Who Owns The Rights To Clinet Accounts Developed By A Registered Representative

General Information on the Regulation of Investment Advisers

March 11, 2011 [Update Currently in Progress]

Sectionalisation of Investment Direction

Introduction

The Securities and Commutation Commission (the "Commission" or "SEC") regulates investment directorate, primarily under the Investment Advisers Act of 1940 (the "Directorate Human action"), and the rules adopted under that statute (the "rules"). One of the central elements of the regulatory programme is the requirement that a person or business firm coming together the definition of "investment adviser" nether the Advisers Act register with the Committee, unless exempt or prohibited from registration.

More often than not only larger advisers that have $25 one thousand thousand or more than of assets under management or that provide advice to investment company clients are permitted to register with the Commission. Smaller directorate annals under state law with country securities authorities. This document provides an overview of federal regulation, every bit applied to SEC-registered advisers. Many of the concepts discussed, however, as well are relevant with respect to land-registered directorate.

The information in this certificate briefly summarizes some of the more of import provisions of federal investment adviser regulation. Additional information on the mechanics of the registration process is contained in the document "How To Annals as an Investment Adviser." The information in these documents should not be used as a substitute for the Advisers Act, rules, forms, and instructions to the forms (see "Requesting Copies of the Directorate Act, Rules, Forms, Letters, and Releases" for information on obtaining these documents) .

Sources of Regulation

The main sources of federal investment adviser regulation are the Directorate Human action, 15 U.Southward.C. 80b-1 et seq., and the rules thereunder, Title 17, Office 275 of the Code of Federal Regulations. In improver, the Committee and its Partition of Investment Management (the "Sectionalization") provide interpretive guidance in: instructions to forms under the Advisers Act, "no-action letters," "interpretative letters," and "releases," all of which are publicly bachelor. To request copies of the Advisers Act, rules, forms, no-activeness and interpretative letters, or releases, refer to the instructions at the terminate of this document nether "Requesting Copies of the Advisers Act, Rules, Forms, Letters, and Releases." The copies of the Advisers Act, rules, and forms are electric current every bit of August 31, 1998.

Although state-registered advisers are governed primarily past country law, several provisions of the Advisers Act and Commission rules use to such directorate. For more than data on the provisions of federal law that apply to land-registered advisers, refer to the give-and-take beneath nether "State-Registered Directorate."

Who Is Required To Register?

A person or firm is required to register with the Commission if he or it is:

an "investment adviser" under Department 202(a)(eleven) of the Directorate Act;
non excepted from the definition of investment adviser by Section 202(a)(xi)(A) through (Due east) of the Directorate Human action;
not exempt from Commission registration under Section 203(b) of the Advisers Act; and
not prohibited from Committee registration by Section 203A of the Directorate Act.

Each of these elements is addressed below.

Who Is an Investment Adviser?

Subject to sure express exclusions discussed below, Section 202(a)(11) of the Advisers Act by and large defines an "investment adviser" equally any person or business firm that: (1) for compensation; (2) is engaged in the concern of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications. A person or firm must satisfy all three elements to exist regulated under the Advisers Act.

The Division construes these elements broadly. For example, with respect to "compensation," the receipt of whatsoever economic do good suffices. To be deemed compensation, a fee demand not exist separate from other fees charged, it need non be designated every bit an advisory fee, and it demand not be received direct from a client. With respect to the "business" chemical element, an investment informational business concern need not exist the person's or firm'due south sole or principal business activity. Rather, this element is satisfied under whatever of the post-obit circumstances: the person or firm holds himself or itself out equally an investment adviser or as providing investment advice; the person or firm receives split up or additional compensation for providing advice about securities; or the person or business firm typically provides advice well-nigh specific securities or specific categories of securities. Finally, a person or firm satisfies the "communication about securities" chemical element if the advice or reports chronicle to securities. The Division has stated that providing one or more of the following as well could satisfy this element: advice about market trends; advice in the class of statistical or historical data (unless the data is no more than an objective written report of facts on a non-selective basis); advice most the selection of an investment adviser; communication concerning the advantages of investing in securities instead of other types of investments; and a list of securities from which a client can choose, even if the adviser does not brand specific recommendations from the list. An employee of an SEC-registered investment adviser does non demand to register separately, so long every bit all of the employee's investment advisory activities are within the scope of his employment.

