New Hampshire Waives the Series 65 Exam Requirement for Solicitors
Under House Bill 889, the State of New Hampshire recently amended its Uniform Securities Act (RSA 421-B:2) to exempt an individual, who is an investment adviser or investment adviser representative and conducting investment advisory business solely as a solicitor, from the Series 65 examination requirement.
Although there is now a statutory provision permitting the wavier of the examination requirement for an individual who conducts investment advisory business only by referring client to a licensed investment adviser, such an individual acting as a solicitor must still apply for and maintain a registration with New Hampshire as an investment adviser or investment adviser representative.
Based on the amended statute, a solicitor’s request for an examination wavier by New Hampshire should include the following: (a) the solicitation agreement between the solicitor and other investment adviser; (b) a sample client disclosure acknowledging the terms of the solicitor arrangement; and (c) an undertaking by the solicitor that the solicitor will obtain from the client a signed and dated acknowledgement of receiving the solicitor arrangement disclosure.
If you need assistance in applying for a Series 65 examination wavier or ensuring your solicitor arrangement meets the requirements of the New Hampshire Bureau of Securities, please contact RIA Compliance Consultants at 877-345-4034.
Although there is now a statutory provision permitting the wavier of the examination requirement for an individual who conducts investment advisory business only by referring client to a licensed investment adviser, such an individual acting as a solicitor must still apply for and maintain a registration with New Hampshire as an investment adviser or investment adviser representative.
Based on the amended statute, a solicitor’s request for an examination wavier by New Hampshire should include the following: (a) the solicitation agreement between the solicitor and other investment adviser; (b) a sample client disclosure acknowledging the terms of the solicitor arrangement; and (c) an undertaking by the solicitor that the solicitor will obtain from the client a signed and dated acknowledgement of receiving the solicitor arrangement disclosure.
If you need assistance in applying for a Series 65 examination wavier or ensuring your solicitor arrangement meets the requirements of the New Hampshire Bureau of Securities, please contact RIA Compliance Consultants at 877-345-4034.
Labels: Solicitors
posted by bhill at 9:38 PM
California Proposes Amendments to Rules under the Corporate Securities Law of 1968
Earlier this month, the California Department of Corporations announced proposed changes to rules regulating investment advisers registered in California. According to the release, the objective in proposing the amendments is to increase uniformity with the model rules suggested by the North American Securities Administrators Association (NASAA), rules already in effect in other states, and rules established by the Securities and Exchange Commission (SEC). California is giving the public an opportunity to comment on the proposed changes. The time period for comment ends on October 30, 2007.
The proposed rules will have an impact on registered investment advisors in California, and all registered investment advisor firms doing business in California should take time to read the various releases and the text of the proposed rules. We feel the following are some of the more important changes proposed.
RIA Compliance Consultants, Inc. can help your firm comply with these proposed changes. Contact us to find out more about our written compliance manual and code of ethics drafting and reviewing services.
The proposed rules will have an impact on registered investment advisors in California, and all registered investment advisor firms doing business in California should take time to read the various releases and the text of the proposed rules. We feel the following are some of the more important changes proposed.
- Requirement to establish and maintain written procedures designed to supervise employees and ensure their compliance with securities laws.
- Incorporation of the principles governing performance-based advertising set forth in the 1996 SEC No-Action letter involving Clover Capital Management.
- Requirement to provide all clients a written disclosure document containing the same information in Form ADV Part II. While we suggest all registered investment advisors provide a disclosure document to clients, apparently this has not been a requirement in California.
- Amendment to the definition of custody and the procedures regarding custody. This rule will mirror the NASAA Model Rule for custody.
- Rule requiring the implementation of codes of ethics. The rule will copy the same requirements set forth under the SEC’s codes of ethics rule (Rule 204A-1 under the Advisers Act).
- Changes to “largely mirror” Rule 206(4)-3 of the Advisers Act which sets forth requirements that must be followed when fees are paid to solicitors.
- The adoption and implementation of a business continuity plan.
RIA Compliance Consultants, Inc. can help your firm comply with these proposed changes. Contact us to find out more about our written compliance manual and code of ethics drafting and reviewing services.
Labels: Advertising, Code of Ethics, Custody, Form ADV, Solicitors
posted by bhill at 3:00 PM
Ohio Prohibits Mortgage Brokers & Loan Officers From Obtaining Referral Fee From Affiliated Registered Investment Adviser
In the most recent quarterly Ohio Securities Bulletin, the Ohio Division of Securities, which is the regulator of state registered investment advisers in Ohio, noted a recent position taken by its sister division, the Ohio Division of Financial Institutions, which regulates banks and mortgage brokers, since it may have implications to registered investment advisers registered affiliated with banks or mortgage brokers in Ohio.
The following is an excerpt directly from the Ohio Securities Bulletin:
The [Ohio] Division of Financial Institutions stated a position in its Mortgage Brokers and Lenders Letter No. 2006-2 that could potentially affect investment advisers. The Division cited the prohibition against mortgage brokers or loan officers “obtaining a referral fee from a party with a related interest in the transaction” found in R.C. section 1322.071(B)(3). The Letter notes that a “person acting as an investment adviser urging the refinancing or purchase of property who also acts as the loan officer in the same transaction effectively is obtaining fees through a self-referral.”
