WSR 98-22-014
PROPOSED RULES
DEPARTMENT OF
FINANCIAL INSTITUTIONS
[Filed October 23, 1998, 1:40 p.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 98-15-125.
Title of Rule: New section WAC 460-24A-145 Investment advisor brochure rule.
Purpose: To adopt existing federal regulations governing the disclosure of information by investment advisors and to create uniformity with other state regulatory agencies.
Statutory Authority for Adoption: Section 9, chapter 15, Laws of 1998.
Statute Being Implemented: Chapter 21.20 RCW.
Summary: The proposed rule would require investment advisors to disclose certain information about themselves and their businesses to advisory clients and prospective advisory clients. The required disclosure would consist of the information provided in Part II of Form ADV, the Uniform Application for Investment Advisor Registration.
Reasons Supporting Proposal: The proposed rule will create uniformity with other state regulatory agencies and fill a gap created when the United States Securities and Exchange Commission amended its rules making them inapplicable to some investment advisors.
Name of Agency Personnel Responsible for Drafting: Steven Raney, 210 11th Avenue S.W., Olympia, WA, (360) 902-8760; Implementation: John L. Bley, 210 11th Avenue S.W., Olympia, WA, (360) 902-8760; and Enforcement: Deborah Bortner, 210 11th Avenue S.W., Olympia, WA, (360) 902-8760.
Name of Proponent: Department of Financial Institutions, Securities Division, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: The proposed rule incorporates existing federal regulations without material change. It was adopted by the North American Securities Administrators Association using a national notice and comment procedure. The rule would require investment advisors to disclose certain information about themselves and their businesses to advisory clients and prospective advisory clients. It is intended to help the public make informed investment decisions.
Proposal does not change existing rules.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rule adopts, without material change, existing federal regulations of this subject.
Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. The Department of Financial Institutions is not a listed agency in section 201.
Hearing Location: Department of Financial Institutions, Securities Division, Executive Conference Room, General Administration Building, 210 11th Avenue S.W., Olympia, WA 98504, on December 15, 1998, at 1:00 p.m.
Assistance for Persons with Disabilities: Contact Darlene Christianson by December 14, 1998, TDD (360) 664-8126, or (360) 902-8760.
Submit Written Comments to: Steven Raney, P.O. Box 9033, Olympia, WA 98507-9033, fax (360) 586-5068, by December 14, 1998.
Date of Intended Adoption: January 15, 1999.
October 21, 1998
John L. Bley
Director
[NEW SECTION]
WAC 460-24A-145 Investment adviser brochure rule. (1) General Requirements. Unless otherwise provided in this rule, an investment adviser, registered or required to be registered pursuant to RCW 21.20.040 shall, in accordance with the provisions of this section, furnish each advisory client and prospective advisory client with a written disclosure statement which may be a copy of Part II of its Form ADV or written documents containing at least the information then so required by Part II of Form ADV, or such other information as the administrator may require.
(2) Delivery. (a) An investment adviser, except as provided in subparagraph (b) of this paragraph, shall deliver the statement required by this section to an advisory client or prospective advisory client (i) not less than 48 hours prior to entering into any investment advisory contract with such client or prospective client, or (ii) at the time of entering into any such contract, if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.
(b) delivery of the statement required by subparagraph (a) need not be made in connection with entering into (i) and investment company contract or (ii) a contract for impersonal advisory services.
(3) Offer to Deliver. (a) An investment adviser, except as provided in subdivision (b), annually shall, without charge, deliver or offer in writing to deliver upon written request to each of its advisory clients the statement required by this section.
(b) The delivery or offer required by subparagraph (a) need not be made to advisory clients receiving advisory services solely pursuant to (i) an investment company contract or (ii) a contract for impersonal advisory services requiring a payment of less than $200.00.
(c) With respect to an advisory client entering into a contract or receiving advisory services pursuant to a contract for impersonal advisory services which requires a payment of $200.00 or more, an offer of the type specified in subparagraph (a) shall also be made at the time of entering into an advisory contract.
(d) Any statement requested in writing by an advisory client pursuant to an offer required by this subsection must be mailed or delivered within seven days of the receipt of the request.
(4) Omission of Inapplicable Information. If an investment adviser renders substantially different types of investment advisory services to different advisory clients, any information required by Part II of Form ADV may be omitted from the statement furnished to an advisory client or prospective advisory client if such information is applicable only to a type of investment advisory service or fee which is not rendered or charged, or proposed to be rendered or charged, to that client or prospective client.
(5) Other Disclosures. Nothing in this rule shall relieve any investment adviser from any obligation pursuant to any provision of Chapter 21.20 RCW or the rules and regulations thereunder or other federal or state law to disclose any information to its advisory clients or prospective advisory clients not specifically required by this rule.
(6) Definitions. For the purpose of this rule: (a) "contract for impersonal advisory services" means any contract relating solely to the provision of investment advisory services (i) by means of written material or oral statements which do not purport to meet the objectives or needs of specific individuals or accounts; (ii) through the issuance of statistical information containing no expression of opinion as to the investment merits of a particular security; or (iii) any combination of the foregoing services.
(b) "entering into," in reference to an investment advisory contract, does not incude an extension or renewal without material change of any such contract which is in effect immediately prior to such extension or renewal.
(c) "investment company contract" means a contract with an investment company registered under the Investment Company Act of 1940 which meets the requirements of Section 15(c) of that Act.
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Reviser's note: The bracketed material preceding the section above was supplied by the code reviser's office.
Reviser's note: The spelling error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040.