For boosted guidance on the definition of "investment adviser" and the applicability of the Advisers Human activity to financial planners, pension consultants, and others, refer to Investment Advisers Act Release No. 1092 (October viii, 1987) (part of the Investment Adviser Registration Package; see below).

Exclusions From the Definition

Section 202(a)(eleven)(A)-(E) of the Directorate Human activity expressly excludes sure persons or firms from the definition of an investment adviser. These persons or firms need not register under, and generally are not regulated by, the Advisers Act. Excluded are:

Domestic banks (defined in Section 202(a)(ii) of the Advisers Act) and bank property companies (divers in the Depository financial institution Holding Company Human action of 1956). Savings and loan institutions, federal savings banks, foreign banks, and credit unions practice non fall inside this exclusion.
Lawyers, accountants, engineers, and teachers if their performance of advisory services is solely incidental to their professions.
Brokers and dealers if their performance of advisory services is solely incidental to the conduct of their business as brokers and dealers, and they do non receive whatsoever special bounty for their advisory services. This exclusion is not bachelor to a registered representative interim as a financial planner outside the scope of his employment with the banker employer.
Publishers of bona fide newspapers, news magazines, and business or fiscal publications of general and regular circulation. Nether a decision of the United States Supreme Courtroom, to enable a publisher to qualify for this exclusion, a publication must satisfy three elements: (i) the publication must offering only impersonal advice, i.e., communication non tailored to the individual needs of a specific customer, group of clients, or portfolio; (2) the publication must be "bona fide," containing disinterested commentary and analysis rather than promotional material disseminated by someone touting particular securities, advertised lists of stocks "sure to get up," or information distributed as an incident to personalized investment services; and (3) the publication must be of general and regular apportionment rather than issued from time to time in response to episodic market activity or events affecting the securities industry. See Lowe v. Securities and Exchange Commission, 472 U.S. 181 (1985).
Persons and firms whose advice, analyses, or reports are related only to securities that are direct obligations of, or obligations guaranteed by, the United States, or by certain U.S. regime-sponsored corporations designated by the Secretary of the Treasury (east.m., FNMA, GNMA).

In addition to these exclusions, the Directorate Act gives the Commission the say-so to exclude, by club, other persons and firms not within the intent of the definition of investment adviser. Any person or firm seeking such an social club should refer to Rules 0-4 and 0-5 nether the Advisers Act and Investment Advisers Human action Release No. 969 (April 30, 1985).

Exemptions From Registration

A person or business firm coming together the definition of investment adviser in Section 202(a)(11) does non need to register with the Committee if the person or firm qualifies for one of the exemptions from registration set along in Section 203(b) of the Advisers Act. Investment advisers exempt from registration under Section 203(b) are still discipline to certain anti-fraud provisions included in Section 206 of the Advisers Act. For more data on anti-fraud provisions, refer to the discussion below under "Anti-Fraud Provisions."

Department 203(b) of the Advisers Human activity provides 5 express exemptions from registration. Section 203(b)(1) exempts any adviser (1) all of whose clients are within the aforementioned country equally the adviser's principal business office, and (2) that does non provide advice or upshot reports about securities listed on any national securities exchange. Section 203(b)(two) exempts directorate whose only clients are insurance companies. Section 203(b)(3) exempts any adviser that: (ane) during the previous twelve months has had fewer than fifteen clients; (2) does not hold itself out generally to the public every bit an investment adviser; and (iii) does not act as an investment adviser to a registered investment visitor or concern development company. Dominion 203(b)(3)-ane under the Directorate Act provides guidance on how to count clients when determining eligibility for this exemption. In determining if a person or firm holds himself or itself out as an investment adviser within the pregnant of Section 203(b)(3), the Sectionalisation looks at a number of factors, including, for example, whether the person or firm advertises; refers to himself or itself as an "investment adviser"; maintains a list as an investment adviser in a telephone, business, edifice, or other directory; expresses a willingness to take new informational clients; or uses letterhead indicating any investment informational activity. Department 203(b)(4) generally exempts whatsoever adviser that (ane) is a charitable system, or is employed by a charitable organisation, and (two) provides advice, analyses, or reports only to charitable organizations, or to funds operated for charitable purposes. Section 203(b)(v) exempts advisers to church building employee alimony plans.

