An AI clause for the advisory agreement.
Three versions, at three levels of involvement. Plus the one thing a clause cannot do, which most firms assume it does.
A clause belongs in the advisory agreement if AI is material to how the service is delivered, and it should say the same thing your Form ADV says. Most firms need one or two sentences. Two things a clause cannot do: it cannot waive the fiduciary duty under Advisers Act Section 206, and it is not consent to record a meeting. Recording consent is state wiretap law, it operates at the time of the call, and it reaches people who never signed your agreement.
Three clauses. Use one.
Pick the tier that describes what your firm does today and delete the rest. Bracketed text is a fill-in. The most common error in this area is adopting the most substantial-sounding version, which produces a signed document describing a system you do not run.
Tier 1 — internal efficiency only
AI drafts internal work product. It does not touch analysis or recommendations.
The Adviser may use software incorporating artificial intelligence to support administrative and drafting tasks in the course of providing services under this Agreement. Such tools are not used to formulate investment advice, and all work product provided to the Client is reviewed by the Adviser's supervised persons.
Tier 2 — AI in the analysis
AI contributes to research, screening, or draft deliverables the client receives.
The Adviser may use software incorporating artificial intelligence as part of its research, analysis and preparation of client deliverables. Output from such tools is reviewed by a supervised person before it is relied upon or delivered. The Client acknowledges that these tools may produce incomplete or inaccurate results and that the Adviser remains responsible for the advice it provides.
Tier 3 — AI is part of the service
The client is receiving something they would not receive without it.
The Adviser's [service name] uses software incorporating artificial intelligence to [describe specifically what the Client receives]. The Adviser will [describe the review that applies]. The Client acknowledges that [describe the specific limitation]. Nothing in this paragraph limits the Adviser's obligations under applicable law.
A signed agreement is not consent to record.
This is the thing worth reading twice. Firms roll out an AI notetaker, add a line to the advisory agreement, and consider the consent question closed. It is not, for three separate reasons.
- Different body of law. Recording is governed by state wiretap and eavesdropping statutes, not by your contract. Several carry criminal penalties, which is not a risk profile contract language manages.
- Different timing. All-party statutes contemplate consent at the time of the communication. A signature obtained at onboarding, for a tool adopted two years later, is not obviously consent to that call.
- Different people. The client's spouse, adult child, attorney or CPA joining the call never signed anything. In an all-party state, every participant counts.
The working answer is dull and it is sound: announce it at the start of every recorded call, get an audible yes from everyone present, and let the recording capture that exchange. The client data and consent page has the script.
Where all parties have to agree.
Usually counted as twelve. Counts differ between sources because several statutes are ambiguous or have been read differently by their own courts, so treat this as a prompt to check the states you operate in rather than as a finding you can rely on. Where a call crosses state lines, the conservative practice is to follow the strictest rule in play.
What a clause cannot do.
The instinct, once a firm understands that a tool creates exposure, is to draft its way out. Language making the client responsible for AI errors, or disclaiming responsibility for output, does not survive contact with Section 206. The federal fiduciary duty cannot be waived, and hedge clauses attempting something close to it have a long and unfavourable regulatory history.
What a clause does well is narrower and genuinely useful: it describes the tool, states its limits plainly, and records that human review sits over the output. That is a document that helps you in an examination. A waiver is a document that invites one.
It has to match the brochure.
Examiners read the advisory agreement and the Form ADV brochure together, and the finding that comes out of this area is almost never a missing clause. It is two documents describing different firms.
Before either goes out, put the clause next to your Item 4 and Item 8 language and confirm the AI in one is the AI in the other. The Form ADV page has that language.
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Sources and standing.
The clauses above are drafting starting points, not executed language, and every one of them needs your facts and your counsel before it goes into an agreement. The non-waivability of the adviser's fiduciary duty under Advisers Act Section 206 follows the SEC's 2019 interpretation of the standard of conduct. Recording consent is state law and changes independently of anything federal. Last reviewed at source: September 2026.
This is not legal advice and it is not a substitute for your compliance counsel. It is how a practitioner who implements these systems reads the requirements, written down so you can check it. If something here is wrong, tell me and it gets corrected.
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