I
103D CONGRESS
1ST SESSION
H. R. 578
To provide for recovery of costs of supervision and regulation of investment
advisers and their activities, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 26, 1993
Mr. BOUCHER (for himself, Mr. MARKEY, Mr. DINGELL, Mr. FIELDS of
Texas, Mr. COOPER, Mr. WYDEN, Mr. LEHMAN, and Mr. SYNAR) intro-
duced the following bill; which was referred to the Committee on Energy
and Commerce
A BILL
To provide for recovery of costs of supervision and regulation
of investment advisers and their activities, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Investment Adviser
Regulatory Enhancement and Disclosure Act of 1993’’.
SEC. 2. ADDITIONAL RESOURCES FOR INVESTMENT AD-
VISER SUPERVISION.
(a) AMENDMENT.—The Investment Advisers Act of
1940 (15 U.S.C. 80b–1 et seq.) is amended by inserting
after section 203 the following new section:
‘‘FEES FOR REGISTRANTS AND APPLICANTS
‘‘SEC. 203A. (a) IN GENERAL.—The Commission is
authorized, in accordance with this section, to collect fees
to recover the costs of registration, supervision, and regu-
lation of investment advisers and their activities. Such fees
shall be collected, and shall be available, only to the extent
provided in advance in appropriations Acts. No appropria-
tion Act may authorize fees to be collected under this sec-
tion during any fiscal year unless the amount appropriated
by such Act for such costs for such fiscal year equals or
exceeds the aggregate amount that may reasonably be ex-
pected to be collected by such fees. Such fees shall be de-
posited as an offsetting collection to the Commission’s ap-
propriation and may remain available for such purposes
for the succeeding fiscal year. The costs covered by such
fees shall be limited to the costs of Commission expenses
for registration, examinations, and surveys of persons reg-
istered or required to register under this Act.
‘‘(b) TIME FOR PAYMENT.—
‘‘(1) NEW REGISTRANTS.—At the time of filing
an application for registration under this title, the
applicant shall pay to the Commission the fee speci-
fied in subsection (c). No part of such fee shall be
refunded to the applicant. The filing of an applica-
tion for registration under this title shall not be
deemed to have occurred unless the application is ac-
companied by the fee required under this section.
‘‘(2) ONGOING
REGISTRANTS.—Each invest-
ment adviser whose registration is effective on the
last day of its fiscal year shall pay to the Commis-
sion the fee specified in subsection (c). Such pay-
ment shall be made not later than 90 days after the
end of its fiscal year, or at such other time as the
Commission, by rule, shall determine, unless its reg-
istration has been withdrawn, canceled, or revoked
prior to that date. No part of such fee shall be re-
funded to the investment adviser.
‘‘(c) COST-BASED SCHEDULE OF FEES.—For any
fiscal year for which fees are authorized to be collected
by an appropriation Act, the amount of fees due from in-
vestment advisers in accordance with paragraphs (1) and
(2) of subsection (b) shall be determined according to the
following schedule:
‘‘Assets under management
Fee due:
Less than $10,000,000 ............................................................
$300
$10,000,000 or more, but less than $25,000,000 ...................
$500
$25,000,000 or more, but less than $50,000,000 ...................
$1,000
$50,000,000 or more, but less than $100,000,000 .................
$2,500
$100,000,000 or more, but less than $250,000,000 ...............
$4,000
$250,000,000 or more, but less than $500,000,000 ...............
$5,000
‘‘(i) the registered person receives or
may receive, directly or indirectly, sales
commissions or other fees in connection
with a purchase or sale effected on behalf
of a client; or
‘‘(ii) the registered person will not re-
ceive, directly or indirectly, any sales com-
mission or other fees in connection with
such purchase or sale, but the client may
be charged a sales commission or other fee
by another person in connection with such
purchase or sale; and
‘‘(B) that remedies may be available to the
client with respect to disputes arising out of the
advisory relationship.
‘‘(4) DEFINITION.—The Commission shall de-
fine ‘associated person providing significant invest-
ment advisory services to the client’ by rule for pur-
poses of this subsection.