Prohibition on Committee Registration

A person or firm that does not meet any of the criteria in Section 203A of the Advisers Act or Dominion 203A-2 thereunder is prohibited from registering with the Commission.

Only the following types of directorate are permitted to annals with the Commission (and therefore must register with the Commission, unless exempt under Section 203(b)):

advisers that have "assets under management" of $25 million or more;
advisers to registered investment companies;
directorate that have their chief office and place of business in a state that has not enacted an investment adviser statute (currently, merely Wyoming), or that accept their principal office and identify of business outside the United States; or
directorate that are exempted from the prohibition by Commission rule or order. The Commission has adopted a dominion exempting five categories of investment advisers:
nationally recognized statistical rating organizations ("NRSROs") (Dominion 203A-2(a));
pension consultants that provide investment advice with respect to $fifty 1000000 or more of plan assets (Rule 203A-2(b));
investment advisers sharing the same principal function and place of business with an affiliated investment adviser that is registered with the Commission (Rule 203A-2(c));
newly-formed investment advisers that accept a reasonable expectation of existence eligible for Commission registration within 120 days of formation (Rule 203A-2(d)); and
investment advisers that would otherwise be required to register as investment directorate with the securities authorities of thirty or more than states (Dominion 203A-2(eastward)).

Advisers are required to written report their eligibility for Commission registration on Schedule I to Course ADV upon initial registration. Additionally, advisers are required to report their continuing eligibility for Commission registration annually by amending Schedule I to Form ADV inside ninety days of the end of their fiscal year. For additional data on the prohibition on Commission registration, refer to Investment Advisers Act Release Nos. 1633 (May 15, 1997) and 1733 (July 20, 1998).

Successors to SEC-Registered Investment Advisers

An unregistered firm that is acquiring or assuming substantially all of the assets and liabilities of the investment advisory business of an SEC-registered investment adviser may rely on special registration provisions for "successors" to SEC-registered advisers. Specifically, if an unregistered successor files an awarding for registration as an investment adviser (on Course ADV) within 30 days following the succession, information technology may rely on the registration of its predecessor until its registration is declared effective past the Commission. If a new investment adviser is formed solely as a result of a alter in an adviser's structure or legal status (e.g., form of organization or land of incorporation), and there is no practical modify in control of the adviser, generally the adviser may better its predecessor's Grade ADV inside xxx days following the transaction, rather than file a new application. In responding to Office I, Detail 9 of Course ADV, a successor is not required to report successions previously reported. For further data on the registration of successors, refer to Investment Advisers Act Release No. 1357 (Dec 28, 1992). For more than data on what constitutes a modify of command, refer to the discussion below nether "Prohibited Contractual and Fee Provisions, Assignment."

Anti-Fraud Provisions

Section 206 of the Advisers Act prohibits misstatements or misleading omissions of material facts and other fraudulent acts and practices in connection with the conduct of an investment advisory business. Every bit a fiduciary, an investment adviser owes its clients undivided loyalty, and may not engage in activeness that conflicts with a client'south interest without the client's consent. In Due south.Eastward.C. v. Majuscule Gains Research Bureau, Inc., 375 U.S. 180 (1963), the United States Supreme Courtroom held that, nether Department 206, advisers have an affirmative obligation of utmost practiced religion and total and fair disclosure of all fabric facts to their clients, as well as a duty to avoid misleading them. Department 206 applies to all firms and persons meeting the Directorate Act's definition of investment adviser, whether registered with the Committee, a state securities authorization, or non at all.

In add-on to the general anti-fraud prohibition of Section 206, Rules 206(4)-1, 206(4)-2, 206(4)-3, and 206(4)-4 under the Directorate Act regulate, respectively: investment adviser advertising; custody or possession of client funds or securities; the payment of fees past advisers to third parties for client referrals; and disclosure of investment advisers' financial and disciplinary backgrounds. These rules are discussed in greater item below.

