AN ACT Relating to financial planning; adding a new chapter to Title 21 RCW; prescribing penalties; making an appropriation; 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 chapter shall be liberally construed to protect the public from persons who are not qualified to render financial planning services and 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 licensing of this state.

(2) "Person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust where the interest of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.

(3) "Financial planning services" means the analysis of a person's financial or investment position and the preparation of recommendations to help the person obtain financial or investment goals which may include in whole or in part, but is not limited to:

(a) Information or advice regarding the purchase or sale of insurance, real estate, securities, annuities, commodities, collectibles, or other types of personal or real property;

(b) Estate or tax planning information or advice;

(d) An annual or periodic review of such recommendations.

(4) "Financial planner" means any person providing financial planning services governed by this chapter.

(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 financial planning services.

NEW SECTION. Sec. 3. It is unlawful for any person to hold oneself out to the public as a financial planner unless the person is registered under this chapter. Holding oneself out to the public as a financial planner includes holding oneself out to the public as a "financial adviser," "financial analyst," "financial counselor," "financial programmer," or using words of similar meaning or import or making representations that are substantially equivalent when providing financial planning services for compensation.

NEW SECTION. Sec. 4. A person may apply for registration by filing with the director or the director's delegate an application together with a consent to service of process in such form as the director prescribes and payment of the fee prescribed in section 15 of this act.

NEW SECTION. Sec. 5. The application shall contain the information the director determines by rule to be necessary or appropriate to facilitate the administration of this chapter.

NEW SECTION. Sec. 6. (1) Every applicant, in addition to demonstrating proof of compliance with section 4 of this act, shall demonstrate proof of passage of such examinations testing the applicant's knowledge of life and health insurance, real estate investment, federal income tax, and securities as the director may prescribe by rule or shall demonstrate that the applicant is exempt from the examination requirements of this section.

(2) The director may not require, but may recognize a professional accreditation or a professional license of an applicant and may permit such accreditation or license in lieu of passage of an exam required by this section, if in the director's opinion, such accreditation or license satisfies the objectives of an examination.

(3) If the applicant meets the requirements for registration, the director shall issue a permit registering the applicant.

NEW SECTION. Sec. 7. The registration of a financial planner shall expire on December 31st of the year issued or at such other time as the director may prescribe by rule.

NEW SECTION. Sec. 8. No suit or action may be brought for compensation for financial planning services without alleging and proving that the plaintiff was a duly registered financial planner in this state at the time the alleged cause of action arose or that the financial planning services were not governed by this chapter.

NEW SECTION. Sec. 9. It is unlawful for any financial planner to enter into, extend, or renew any contract for financial planning services unless the planner discloses to the client in advance the following information:

(1) Whether the client will be charged a fee for financial planning services and the amount of any fee;

(2) Whether the 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 planner;

(3) The percentage of clients during the financial planner's last fiscal year who paid a fee for services and the planner recommended that the client purchase products or services offered through the 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 planner;

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

(6) Whether the planner has been convicted of any felony or a crime related to insurance, real estate, or securities, and whether the planner has been the subject of an administrative order or injunction involving insurance, real estate, or securities;

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

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

NEW SECTION. Sec. 10. (1) It is unlawful for a financial planner, in connection with providing financial planning services to another person, to:

(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 section or section 9 of this act, or of any rule adopted pursuant to this section or section 9 of 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. 11. It is unlawful for any person to make or cause to be made, in any document filed with the director or in any proceeding under this chapter, any statement that is, at the time and in the light of the circumstances under which it is made, false or misleading in any material respect.

NEW SECTION. Sec. 12. The director shall prescribe by rule the accounts and records that must be made and kept by financial planners. All records required by the director shall be preserved for three years unless the director prescribes otherwise for particular types of records. All such accounts and records are subject at any time or from time to time to such reasonable periodic, special, or other examinations by representatives of the director, inside or outside this state, as the director deems necessary or appropriate in the public interest.

NEW SECTION. Sec. 13. The director may by order deny, suspend, or revoke registration of any financial planner if the director finds that the order is in the public interest and the applicant or registrant:

(1) Has filed an application for registration under this section which, as of its effective date, or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained any statement which was, in the light of the circumstances under which it was made, false, or misleading with respect to any material fact;

(2) Has wilfully violated or wilfully failed to comply with any provision of this chapter or any rule or order adopted or issued pursuant to this chapter;

(3) Has been convicted, within the past five years, of any misdemeanor involving financial planning; involving a security, a commodity contract, or a commodity option; involving insurance; or involving any aspect of the financial planning, securities, investment commodities, or insurance businesses; or any felony involving moral turpitude;

(4) Is the subject of an order of the director denying, suspending, or revoking registration as a financial planner, broker-dealer, securities salesperson, investment advisor, investment advisor salesperson, commodity broker-dealer, commodity sales representative; or is the subject of an order of the insurance commissioner refusing, suspending, or revoking any license issued by the insurance commissioner;

(5) Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the financial planning, securities, investment commodities, or insurance businesses;

(6) Has engaged in dishonest or unethical practices in the financial planning, securities, investment commodities, or insurance businesses; or

(7) Is not qualified on the basis of such factors as training, experience, or knowledge of financial planning.