‘‘(c) TRANSACTION REPORTS.—
‘‘(1) INITIAL DISCLOSURE.—Before a purchase
or sale is effected on behalf of any client, each reg-
istered investment adviser shall, in accordance with
rules prescribed by the Commission, disclose to the
client the total amount of commissions, fees, or
other charges that may reasonably be expected to be
charged in connection with the transaction (or, in
the case of payments from third parties, that a pay-
ment will be received) and that the adviser or a re-
lated person will receive a portion of the commission,
fee, charge, or payment. Such initial disclosure shall
be in writing if the purchase or sale was rec-
ommended in writing.
‘‘(2) CONFIRMATION.—After a purchase or sale
is effected, each registered investment adviser shall
transmit to each client a written statement that dis-
closes the amount of commissions, fees, or other
charges charged in connection with the transaction
(or, in the case of payments from third parties, that
a payment has been or will be received). Such writ-
ten statement shall be in such form and contain
such information, and be provided in accordance
with such rules, as the Commission shall prescribe.
Such rules shall, to the extent consistent with the
protection of investors, permit delivery of a con-
firmation statement of a broker or a dealer that in-
cludes information that meets the requirements of
this subsection (and the rules adopted thereunder)
in order to satisfy such requirements.
‘‘(3) WAIVER.—The Commission may, by rule,
permit an investment adviser to omit disclosure re-
quired by this subsection with the knowing written
consent of the client.
‘‘(4) EXCEPTIONS.—This subsection shall not
apply—
‘‘(A) with respect to any purchase or sale
for which the registered person, and any person
associated or under common control with the
registered person, will not receive any portion of
the amount charged or deducted in connection
with the purchase or sale, and will not receive
any payment from a third party required to be
disclosed under paragraph (1);
‘‘(B) with respect to accounts for which
the person is authorized to exercise investment
discretion; or
‘‘(C) with respect to any account for which
the person is not acting as an investment ad-
viser.
‘‘(5) SPECIAL
RULE.—The provisions of this
subsection shall also apply to persons associated
with an investment adviser effecting transactions for
advisory clients through a broker or dealer with
which the person is associated.
‘‘(d) PERIODIC REPORTS.—
‘‘(1) IN GENERAL.—Each registered investment
adviser shall periodically provide to each client a
written statement of—
‘‘(A) all commissions, fees, or other
charges paid by the client during the period for
services provided by the registered person and
any person associated or under common control
with the registered person;
‘‘(B) all compensation directly or indirectly
received during the period by the registered per-
son, or any person associated or under common
control with the registered person, from any
third party with respect to any recommended
transaction;
‘‘(C) in the case of a client account for
which the adviser provides investment super-
visory services, all securities positions held in
the account at the beginning and at the end of
the period; and
‘‘(D) such other matters as the Commis-
sion shall prescribe.
‘‘(2) COMMISSION
RULES.—The Commission
shall prescribe by rule the format of the statement
and timing of its delivery. Such rule shall require
that the format and timing of delivery be designed
to present the required information in a manner that
readily permits clients to compare the costs charged
by the investment adviser with the costs charged by
other advisers. In adopting such rule, the Commis-
sion shall require an investment adviser whose cli-
ents purchase or sell investment products through
persons other than such adviser, or persons associ-
ated or under common control with such adviser, to
disclose to its clients that such information concern-
ing costs charged does not include commissions or
other fees paid in connection with such purchases or
sales. Such rule shall, to the extent consistent with
the protection of investors, permit delivery of a re-
port of a broker or dealer that includes information
that meets the requirements of this subsection (and
the rules adopted thereunder) in order to satisfy
such requirements.
‘‘(3) WAIVER.—The Commission may, by rule,
permit an investment adviser to provide the state-
ment required by paragraph (1) no more frequently
than annually if the client knowingly waives, in writ-
ing, the right to obtain such statement more fre-
quently than annually.
‘‘(4) EXCEPTION.—This subsection shall not
apply with respect to any account for which the per-
son is not acting as an investment adviser.
‘‘(e) FACILITIES
FOR FILING RECORDS
AND RE-
PORTS.—The Commission, by rule, may require any in-
vestment adviser—
‘‘(1) to file with the Commission any fee, appli-
cation, report, or notice required by this title or by
the rules issued under this title through any person
designated by the Commission for that purpose; and
‘‘(2) to pay the reasonable costs associated with
such filing.’’.
(b) RULEMAKING REQUIRED.—The Commission shall
prescribe rules for purposes of subsections (b), (c), and
(d) of section 204 of the Investment Advisers Act of 1940
(as added by subsection (a) of this section) within one year
after the date of enactment of this Act.