Disclosure Obligations

The Brochure Rule

Rule 204-3 under the Advisers Human activity, usually referred to as the "brochure dominion," by and large requires every SEC-registered investment adviser to deliver to each client or prospective client a Form ADV Office 2A (brochure) and Part 2B (brochure supplement) describing the adviser's business practices, conflicts of involvement and background of the investment adviser and its advisory personnel. An adviser must deliver the brochure to a client before or at the time the adviser enters into an investment advisory contract with a client. The rule likewise requires an adviser, if there are material changes in the brochure since the adviser'due south last annual updating amendment, to evangelize annually, without accuse, to each client within 120 days after the stop of the adviser's fiscal year either (i) a current brochure or (two) a summary of material changes to the brochure as required by Detail 2 of the brochure that offers to provide the adviser's current brochure without charge, accompanied by the Web site address (if bachelor) and an e-mail address (if bachelor) and telephone number by which a client may obtain the current brochure from the adviser, and the Spider web site address for obtaining information about the adviser through the Investment Adviser Public Disclosure system. An adviser must deliver to each client or prospective client a electric current brochure supplement for a supervised person earlier or at the time that supervised person begins to provide advisory services to the client.

SEC-registered advisers are non required to deliver a brochure to either (i) clients that are SEC-registered investment companies or business evolution companies; or (two) clients who receive only impersonal investment advice from the adviser and who will pay the adviser less than $500 per year. An SEC-registered adviser is not required to evangelize a brochure supplement to a client (i) to whom it is not required to deliver a brochure, (ii) who receives only impersonal investment advice, or (iii) certain officers, and employees of the adviser.

Other Disclosure Requirements

Dominion 206(four)-iv nether the Advisers Act requires every SEC-registered investment adviser that has custody or discretionary authority over customer funds or securities, or that requires prepayment six months or more in accelerate of more than $500 of advisory fees, to disembalm promptly to clients and prospective clients (collectively, "clients") any financial conditions of the adviser that are reasonably probable to impair the ability of the adviser to come across contractual commitments to clients. The rule also requires advisers (regardless of whether the adviser has custody or requires prepayment of fees) to disclose promptly to clients legal or disciplinary events that are material to an evaluation of the adviser'southward integrity or ability to run across its commitments to clients. The dominion lists a number of legal and disciplinary events for which in that location is a rebuttable presumption of materiality for these purposes (although an issue may still be material even if it is not on the list).

The Sectionalization takes the position that an investment adviser must disembalm to clients all material information regarding its compensation, such as if the adviser's fee is higher than the fee typically charged by other directorate for similar services (in most cases, this disclosure is necessary if the annual fee is 3 percent of avails or higher). An investment adviser must disclose all potential conflicts of interest betwixt the adviser and its clients, even if the adviser believes that a disharmonize has not affected and will not touch on the adviser'southward recommendations to its clients. This obligation to disclose conflicts of interest includes the obligation to disclose any benefits the adviser may receive from third parties as a outcome of its recommendations to clients.

An investment adviser (even if unregistered) may be subject to disclosure obligations not only under the Advisers Act, but as well under other federal statutes, including the Securities Exchange Human activity of 1934 (the "Exchange Act"). For example, Department 13(f) of the Exchange Act, and Rule 13f-one thereunder, generally require an investment adviser exercising investment discretion, or sharing investment discretion with others, over equity securities (which would include convertible debt and options) having a fair market value in the aggregate of at to the lowest degree $100 million to file, on a quarterly ground, a Class 13F disclosing the holdings that it manages on its ain behalf and on behalf of clients.

Books and Records To Be Retained

Section 204 of the Advisers Deed and Rule 204-2 thereunder require that SEC-registered investment directorate maintain and preserve specified books and records, and make them available to Commission examiners for inspection. Dominion 204-ii permits investment directorate, under sure conditions, to maintain books and records on microfilm and magnetic disk, tape, or other computer recordkeeping devices.

