15 CSR 30-51.172 - Dishonest or Unethical Business Practices by Investment Advisers and Investment Adviser Representatives
(1)
Grounds for the discipline or disqualification of investment advisers or
investment adviser representatives (adviser) shall include, in addition to
other grounds specified in section
409.4-412(d) of
the Missouri Securities Act of 2003 (the Act), the following "dishonest or
unethical practices in the securities business":
(A) Recommending to a client to whom
investment, supervisory, management, or consulting service are provided that
he/she purchase, sell, or exchange any security, commodity, or other investment
when the adviser does not have reasonable grounds to believe that the
recommendation is suitable for the client on the basis of information furnished
by the client after reasonable inquiry concerning the client's overall
portfolio, investment objectives, financial situation and needs, investment
experience, and any other information known by the adviser;
(B) Inducing trading in a client's account
when:
1. The size or frequency of such trading
is excessive given the financial resources, investment objectives, and
character of the account; and
2.
The adviser directly benefits from the number of securities transactions
effected in a client's account;
(C) Ordering the purchase or sale of a
security for a client's account without authority to do so;
(D) Ordering the purchase or sale of a
security for a client's account upon a third-party's instruction without first
receiving the client's third-party trading authorization in writing;
(E) Establishing fictitious accounts in order
to execute transactions, which would otherwise be prohibited;
(F) Exercising any discretionary power in
ordering the purchase or sale of securities for a client without first
obtaining the client's written discretionary authority within ten (10) business
days after the date of the first transaction placed pursuant to oral
discretionary authority, unless the discretionary power relates solely to the
price at which, or the time when, an order involving a definite amount of a
specified security shall be executed, or both;
(G) Borrowing money or securities from a
client unless the client is a broker-dealer, an affiliate of the investment
adviser, or a financial institution engaged in the business of loaning
funds;
(H) Lending money to a
client unless the investment adviser is a financial institution engaged in the
business of lending funds or the client is an affiliate of the
adviser;
(I) Failing to furnish to
a client purchasing securities in an offering, no later than the date of
confirmation of the transaction, either a final prospectus or a preliminary
prospectus and an additional document, which together include all information
set forth in the final prospectus, or making oral or written statements
contrary to or inconsistent with the disclosures contained in the
prospectus;
(J) Misrepresenting to
any client or prospective client the qualifications of the adviser or its
employees, or to misrepresent the nature of the advisory services being offered
or fees to be charged for such services, or to omit to state a material fact
necessary to make the statements made regarding qualifications, services or
fees, in light of the circumstances under which they are made, not
misleading;
(K) Providing to a
client a report or recommendation prepared by someone other than the adviser
without also disclosing to the client that someone else prepared that report or
recommendation. This prohibition does not apply to an adviser's use of
published research reports or statistical analysis when rendering advice, nor
when an adviser orders such a report in the normal course of providing
service;
(L) Rendering advice to a
client before making written disclosure to that client about any material
conflict of interest relating to the adviser, its representative, or any of its
employees, when that conflict could reasonably be expected to impair the
rendering of unbiased and objective advice including:
1. Compensation arrangements connected with
advisory services to clients which are in addition to compensation from those
clients for such services; and
2.
