it is evidence that the analysis was not performed. An advisor's file that contains only a risk tolerance questionnaire and a brokerage statement does not demonstrate compliance with the standards articulated in these Bulletins. In the SEC's own language, it demonstrates the opposite.
Part I of the report provides the full analysis of all three SEC Bulletins, with extended quotation and citation for each obligation identified.
Request the ReportThe report grounds the fiduciary standard of care in a body of legal and economic scholarship that provides independent support for evaluating whether an advisor's process was adequate. The central authority is the Least Cost Information Gatherer (LCIG) principle, as articulated by Professor Gerrit De Geest of Washington University School of Law in a paper presented at the University of Chicago Law School.
The LCIG principle holds that the party who can obtain information most cheaply has the duty to obtain it and disclose it. The investment advisor possesses — or has the professional obligation to possess — detailed knowledge of the risks, costs, and probable outcomes of the securities they recommend. The client does not. That asymmetry is the entire basis for the advisory relationship and the entire basis for the fiduciary duty of disclosure.
"Sellers who pretend to give unbiased advice should be held to fiduciary standards." — Gerrit De Geest, "The Death of Caveat Emptor," University of Chicago Law School (2014)
The report traces the dismantling of caveat emptor across every profession that manages consequential risk — pharmaceutical regulation, structural engineering, medical practice, real estate — and documents that the investment advisory profession remains the last major holdout. The standard is not perfection. It is disclosure.
A pharmaceutical company cannot conceal that a drug causes adverse effects in 3% of patients — even though 97% will be unharmed. A structural engineer cannot certify a building without analyzing load-bearing capacity under stress conditions. A physician cannot prescribe a high-risk treatment without disclosing that a safer alternative exists. In each case, the professional is not required to guarantee the outcome. They are required to ensure that the person relying on their expertise understands the risks before committing to a course of action.
Caveat emptor is dead in medicine. It is dead in engineering. It is dead in pharmaceutical regulation. It remains alive, as a practical matter, in the one profession where the consequences of information asymmetry are measured in trillions of dollars of preventable losses.
The analytical framework and evidentiary record in the report support a series of specific, documented questions that go directly to whether the standard of care was met. The following are illustrative — not exhaustive — and each is developed in full within the report with supporting citations and case evidence.
The 2023 Care Obligations Bulletin requires understanding "potential losses" and "likely performance in a variety of market and economic conditions." The report provides a methodology — the "What Must Happen" framework — for determining what specific conditions were required for the investment to succeed, and what the loss would be if those conditions were not met. If the advisor performed no such analysis, the care obligation was not satisfied under the SEC's own published standard.
For a client whose primary objectives were income and capital preservation, Treasury securities yielding 4–5% with no principal risk represent a "reasonably available alternative" that the SEC's Bulletins require the advisor to consider. If no such comparison was documented, the advisor's recommendation was made without the analysis the Commission requires.
The SEC's continuous monitoring duty requires "continued analysis after purchase." If the advisor had no predefined criteria for evaluating changes in the company's financial condition — no threshold for declining free cash flow, deteriorating balance sheet health, or valuation divergence — there was no mechanism to fulfill the monitoring obligation. The report documents that most advisors rely on sell-side research whose economic incentives are structurally incapable of producing timely sell signals.
The 2022 Conflicts Bulletin acknowledges the AUM fee conflict as universal, states that disclosure alone does not resolve it, and establishes that the absence of records is itself evidence of non-compliance. If the advisor's file contains no documentation addressing this conflict beyond the disclosure in the ADV, the SEC's own language says compliance cannot be demonstrated.
The 2023 Care Obligations Bulletin states that financial professionals "remain responsible for personally understanding an investment" before recommending it. The report documents the structural conflicts in sell-side research — the economic dependence on investment banking relationships that produces a systematic bias against sell recommendations — and establishes that reliance on such research does not satisfy the fiduciary's independent duty of analysis.
The report presents base-rate data compiled by Michael Mauboussin at Credit Suisse and Morgan Stanley showing that for companies above $6 billion in revenue, fewer than 1 in 11 sustained 15% annual growth over five years. For companies above $100 billion, no company in history has sustained mid-teens growth for a decade. An advisor who accepted a growth projection that defied these documented base rates without disclosing the statistical improbability was not exercising professional judgment — the advisor was making a statistical error with the client's capital.