Rule 204-2 requires every SEC-registered investment adviser to retain copies of all advertisements and other communications (collectively, "advertisements") that the adviser has circulated, straight or indirectly, to 10 or more persons (excluding persons continued with the adviser). By and large, the adviser as well must create and retain all documents necessary to substantiate any performance information independent in advertisements. With respect to the advert of performance information for managed accounts, an adviser need retain simply (1) all account statements, if they reflect all debits, credits, and other transactions in a client'south account for the menstruation of the argument, and (ii) all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts.

Prohibited Contractual and Fee Provisions

Assignment

Section 205(a)(2) of the Advisers Act requires each investment advisory contract entered into by an investment adviser (whether SEC-registered or non, unless exempt from registration under Section 203(b)) to provide that the contract may not be assigned without the client's consent. Section 202(a)(1) of the Advisers Act defines "consignment" more often than not to include any straight or indirect transfer of an investment advisory contract past an adviser or whatever transfer of a decision-making block of an adviser'due south outstanding voting securities. Rule 202(a)(one)-i under the Advisers Act, however, provides that a transaction that does non outcome in a alter of actual control or direction of the adviser (e.g., a reorganization for purposes of changing an adviser's state of incorporation) would not exist accounted to exist an consignment for these purposes. Section 205(a)(3) of the Directorate Act provides that if an investment adviser is organized as a partnership, each of its advisory contracts must provide that the adviser will notify the client of a change in its membership.

Performance Fees

Department 205(a)(i) of the Advisers Act prohibits an investment adviser (whether SEC-registered or not, unless exempt from registration under Section 203(b)) from receiving any type of advisory fee calculated as a percentage of capital gains or appreciation in the client'southward account ("functioning fee arrangement"). The Advisers Act contains exceptions from this prohibition for contracts with: (i) registered investment companies and clients having more than than $1 million in managed assets, if specific conditions are met; (ii) private investment companies excepted from the Investment Company Act nether Section 3(c)(7) of that Act; and (3) clients that are not U.Due south. residents. In addition Dominion 205-3 under the Advisers Human action permits investment advisers to charge performance fees to: (ane) clients with at least $750,000 under management with the adviser or more than $1,500,000 of internet worth; (ii) clients who are "qualified purchasers" under department ii(a)(51)(A) of the Investment Company Act; and (three) certain knowledgeable employees of the investment adviser.

Advertising Restrictions

Rule 206(four)-i under the Directorate Act prohibits SEC-registered investment advisers from using any advertizement that contains any untrue argument of material fact or that is otherwise misleading. The rule broadly defines "advertising" to include any notice, circular, alphabetic character, or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or boob tube, that offers any investment advisory service.

In addition, an advert may not:

use or refer to testimonials (which include any statement of a customer'south experience or endorsement);
refer to past, specific recommendations made past the adviser that were assisting, unless the advertisement sets out a list of all recommendations made by the adviser inside the preceding period of not less than one year, and complies with other, specified conditions;
represent that whatever graph, chart, formula, or other device tin, in and of itself, be used to make up one's mind which securities to purchase or sell, or when to buy or sell such securities, or tin can assist persons in making those decisions, unless the advertising prominently discloses the limitations thereof and the difficulties regarding its apply; and
represent that any report, assay, or other service will be provided without accuse unless the report, analysis, or other service will be provided without any obligation whatsoever.

The Division takes the position that an adviser may advertise its by performance (both actual performance and hypothetical or model results) only if the advertizement meets certain atmospheric condition and restrictions. An advertisement using performance data must disclose all textile facts necessary to avoid any unwarranted inference. Among other things, an investment adviser may not advertise its performance information if the adviser: (1) fails to disclose the effect of material market or economical conditions on the results advertised; (two) fails to disclose whether and to what extent the advertised results reverberate the reinvestment of dividends or other earnings; or (iii) suggests or makes claims about the potential for profit without also disclosing the potential for loss.