Charging a client an advisory fee for rendering advice when the adviser or its
employees will also receive a commission for executing securities transactions
pursuant to that advice;
(M) Failing to disclose to any client or
prospective client all material facts with respect to:
1. Any financial condition of the adviser
that is reasonably likely to impair the ability of the adviser to meet
contractual commitments to clients, if the adviser has discretionary authority
(express or implied) or custody over such client's funds, assets, or
securities, or requires payment of advisory fees six (6) or more months in
advance and in excess of five hundred dollars ($500) per client; or
2. Any legal or disciplinary event that is
material to an evaluation of the adviser's integrity or ability to meet
contractual commitments to clients;
(N) Charging a client an unreasonable and
inequitable advisory fee in light of the fees charged by other advisers
providing essentially the same services;
(O) Paying solicitor fees if such fees are
not paid in accordance with
15 CSR
30-51.145(1), charging performance
based fees that are not in accordance with
15 CSR
30-51.145(2), or having custody or
possession of a client's funds and/or securities if such custody or possession
is not maintained in accordance with
15 CSR
30-51.100. Custody shall include holding checks drawn
by the client and made out to a third party for more than one (1) business
day;
(P) Guaranteeing a client that
a specific result will be achieved (gain or no loss) as a result of advice that
will be rendered;
(Q) Disclosing
the identity, affairs, or investments of any client to any third party unless
required by law to do so, or unless consented to by the client;
(R) Entering into, extending, or renewing any
investment advisory contract, other than a contract for impersonal advisory
services, unless such contract is in writing and discloses, in substance-
1. The services to be provided;
2. The term of the contract;
3. The advisory fee or the formula for
computing the fee;
4. The amount or
the manner of calculation of the amount of the prepaid fee to be returned in
the event of contract termination or nonperformance;
5. Whether the contract grants discretionary
power to the adviser or its representatives;
6. That no assignment of such contract shall
be made by the adviser without the client's written consent; and
7. That the investment adviser or investment
adviser representative is authorized to record and retain information about the
client's designated trusted contact, and to inform the trusted contact person
of the designation and disclose information about the client's account in
accordance with 15 CSR
30-51.075;
(S) Publishing, circulating, or distributing
any advertisement that does not comply with 17 CFR section 275.206(4)-1
;
(T) Failing or refusing to
furnish a customer, upon reasonable request, information to which s/he is
entitled, or to respond to a formal written reprimand or complaint;
(U) Engaging in any conduct or act, either
directly or indirectly through any other person, which would violate any
applicable professional, fair practice or ethical standard established by state
or federal law or regulation; and
(V) Aiding or abetting any of the acts or
practices enumerated in this rule.
(2) It shall be a dishonest or unethical
practice in the securities business for an adviser to use a senior specific
certification or designation in connection with the offer, sale, or purchase of
securities, or the provision of advice as to the value of or the advisability
of investing in, purchasing, or selling securities, either directly or
indirectly or through publications or writings, or by issuing or promulgating
analyses or reports relating to securities, that indicates or implies that the
user has special certification or training in advising or servicing elderly
persons, in such a way as to mislead any person.
(A) The prohibited use of such certifications
or professional designation includes, but is not limited to, the following:
1. Use of a certification or professional
designation by a person who has not actually earned or is otherwise ineligible
to use such certification or designation;
2. Use of a nonexistent or self-conferred
certification or professional designation;
3. Use of a certification or professional
designation that indicates or implies a level of occupational qualifications
obtained through education, training, or experience that the person using the
certification or professional designation does not have; and
4. Use of a certification or professional
designation that was obtained from a designating or certifying organization
that is not qualified.
(B) A designating or certifying organization
is "qualified" for purposes of paragraph (2)(A)4. above when the organization
has been accredited by-
1. The American
National Standards Institute;
2.
The National Commission for Certifying Agencies; or
3. An organization that is on the United
States Department of Education's list entitled "Accrediting Agencies Recognized
for Title IV Purposes" and the designation or credential issued therefrom does
not primarily apply to sales and/or marketing.
(C) In determining whether a combination of
words (or an acronym standing for a combination of words) constitutes a
certification or professional designation indicating or implying that an
adviser has special certification or training in advising or servicing senior
citizens or retirees, factors to be considered shall include:
1. Use of one (1) or more words such as
"senior," "retirement," "elder," or like words, combined with one (1) or more
words such as "certified," "registered," "chartered," "adviser," "specialist,"
"consultant," "planner," or like words, in the name of the certification or
professional designation; and
2.
The manner in which those words are combined.