The Letter added that “the notion of borrowing one’s home equity to invest in the market is a risky strategy, which should not be undertaken where there is a significant conflict of interest arising from considerations of the mortgage broker or loan officer’s own profit or remuneration when counseling such an investment strategy.” The Division concluded that acting as both an investment adviser and a loan officer in the same transaction is an “improper and dishonest practice” which violates R.C. 1322.07(C) and recommended that registrants and licensees review their policies regarding the matter.
Both state and SEC registered investment adviser firms with affiliated banks or mortgage brokers in Ohio or investment adviser representatives acting as loan officers or mortgage brokers in Ohio need to review their business practices and supervisory policies and procedures in light of this letter.
The following is an excerpt directly from the Ohio Securities Bulletin:
The [Ohio] Division of Financial Institutions stated a position in its Mortgage Brokers and Lenders Letter No. 2006-2 that could potentially affect investment advisers. The Division cited the prohibition against mortgage brokers or loan officers “obtaining a referral fee from a party with a related interest in the transaction” found in R.C. section 1322.071(B)(3). The Letter notes that a “person acting as an investment adviser urging the refinancing or purchase of property who also acts as the loan officer in the same transaction effectively is obtaining fees through a self-referral.”
The Letter added that “the notion of borrowing one’s home equity to invest in the market is a risky strategy, which should not be undertaken where there is a significant conflict of interest arising from considerations of the mortgage broker or loan officer’s own profit or remuneration when counseling such an investment strategy.” The Division concluded that acting as both an investment adviser and a loan officer in the same transaction is an “improper and dishonest practice” which violates R.C. 1322.07(C) and recommended that registrants and licensees review their policies regarding the matter.
Both state and SEC registered investment adviser firms with affiliated banks or mortgage brokers in Ohio or investment adviser representatives acting as loan officers or mortgage brokers in Ohio need to review their business practices and supervisory policies and procedures in light of this letter.
Labels: Outside Business Activities, Solicitors
posted by bhill at 10:25 AM
Client Referral Sources: Don’t Forget About the Regulations
A recent article in Investment Advisor magazine discussed the benefit of using clients as referral sources and the growing practice of using other professionals, such as CPAs and attorneys, to help land clients as well. This article brings to mind the importance of understanding SEC Rule 206(4)-3. (A state registered investment advisor should refer to the state rule on the subject.)
While the SEC does not generally have an issue with using employees or outside sources for client referrals, the Commission has clearly taken the position that a line is crossed upon payment for such referrals. When fees are paid by an SEC registered advisor for client referrals, Rule 206(4)-3 requires a formal agreement between the two parties and disclosures to be provided to the client. The referring party must provide a copy of the advisor firm’s disclosure brochure and a solicitor’s disclosure statement, which must indicate the amount received for the referral. In addition, due diligence must be performed on the referring party to ensure the person or company has not violated any SEC rules as spelled out under Rule 206(4)-3 or has been disqualified from advisor registration.
In addition to the Rule 206(4)-3, SEC registered firms must give attention to state rules as well. The majority of state regulators include the terms solicitor or referral in the definition of investment advisor representative and therefore require the referring party to be licensed as such. This means passing the Series 65 exam, filing a Form U4, paying the licensing fee, and receiving approval by the state; all prior to soliciting the first client for a fee. Some states even require companies that receive solicitor fees to be registered as an investment advisor even though they may provide no other advisory services. In these cases, the referring firm would need to file a Form ADV and other required documents in order to register directly with the state.
Finally, it's important to consult with the state accounting board or bar association to determine whether a solicitor fee is permissible when working with accountants or lawyers. Special precautions need to be taken for referral arrangements involving ERISA covered accounts or plan fiduciaries. Please see our earlier postings.
If you have specific questions about any solicitor/referral arrangements you have or would like to discuss the rules in more detail, please give us a call.
While the SEC does not generally have an issue with using employees or outside sources for client referrals, the Commission has clearly taken the position that a line is crossed upon payment for such referrals. When fees are paid by an SEC registered advisor for client referrals, Rule 206(4)-3 requires a formal agreement between the two parties and disclosures to be provided to the client. The referring party must provide a copy of the advisor firm’s disclosure brochure and a solicitor’s disclosure statement, which must indicate the amount received for the referral. In addition, due diligence must be performed on the referring party to ensure the person or company has not violated any SEC rules as spelled out under Rule 206(4)-3 or has been disqualified from advisor registration.
In addition to the Rule 206(4)-3, SEC registered firms must give attention to state rules as well. The majority of state regulators include the terms solicitor or referral in the definition of investment advisor representative and therefore require the referring party to be licensed as such. This means passing the Series 65 exam, filing a Form U4, paying the licensing fee, and receiving approval by the state; all prior to soliciting the first client for a fee. Some states even require companies that receive solicitor fees to be registered as an investment advisor even though they may provide no other advisory services. In these cases, the referring firm would need to file a Form ADV and other required documents in order to register directly with the state.
Finally, it's important to consult with the state accounting board or bar association to determine whether a solicitor fee is permissible when working with accountants or lawyers. Special precautions need to be taken for referral arrangements involving ERISA covered accounts or plan fiduciaries. Please see our earlier postings.
If you have specific questions about any solicitor/referral arrangements you have or would like to discuss the rules in more detail, please give us a call.
Labels: Solicitors
posted by bhill at 12:25 PM