In improver, mostly an adviser may non advertise gross operation data (i.e., performance information that does non reflect the deduction of various fees, commissions, and expenses that a client would pay) unless the adviser too includes net performance information in an as prominent manner. The staff has taken the position, yet, that an adviser may provide gross performance data, accompanied past appropriate disclosure regarding the bear upon of fees and expenses, in certain limited circumstances that present minimal take chances that the client will not understand the impact of fees and expenses, such as when the client is a sophisticated institution, and the adviser presents the data to the customer "one-on-one." Neither the Commission nor the Division will pre-approve advertisements for compliance with the above requirements, although advertisements are subject area to review during Commission inspections.

Suitability Requirements

As fiduciaries, investment advisers owe their clients a duty to provide only suitable investment advice. This duty more often than not requires an investment adviser to make up one's mind that the investment advice information technology gives to a client is suitable for the customer, taking into consideration the client's fiscal situation, investment experience, and investment objectives. Investment Advisers Human action Release No. 1406 (March 16, 1994).

Custody Requirements

Rule 206(4)-2 nether the Directorate Act details how customer funds and securities in the custody of the adviser must be held, and requires an SEC-registered adviser with "custody" to provide specified information to clients. An adviser will be deemed to have custody if information technology directly or indirectly holds client funds or securities, has any say-so to obtain possession of them, or has the ability to advisable them.

Restriction on Payment of Referral Fees

Rule 206(iv)-3 nether the Advisers Act generally prohibits an SEC-registered investment adviser from paying a cash fee, directly or indirectly, to a third political party (a "solicitor") for referring clients to the adviser unless the arrangement complies with a number of weather. Amidst other things, the rule requires that: (one)exist a written agreement between the adviser and the solicitor (a copy of which the adviser must retain) detailing the referral arrangement; (2) at the fourth dimension of any solicitation activities, the solicitor provide the prospective customer with a copy of the investment adviser's brochure pursuant to Rule 204-three, and a dissever, written disclosure document that discloses, among other things, that the solicitor is being compensated for referring or recommending the adviser, and the terms of the compensation (including whatever additional amounts the client volition be charged by the adviser as a upshot of the referral arrangement); and (3) the adviser receives from the customer, prior to, or at the time of, entering into any written or oral investment advisory agreement with the client, a signed and dated acknowledgment that the client received the investment adviser's brochure and the solicitor's written disclosure document. Solicitors mostly will non be required to register separately as directorate with the Commission if they comply with the weather condition of the dominion. Failure to comply with these conditions, nevertheless, could result in liability to the adviser nether the Advisers Act's anti-fraud provisions, and could result in the solicitor existence deemed an unregistered investment adviser.

Wrap Fee Programs

Many advisers participate in wrap fee programs. Dominion 204-3(f) under the Advisers Human action requires a sponsor of a wrap fee program to prepare a "wrap fee brochure" that provides, in narrative grade, a total caption of the programme and its sponsor, and to evangelize the wrap fee brochure to wrap fee clients. A "wrap fee programme" for purposes of the rule is a plan under which investment advisory and brokerage execution services are provided for a single "wrapped" fee that is not based on the transactions in a customer'southward account. An investment advisory program under which all clients pay traditional, transaction-based commissions is non a wrap fee program. Similarly, a program nether which client assets are allocated among common funds is not a wrap fee programme because unremarkably there is no payment for brokerage execution.

Schedule H to Form ADV sets forth the information required in the wrap fee brochure. The wrap fee brochure must be prepared past the "sponsor" of the wrap fee program, i.eastward., the person that, for a portion of the fee, sponsors, organizes, or administers the program or recommends portfolio managers under the plan. Some wrap fee programs will take more one sponsor, in which case only one of the sponsors, as selected past the sponsors, needs to prepare the wrap fee brochure. An investment adviser providing portfolio management services to wrap fee clients is not a sponsor unless it performs other duties that would crusade information technology to fall within the definition.

Wrap fee programs and other discretionary advisory programs that provide similar advice to a number of clients should be structured in a fashion designed to avoid the cosmos of an unregistered investment company. The Commission has adopted Dominion 3a-four under the Investment Company Act of 1940 to provide a non-exclusive safe harbor from the definition of an investment company for advisory programs that meet sure requirements. See Investment Visitor Human action Release No. 22579 (March 24, 1997).