(D) For purposes of this rule-
1. "Certification or professional
designation" does not include a job title within an organization that is
licensed or registered by a state or federal financial services regulatory
agency, when that job title-
A. Indicates
seniority or standing within the organization; or
B. Specifies an individual's area of
specialization within the organization;
2. "Elderly person" is a person sixty (60)
years of age or older; and
3.
"Federal financial services regulatory agency" includes, but is not limited to,
any agency that regulates-
A.
Broker-dealers;
B. Investment
advisers; or
C. Investment
companies as defined under the Investment Company Act of 1940.
(E) Nothing in this rule
shall limit the commissioner's authority to enforce existing provisions of
law.
(F) This rule shall take
effect on January 1, 2009.
(3) Failing to disclose to any client or
prospective client the following material fact:
(A) If an investment adviser or investment
adviser representative incorporates a social objective or other nonfinancial
objective into a discretionary investment decision to buy or sell a security or
commodity for a client, advice or a recommendation to a client for the purchase
or sale of a security or commodity, or the selection, or advice or a
recommendation to a client regarding the selection, of a third party manager or
subadviser to manage the investments in the client's account, then such
investment adviser or investment adviser representative shall disclose to such
client the existence of such incorporation;
(B) As used in this section, the following
terms mean:
1. "Incorporates a social
objective," means the material fact to consider socially responsible criteria
in the investment or commitment of client funds for the purpose of seeking to
obtain an effect other than the maximization of financial return to the
client;
2. "Investment adviser,"
the same meaning as under section
409.1-102;
3. "Investment adviser representative," the
same meaning as under section
409.1-102;
4. "Nonfinancial objective," means the
material fact to consider criteria in the investment or commitment of client
funds for the purpose of seeking to obtain an effect other than the
maximization of financial return to the client;
5.5. "Socially responsible criteria," any
criterion that is intended to further, or is branded, advertised, or otherwise
publicly described by the investment adviser or investment adviser
representative as furthering, any of the following:
A.International, domestic, or industry
agreements relating to environmental or social goals;
B.Corporate governance structures based on
social characteristics; or
C.Social
or environmental goals;
(C) The disclosure obligation under
subsection (3)(A) is satisfied by providing clear and conspicuous prior
disclosure and obtaining written acknowledgment and consent from the client.
Written consent shall be obtained either-
1.At the establishment of the advisory
relationship; or
2.Prior to-
A.Effecting the initial discretionary
investment for the client's account;
B.Providing the initial recommendation or
advice regarding the purchase or sale of a security or commodity in a client's
account; or
C.Selecting, or
recommending or advising on the selection of, a third-party manager or
subadviser to manage the investments in a client's account;
3.Such disclosure, thereafter,
shall be provided to the client on an annual basis and, no less than every
three (3) years, consented in writing by the client; and
(D) Written consent required in subsection
(3)(C) shall contain language that is substantially similar to the following:
"I, [NAME OF CLIENT], consent to my [as applicable, NAME OF INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE] incorporating a social objective or other nonfinancial objective into any discretionary investment decision my [as applicable, INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE] makes for my account; any recommendation or advice my [as applicable, INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE] makes to me for the purchase or sale of a security or commodity; or the selection my [as applicable, INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE] makes, or recommendation or advice my [as applicable, INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE] makes to me regarding the selection of, a third-party manager or subadviser to manage the investments in my account. Also, I acknowledge and understand that incorporating a social objective or other nonfinancial objective into discretionary investment decisions, recommendations, advice, and/or the selection of a third-party manager or subadviser to manage the investments, in regards to my account, will result in investments and recommendations/ advice that are not solely focused on maximizing a financial return for me or my account."
(4) The conduct set forth above is not
inclusive. Engaging in other conduct such as nondisclosure or incomplete
disclosure of material fact, or other deceptive practices are dishonest or
unethical business practices.
Notes
*Original authority: 409.6-605, RSMo 2003.
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