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Should there be a specific disclosure within the Form ADV if a registered investment adviser pays a referral fee to a third-party solicitor?

November 02, 2018

Yes, if a registered investment adviser firm pays a third-party solicitor for referrals, there are several disclosures that need to be made in the Form ADV. The number of third-party solicitors used by the registered investment adviser needs to be indicated in response to Item 5.B(6) of the Form ADV Part 1. In Form ADV […]

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Is a solicitor required to provide a client with a separate written solicitor disclosure when the registered investment adviser firm gives impersonal advisory services?

November 02, 2018

No, a solicitor is not required to provide a client with a separate written solicitor disclosure when the registered investment adviser firm only provides investment advisory services that are not personalized to the specific client or otherwise purports to meet the objectives or needs of the specific client.

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Can a solicitor provide investment advice to a client about a security and/or the securities market?

November 02, 2018

If a solicitor is not registered as an investment adviser or investment adviser representative with the applicable securities regulators, then the solicitor may not provide invest advice about a security or the securities market to a prospective or existing client. Moreover, an unregistered solicitor cannot provide advice to a client regarding a client’s investment objective […]

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Are there individuals that cannot serve as a solicitor on behalf of a registered investment adviser under SEC Rule 206(4)-3?

November 02, 2018

Individuals subject to a statutory disqualification under Section 203 of the Investment Advisers Act of 1940 (“Act”) cannot be paid a solicitor referral fee. Such a statutory disqualification would include the following: An individual barred or suspended by the SEC under Section 203(f) of the Act from associating with an investment adviser; An individual convicted […]

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If a state securities regulator requires an individual to be registered as an investment adviser representative in order to solicit investment advisory clients in a third-party capacity, does the solicitor have to be an investment adviser representative under the investment advisor firm receiving such referrals?

November 02, 2018

No, the referring solicitor required to be registered as investment adviser representative does not usually have to be registered under the investment adviser firm receiving the referrals.

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Does a third-party solicitor have to be registered as an investment adviser or investment adviser representative?

November 02, 2018

The Investment Advisers Act of 1940 and the associated SEC rules do not require the solicitor to register as an investment adviser as long as the solicitor’s activities are strictly limited to merely referring clients to a registered investment adviser in compliance with SEC Rule 206(4)-3. However, the majority of state securities regulators define the […]

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Can the third-party solicitor’s referral fee be paid from the investment advisory fee charged by the registered investment adviser?

November 02, 2018

Yes, the investment advisor firm can pay a portion of the ongoing investment advisory fee charged to the client each billing period as long as such payments are consistent with the Form ADV and separate written solicitor disclosure given to the client and in accordance with the requirements of SEC Rule 206(4)-3.

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What information must be included in the separate written solicitor disclosure that the third-party solicitor must provide a client?

November 02, 2018

As outlined by SEC Rule 206(4)-3, the separate written solicitor disclosure must include the following information: The name of the solicitor; The name of the investment adviser; The nature of the relationship between the solicitor and investment adviser; A statement that the solicitor will be compensated by the investment adviser for the referral; The terms […]

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What are the basic regulatory requirements for a solicitor referral arrangement between an SEC registered investment adviser and a third-party (non-employee)?

November 02, 2018

Under SEC Rule 206(4)-3, a solicitor referral arrangement between the investment adviser and third-party (non-employee) solicitor must be in writing, which needs to include provisions related to the following: (a) the scope of the solicitor’s activities; (b) a covenant by the solicitor to perform such activities consistent with instructions of the investment adviser and in […]

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May an investment adviser registered with the United States Securities and Exchange Commission (“SEC”) pay a third-party (non-employee) to solicit or refer new investment advisory clients?

November 02, 2018

Yes, an SEC registered investment adviser firm may pay cash referral fees to a third-party (non-employee) that solicits investment adviser clients on behalf of the registered investment adviser firm only if such a solicitor arrangement is in compliance with SEC Rule 206(4)-3 under the Investment Advisers Act of 1940.

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