Duty of Best Execution

As a fiduciary, an adviser has an obligation to obtain "all-time execution" of clients' transactions. In meeting this obligation, an adviser must execute securities transactions for clients in such a manner that the clients' total cost or proceeds in each transaction is the most favorable nether the circumstances. In assessing whether this standard is met, an adviser should consider the total range and quality of a broker's services when placing brokerage, including, among other things, execution capability, committee rate, fiscal responsibility, responsiveness to the adviser, and the value of any enquiry services provided. See Exchange Deed Release No. 23170 (April 23, 1986).

Aggregation of Client Orders

In directing orders for the purchase or sale of securities to a broker-dealer for execution, an adviser may amass or "bunch" those orders on behalf of two or more than of its accounts, so long as the bunching is done for purposes of achieving all-time execution, and no client is systematically advantaged or disadvantaged by the bunching. An adviser may include accounts in which it or its officers or employees have an interest in a bunched gild. Advisers must accept procedures in place that are designed to ensure that the trades are allocated in such a mode that all clients are treated fairly and equitably.

Chief Transactions and Agency Cross Transactions

Section 206(3) of the Advisers Act prohibits an adviser (whether SEC-registered or not), interim as chief for its own account, from knowingly selling any security to or purchasing any security from a client ("principal transaction"), without notifying the client in writing, and obtaining the customer's consent before the completion of the transaction. Notification and consent for master transactions must exist obtained separately for each transaction. Rule 206(3)-ii under the Advisers Act permits an adviser to human activity equally broker for both its advisory client and the party on the other side of the brokerage transaction ("agency cantankerous transaction") without obtaining the client's prior consent to each transaction, provided that the adviser obtains a prior consent for these types of transactions from the customer, and complies with other, enumerated conditions. The rule does not relieve advisers of their duties to obtain all-time execution and all-time price for any transaction. A principal or agency cross transaction executed by an affiliate of an adviser is accounted to have been executed by the adviser for purposes of Section 206(3) and Dominion 206(3)-2.

Insider Trading Procedures and Duty of Supervision

Section 204A of the Directorate Human action requires investment advisers (whether SEC-registered or not) to institute, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of textile, nonpublic information by the investment adviser or any of its associated persons. Investment advisers also take a duty to supervise persons associated with the investment adviser with respect to activities performed on the adviser'southward behalf.

Withdrawal and Counterfoil of Registration

Every bit noted above, all SEC-registered investment advisers are required to report their standing eligibility for Commission registration by amending Schedule I to Form ADV within ninety days of the end of the adviser's financial yr. If an adviser reports on Schedule I that it is no longer eligible to maintain its Commission registration, it must withdraw its registration by filing a Grade ADV-W Find of Withdrawal from Registration within 180 days after the cease of its fiscal year. Additionally, if an SEC-registered investment adviser ceases to conduct business organization as an investment adviser, the adviser must withdraw its registration by filing a Class ADV-W.

All information provided on Form ADV-West must be authentic and complete; failure to provide accurate and consummate information could subject the adviser to liability under Section 207 of the Advisers Act. If the Commission finds that an SEC-registered investment adviser is no longer eligible to maintain its Committee registration or has ceased to carry business as an investment adviser, the Commission will seek to cancel the adviser's registration. The Commission annually seeks to cancel the registrations of investment directorate that have failed to update Form ADV by amending Schedule I or that otherwise no longer appear to be engaged in business organization equally an investment adviser.

State-Registered Advisers

Investment advisers that are prohibited from registering with the Commission (e.m. advisers that practice non take assets under management of $25 million) by and large must register with the state(south) in which they transact advisory business (e.g., have advisory clients or take a place of business organisation), unless they are exempt from investment adviser regulation under state law. These directorate will exist regulated primarily under state law administered by state securities authorities, rather than federal police administered past the SEC.

An adviser should check with each state in which it proposes to transact business organization, not just the land in which the adviser is located, for information most investment adviser regulation. The names and addresses of the appropriate regulating official for each state can be obtained by contacting the N American Securities Administrators Clan, Inc., One Massachusetts Ave., N.W., Washington, D.C. 20001, phone (202) 737-0900.