The full analytical framework — including the "What Must Happen" protocol, the 10 fiduciary tests, and the Net Liquid Equity criterion — is detailed across Parts VIII through X of the report.
Request the ReportThe report documents eight companies — spanning technology, pharmaceuticals, retail, and fintech over three decades — where extraordinary business growth produced zero or negative stock returns. In every case, the cause was the same measurable condition: the valuation at the time of purchase was too extreme to sustain.
| Company | Period | Revenue Growth | Stock Return | Valuation Compression |
|---|---|---|---|---|
| IBM | 1967–1993 | +2,800% | Negative real return (25 yrs) | ~60x → ~10x P/E |
| Microsoft | 1999–2016 | +310% | −1% | 30.9x → 5.4x P/S |
| NVIDIA | 2002–2015 | +339% | +5% total | 9.5x → 2.3x P/S |
| Amazon | 1999–2010 | +3,413% | +4% total | 35.9x → 1.7x P/S |
| Pfizer | 1999–2011 | +415% | −65% | 12.6x → 1.9x P/S |
| Tesla | 2014–2019 | +1,022% | −26% | 15.4x → 1.5x P/S |
| Walmart | 1999–2017 | +214% | −1% | 2.0x → 0.4x P/S |
| PayPal | 2021–2026 | +39% | −87% | 15.1x → 1.1x P/S |
The evidentiary significance of these cases is that none involved fraud, accounting irregularities, or business failure. In every instance, the underlying company continued to grow revenue throughout the period of investor loss. The losses were caused entirely by a condition that was quantifiable before the investment was made: the price paid relative to the company's underlying financial reality exceeded the level that historical patterns show can be sustained.
The report applies the same framework to the same company at three dates — December 1999, November 2011, and October 2025 — and demonstrates that the framework identified catastrophic risk at dates one and three, and exceptional opportunity at date two, using only publicly available data. Sensitivity tables for all three dates are reproduced in Appendix B.
Establishing that the standard of care was not met is necessary but not sufficient. A complete evidentiary picture also requires understanding why the advisory process failed — what structural conditions made the failure predictable rather than idiosyncratic. The report documents three systemic factors:
The research that most advisors rely on for buy and sell decisions is produced by brokerage firms whose primary revenue comes from investment banking relationships with the companies their analysts cover. The economic incentive is to recommend buying, not selling. The report documents that the sell signal advisors need most is the one the system is structurally designed never to deliver — and that advisors who rely exclusively on this source for monitoring have delegated their fiduciary duty to an entity with no fiduciary obligation.
The standard advisory fee — a percentage of assets under management — creates a direct financial incentive to keep clients invested in equities at all times. An advisor who moves client assets to lower-risk positions to protect against a foreseeable decline reduces their own income. The SEC's 2022 Conflicts Bulletin acknowledges this conflict as universal. The report documents that the industry has not addressed it in any substantive way.
The SEC Division of Examinations reported examining approximately 15% of the registered investment adviser population in fiscal year 2022. The remaining 85% operate with no mechanism to verify that the obligations articulated in the Commission's Bulletins are being fulfilled. The combination of a detailed standard and minimal enforcement creates an environment in which the monitoring duty exists in theory but is rarely fulfilled in practice — and in which the absence of examination records may itself be relevant to the question of whether oversight was adequate.
The traditional difficulty in investment loss cases has been establishing what the advisor should have known and what they should have done differently. The combination of the SEC's 2022–2023 Bulletins and the evidentiary record in this report substantially changes that landscape.
The SEC has now published, in its own guidance, what the advisor was required to do: understand potential losses, consider alternatives, monitor continuously, and address conflicts beyond disclosure. The report documents, with quantitative evidence, that these obligations are routinely unfulfilled — and that the resulting losses were foreseeable using publicly available data and standard analytical methods.
The question in any proceeding is no longer "what should a reasonable advisor have done?" in the abstract. The question is: "did this advisor do what the SEC said they must do — and if not, were the resulting losses the kind of losses the SEC's standard was designed to prevent?" The Bulletins provide the standard. The report provides the evidence. The client's account statement provides the damages.
We are available to the legal community to discuss the analytical framework, present the evidence, and provide context on the regulatory standards and evidentiary record documented in the report. Additional resources are available at InvestingForLawyers.com.
Quantifying the Standard of Care — a 105-page evidentiary document with SEC Bulletin analysis, eight documented case studies, the "What Must Happen" analytical framework, and complete source citations.