SEC. 7. BOND REQUIREMENT.
Section 208 of the Investment Advisers Act of 1940
(15 U.S.C. 80b–8) is amended by adding at the end the
following:
‘‘(e) BOND REQUIREMENT.—
‘‘(1) IN GENERAL.—The Commission shall, by
rules for the protection of investors, require that any
investment adviser registered under section 203
who—
‘‘(A) is authorized to exercise investment
discretion, as defined in section 3(a)(35) of the
Securities Exchange Act of 1934, with respect
to an account,
‘‘(B) has access to the securities or funds
of a client, or
‘‘(C) is an investment adviser of an invest-
ment company, as defined in section 2(a)(20) of
the Investment Company Act of 1940,
shall obtain a bond from a reputable fidelity insur-
ance company against larceny and embezzlement in
such reasonable amounts and covering such officers,
partners, directors, and employees of the investment
adviser as the Commission may prescribe.
‘‘(2) CONSIDERATIONS
IN
RULEMAKING.—In
implementing paragraph (1), the Commission shall
consider—
‘‘(A) the degree of risk to client assets that
is involved;
‘‘(B) the cost and availability of fidelity
bonds;
‘‘(C) existing fidelity bonding require-
ments; and
‘‘(D) any alternative means to protect cli-
ent assets.
‘‘(3) EXEMPTION
AUTHORITY.—The Commis-
sion by rule may exempt any person or class of per-
sons, under such terms and conditions and for such
periods as the Commission shall provide in such
rule, from the requirements of this subsection and
the rules thereunder.
SEC. 8. DISQUALIFYING CONDUCT.
(a) AMENDMENT.—Section 203(e) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—
(1) by redesignating paragraphs (3) through
(7) as paragraphs (4) through (8); and
(2) by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3) has been convicted within ten years pre-
ceding the filing of any application for registration
or at any time thereafter of any crime that is pun-
ishable by imprisonment for one or more years and
that is not described in paragraph (2) of this sub-
section or of a substantially equivalent crime by a
foreign court of competent jurisdiction.’’.
(b) CONFORMING AMENDMENTS.—Section 203 of
such Act is further amended—
(1) in subsection (e)(6) (as redesignated by
subsection (a) of this section, by striking ‘‘this para-
graph (5)’’ and inserting ‘‘this paragraph (6)’’;
(2) in subsection (f)—
(A) by striking ‘‘paragraph (1), (4), (5), or
(7)’’ and inserting ‘‘paragraph (1), (5), (6), or
(8)’’; and
(B) by striking ‘‘paragraph (3)’’ and in-
serting ‘‘paragraph (4)’’; and
(3) in subsection (i)(1)(D), by striking ‘‘section
203(e)(5) of this title’’ and inserting ‘‘subsection
(e)(6) of this section’’.
SEC. 9. CONFIDENTIALITY.
Section 208 of the Investment Advisers Act of 1940
(15 U.S.C. 80b–8), as amended by section 7, is further
amended by adding at the end the following new sub-
section:
‘‘(f) DISCLOSURE OF CLIENT INFORMATION PROHIB-
ITED.—
‘‘(1) ADVISER DISCLOSURE.—It shall be unlaw-
ful for any investment adviser to disclose any per-
sonally identifiable financial information with respect
to any client unless required by law to do so, or un-
less—
‘‘(A) the client has been adequately in-
formed of the proposed information disclosure,
in accordance with rules prescribed by the Com-
mission, and (i) has been afforded the oppor-
tunity, in accordance with such rules, to object
to the disclosure, and (ii) has not objected or
has affirmatively consented;
‘‘(B) the information disclosed is necessary
and appropriate in order to establish an advi-
sory or brokerage account or to effect or at-
tempt to effect a transaction for the client;
‘‘(C) the information (i) is requested by
representatives of the Commission, a State
agency whose primary assignment is the regula-
tion of the securities business, or a self-regu-
latory organization, or (ii) is requested by sub-
poena; or
‘‘(D) the information is requested by the
client’s auditors or accountants.
‘‘(2) SECONDARY DISCLOSURE.—It is unlawful
for any person to whom information is disclosed for
the purpose described in paragraph (1)(B) to use
such information for any purpose other than the ef-
fectuation of the client’s transaction.’’.