Most provisions of the Directorate Act and Commission rules employ solely to SEC-registered advisers, and therefore are not applicative to land-registered advisers. Thus, state-registered advisers are non required to file and ameliorate Form ADV with the Commission nether Rule 204-ane; comply with the SEC's books and recordkeeping requirements under Rule 204-2; or deliver a brochure to clients under Rule 204-iii. State investment adviser laws, nonetheless, may impose substantially the same requirements. For example, many state laws require advisers to register by filing Class ADV with the state.

Country-registered directorate are field of study to Section 206 of the Advisers Act, which prohibits fraudulent acquit. The Commission has authority to bring enforcement deportment against country-registered advisers for fraud. Other provisions of the Advisers Act that use to state-registered advisers include:

Department 204A, which requires advisers to plant, maintain, and enforce written procedures reasonably designed to prevent the misuse of material nonpublic information;
Department 205, which contains prohibitions on informational contracts that (i) contain sure functioning fee arrangements, (ii) permit an assignment of the advisory contract to exist fabricated without the consent of the client, and (iii) neglect to require an adviser that is a partnership to notify clients of a alter in the membership of the partnership. (The exemption provided in Rule 205-three for sure functioning fee arrangements, however, is available to all advisers, including state-registered advisers); and
Section 206(3), which makes information technology unlawful for any investment adviser acting as master for its own account to knowingly sell any security to, or purchase any security from, a client, without disclosing to the client in writing earlier the completion of the transaction the capacity in which the adviser is acting and obtaining the customer'south consent. (The exemption provided in Dominion 206(three)-2 from the prohibitions of Department 206(iii), notwithstanding, is available to all directorate, including state-registered advisers.)

Requesting Copies of the Directorate Deed, Rules, Forms, Letters, and Releases

Paper copies of the Advisers Human action, the rules, the forms, no-action and interpretative letters, and releases may be obtained as follows:

The Advisers Act and the Forms. Request a re-create of the "Investment Advisers Human activity of 1940," Forms ADV (which includes Schedule I), Forms ADV-E and ADV-Due west, and additional copies of this Investment Adviser Registration Bundle, by calling the Publications Unit of the Committee at (202) 942-4046, or past sending a written request to: Publications Unit, U.S. Securities and Exchange Commission, 450 5th Street, N.W., Mail Finish C-11, Washington, D.C. 20549. There is no charge. When requesting Form ADV or the Investment Adviser Registration Package, advisers that are not U.Due south. residents should specifically ask for Forms 4-R, five-R, half-dozen-R, and 7-R apropos consent to service of process.
The Rules. Request a copy of the "Code of Federal Regulations (CFR), Title 17, Office 240 to end," Stock No. 869-026-00056-5, past calling the Superintendent of Documents, Regime Printing Office, at (202) 512-1800, or by faxing a request to (202) 512-2250. At that place is a accuse. If requesting past telephone or fax, payment must be fabricated by Visa or MasterCard. Copies of the rules also may be obtained past writing to the Superintendent of Documents, Government Press Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. When requesting by mail service, payment may be made by Visa, MasterCard, personal check, or money order.
No-Action and Interpretative Letters and Releases. Request a copy of a item no-activity or interpretative letter or release from the Part of Filings and Information Services, Public Reference Co-operative, past faxing a request to (202) 777-1030, by calling (202) 551-8090, or by writing to the Office of Filings and Information Services, Public Reference Branch, U.S. Securities and Commutation Commission, Room 1024, Mail Stop 1-ii, 450 5th Street, N.W., Washington, D.C. 20549. At that place is a charge. Each request must provide the name and date of the alphabetic character, or the number and appointment of the release being requested, and include: the name and address to which the material is to be mailed (the Commission will not fax any textile); the requester's telephone number; and a argument that the requester volition be responsible for all charges. For additional data, delight contact the Public Reference Branch of the Commission at (202) 551-8090.

In addition, electronic copies of the Advisers Act, the rules, and the forms are bachelor.

http://www.sec.gov/divisions/investment/iaregulation/memoia.htm