AN ACT Relating to financial planning; adding a new chapter to Title 21 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that the lack of regulation of persons holding themselves out to the public as financial planners creates an opportunity for the unskilled or dishonest to harm the public through incompetence or unfair and deceptive practices in rendering financial planning services. This act shall be liberally construed to prohibit unfair and deceptive acts and practices in the financial planning profession.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Director" means the director of the department of licensing of this state.

(2) "Person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.

(3) "Financial planning services" means the furnishing of information, recommendations, or advice regarding a person's finances or investments. The term does not include the activities of:

(a) Lenders;

(b) Insurance agents or brokers;

(d) Attorneys;

(e) Accountants;

(f) Banks;

(g) Savings banks;

(h) Savings and loan associations;

(i) Trust companies;

(j) Credit unions;

(k) Registered securities broker-dealers;

(l) Registered representatives of securities broker-dealers;

(m) Registered investment advisers;

(n) Registered representatives of investment advisers;

(o) Teachers; or

(p) Engineers

!ixto the extent that the person engaged in any of the above-named businesses or activities does not refer to himself or herself as a financial planner or does not use, advertise, or employ the term financial plan, financial planner, or financial planning services.

(4) "Financial planner" means any person providing financial planning services for compensation.

(5) "Compensation" means any direct or indirect economic benefit, whether in the form of an advisory fee, some other fee relating to the total services rendered, commissions, or some combination of the foregoing.

(6) "Client" means any person seeking or receiving financial planning services.

NEW SECTION. Sec. 3. No person may engage in business as a financial planner unless the person is registered as an investment adviser under chapter 21.20 RCW and under the federal Investment Advisers Act of 1940.

NEW SECTION. Sec. 4. It is unlawful for any financial planner to enter into, extend, or renew any contract for financial planning services unless the financial planner discloses to the client in advance the following information:

(1) Whether the client will be charged a fee for financial planning services, the amount of any fee, or the basis upon which the fee will be determined;

(2) Whether the financial planner will receive any compensation as a result of any purchase of a product or service by the client in following the advice of the financial planner;

(3) The percentage of clients during the financial planner's last fiscal year who paid a fee for services that recommended that the client purchase products or services offered through the financial planner resulting in additional compensation to such planner for the sale of the recommended products or services;

(4) The professional education and experience of the financial planner;

(5) The length of time the financial planner has been engaged in business as a financial planner;

(6) Whether the financial planner has been convicted of any felony and whether the planner has been the subject of an administrative order or court injunction involving investment advising, securities, commodities, insurance, or estate or tax planning;

(7) That the client is under no obligation to act on the financial planner's advice or to purchase any product or service offered through the financial planner in order to effectuate the financial planner's advice; and

(8) Such additional information as the director may require by rule.

NEW SECTION. Sec. 5. (1) It is unlawful for a financial planner, in connection with providing financial planning services to another person, to knowingly:

(a) Employ any device, scheme, or artifice to defraud;

(b) Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or

(c) Engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon the other person.

(2) A violation of this act, or of any rule adopted pursuant to this act constitutes a violation of RCW 19.86.020, and the person injured in his business or property by such violation is entitled to the remedies provided under RCW 19.86.090. Such remedies shall not affect any other remedy the injured person may have.

NEW SECTION. Sec. 6. (1) No certified public accountant who holds himself or herself out to the public as a financial planner may pay compensation to obtain a client, nor may the accountant accept any compensation for the referral or recommendation of products to the client or for the referral or recommendation of the services of others.

(2) Nothing in this section prohibits compensation for the purchase of an accounting practice or prohibits retirement compensation to individuals presently or formerly engaged in the practice of public accounting or compensation to their heirs or estates.

(3) The Washington board of accountancy shall adopt all rules necessary to implement this section.

NEW SECTION. Sec. 7. Any person who willfully violates any provision of this chapter except section 4 of this act, or who willfully violates any rule adopted under this chapter, or who willfully violates section 4 of this act knowing the statement made to be false or misleading in any material respect, is guilty of a gross misdemeanor; but no person may be imprisoned for the violation of any rule if that person proves that he or she had no knowledge of the rule. No indictment or information may be returned under this chapter more than five years after the alleged violation.

NEW SECTION. Sec. 8. The director may refer such evidence as may be available concerning violations of this chapter or of any rule adopted pursuant to this chapter to the attorney general or the proper prosecuting attorney, who may in his or her discretion, with or without such a reference, institute the appropriate criminal proceedings under this chapter.

NEW SECTION. Sec. 9. Nothing in this chapter limits the power of the state to punish any person for any conduct that constitutes a crime by statute or at common law.

NEW SECTION. Sec. 10. The director may adopt any rules necessary to carry out the provisions of this chapter and shall coordinate to the greatest extent possible the disclosure required for financial planners and for investment advisers to avoid duplication of disclosure.

NEW SECTION. Sec. 11. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 12. This act shall take effect on January 1, 1989. The director may immediately take such steps as are necessary to ensure that this act is implemented on its effective date.

NEW SECTION. Sec. 13. Sections 1 through 12 of this act shall constitute a new chapter in Title 21 RCW.