The director may by order summarily postpone or suspend registration pending final determination of any proceeding under this section.

NEW SECTION. Sec. 14. The provisions of chapter 34.04 RCW apply to an administrative proceeding carried out by the director under this chapter unless otherwise provided in this chapter.

NEW SECTION. Sec. 15. An applicant for registration as a financial planner shall pay an application fee of two hundred dollars. A financial planner shall pay an annual fee of one hundred dollars, except a financial planner need not pay an annual fee in any year in which an application fee is paid. If an application is denied or withdrawn or the registration is terminated by revocation or withdrawal, the director shall retain the fee paid.

NEW SECTION. Sec. 16. The director may:

(1) Make such public or private investigations, inside or outside the state, as the director finds necessary or appropriate to determine whether any person has violated, or is about to violate, any provision of this chapter or any rule or order of the director, or necessary or appropriate to aid in the enforcement of this chapter;

(2) Require or permit any person to file a statement in writing, under oath or otherwise as the director may determine; and

(3) Publish information concerning any violation of this chapter or any rule adopted or order issued pursuant to this chapter.

NEW SECTION. Sec. 17. (1) For purposes of any investigation or proceeding under this chapter, the director or any officer or employee designated by the director may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of documents or records that the director finds to be relevant or material to the inquiry.

(2) If a person does not give testimony or produce the documents required by the director or designated employee, the director may apply for a court order compelling compliance with the subpoena or the giving of required testimony. The request for an order of compliance may be addressed to either:

(a) The superior court of Thurston county or the superior court where service may be obtained on the person refusing to testify or produce, if the person is within this state; or

(b) The appropriate court of the state having jurisdiction over the person refusing to testify or produce, if the person is outside the state.

NEW SECTION. Sec. 18. Any person who willfully violates any provision of this chapter except section 9 of this act, or who willfully violates any rule or order under this chapter, or who willfully violates section 9 of this act knowing the statement made to be false or misleading in any material respect, shall upon conviction be fined not more than ten thousand dollars or imprisoned not more than five years, or both; but no person may be imprisoned for the violation of any rule or order if that person proves that he or she had no knowledge of the rule or order. No indictment or information may be returned under this chapter more than five years after the alleged violation.

NEW SECTION. Sec. 19. Whenever it appears to the director that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this chapter or any rule adopted or order issued pursuant to this chapter, the director may:

(1) Issue an order directing the person to cease and desist from continuing the act or practice. The director shall give reasonable notice and opportunity for a hearing. The director may issue a temporary order pending the hearing which shall remain in effect until ten days after the hearing and shall become final if the person to whom notice is addressed does not request a hearing within fifteen days after the receipt of notice.

(2) Without issuing a cease and desist order, bring an action in any court of competent jurisdiction to enjoin any such acts or practices and to enforce compliance with this chapter or any rule adopted or order issued pursuant to this chapter. Upon a proper showing, a permanent or temporary injunction, restraining order, or writ of mandamus shall be granted. The director may not be required to post a bond. If the director prevails, the director is entitled to a reasonable attorney's fee to be fixed by the court.

NEW SECTION. Sec. 20. The director may refer such evidence as may be available concerning violations of this chapter or of any rule adopted or order issued pursuant to this chapter to the attorney general or the proper prosecuting attorney, who may, with or without such a reference, institute the appropriate criminal proceedings under this chapter.

NEW SECTION. Sec. 21. 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. 22. The director shall adopt rules permitting financial planners:

(1) Who are engaged in the business of providing financial planning services on the effective date of this section, and

(2) Who are not registered as required by this chapter,

!ixto continue such business for a reasonable period not to exceed one year after the effective date of this section, in order to permit such planners the necessary time to obtain the registration required by this chapter.

Such planners may continue business during the one-year period following the effective date of this section, only upon notifying the director of the intent to continue business without such registration and only if such planners comply with the remaining provisions of this chapter during the one-year period.

NEW SECTION. Sec. 23. The director may adopt any rules necessary to carry out the provisions of this chapter, including rules defining any term, whether or not the term is used in this chapter.

NEW SECTION. Sec. 24. If any provision of this chapter or its application to any person or circumstance is held invalid, the remainder of the chapter or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 25. 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. 26. There is appropriated for the biennium ending June 30, 1989, from the general fund to the department of licensing, the sum of .......... dollars, or so much thereof as may be necessary, to carry out the purposes of this act.

NEW SECTION. Sec. 27. Sections 1 through 24 of this act shall constitute a new chapter in Title 21 RCW.