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Investment Adviser Switch Workshop - PDF
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1 Investment Adviser Switch Wrkshp Investment Adviser Registratin, Renewal, Amendment And Pst-Registratin Requirements Presented by Office f the Attrney General Maryland Divisin f Securities 1
2 Registratin and Pst- Registratin Requirements Initial Registratin Prcess Renewal Prcess Amendment Filing Requirements Brchure Delivery Requirements Recrd-keeping Requirements Financial Reprting Requirements Field Examinatins Office f the Attrney General, Maryland Divisin f Securities 2
3 Initial Registratin Prcess File Frm ADV with Maryland thrugh the IARD system Chse Apply fr registratin as an investment adviser with ne r mre states link Must check Maryland bx in Item 1 f Frm ADV Part 1B Fr guidance, visit Fr assistance, cntact FINRA Call Center at r Registratin Fee $300 fr firm $50 fr each investment adviser representative Maryland receives ntificatin thrugh the IARD Maryland sends frm letter requesting additinal infrmatin t cmplete the applicatin Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 3
4 Initial Registratin Prcess Cmplete applicatin cnsists f: Frm ADV Part 1A Part 1B state nly sectin Part 2A firm brchure Part 2B brchures fr each supervised persn Appendix 1, nly if spnsring wrap fee prgram Sample cpy f each advisry cntract used Fr advisers with custdy, cpy f mst recent balance sheet Evidence that firm s principal satisfies examinatin requirement Any ther infrmatin that Cmmissiner may reasnably require Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 4
5 Initial Registratin Prcess Investment Adviser Representatives Unless IA firm is a ne-persn peratin, IA firm must als submit an applicatin n behalf f each Investment Adviser Representative (IAR) Applicatin fr IAR cnsists f: Frm U4 $50 registratin fee Evidence that individual satisfies examinatin requirement Applicatin shuld be filed electrnically thrugh the CRD Examinatin Requirement Valid exam (Series 65 r Series 7 and Series 66) Designatin in gd standing (CFP, PFS, ChFC, CIC, r CFA) Request waiver frm exam based upn educatin/experience Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 5
6 Initial Registratin Prcess Once a cmplete applicatin is received, the Divisin will review the applicatin 30-day statutry review requirement Applicatin is reviewed fr cmpliance with Maryland law Gal is t ensure that yur firm is in cmpliance n day ne Review f applicatin typically results in issuance f deficiency letter(s) Sent by Adviser has 30 days t respnd t deficiency letter(s) Prvide Divisin with highlighted changes Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 6
7 Initial Registratin Prcess Deficiencies may include: Incnsistencies in respnses t similar items fund n Parts 1 and Part 2 f Frm ADV Fr example, Item 8C f Part 1A indicates that the adviser des nt have investment discretin, but the adviser then discusses its discretinary authrity in Item 16 f Part 2A Inadequate r incmplete disclsures t Part 2 items Fr example, In respnse t Item 11 f Part 2A, adviser disclses that it buys and sells the same securities that it recmmends t clients, but des nt discuss the cnflicts f interest assciated with this practice Failing t submit Part 2B brchure(s) fr investment adviser representatives Even ne persn firms must file the infrmatin required by Part 2B Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 7
8 Initial Registratin Prcess Including prhibited language in client cntracts Mandatry arbitratin clauses Clauses requiring client t indemnity the adviser Failing t include required disclsures in client cntracts Every cntract must disclse the fllwing: Descriptin f services Terms f the cntract Descriptin f fees charged Amunt f prepaid fee t be refunded in the event f cntract terminatin Whether cntract grants discretinary authrity That cntract may nt be assigned withut cnsent f client Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 8
9 Initial Registratin Prcess Upn cure f all deficiencies, applicatin is apprved Registratin status f firm n the IARD will be changed t apprved Effective letter is sent t firm by Once applicatin is apprved, adviser shuld file a Frm ADV-W thrugh the IARD t withdraw its registratin with the SEC Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 9
10 Renewal Prcess Annual renewal requirement Investment adviser firms and their investment adviser representatives Renewal is prcessed thrugh the IARD Renewal fee must be paid by mid-december f each year $300 fr firm $50 per investment adviser representative Firm must fund renewal accunt at FINRA in amunt f renewal fees fr firm and investment adviser representatives Failure t timely pay renewal fees will result in terminatin f firm s registratin Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 10
11 Amendment Filings All investment advisers are required t annually file an updated Frm ADV Amendment must be filed thrugh the IARD within 90 days f firm s fiscal year end If there are n changes t Frm ADV, investment adviser still must cnfirm current Frm ADV In additin t annual amendment, investment adviser must file amendments t Frm ADV r ther filings, such as client cntracts, within 30 days f any material changes Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 11
12 Brchure Delivery Requirements Item 2 f Instructins t Part 2A prvides that an investment adviser must annually: deliver t each client an updated brchure with a summary f material changes Must be delivered within 120 days f the adviser s fiscal year end OR deliver t each client a summary f material changes that includes an ffer t prvide a cpy f the updated brchure, and infrmatin n hw a client may btain the brchure Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 12
13 Recrd-keeping Requirements Pursuant t sectin (a)(3) f Maryland Securities Act, a registered investment adviser must maintain certain bks and recrds Regulatin f Cde f Maryland Regulatins sets frth the required bks and recrds Recrds must be maintained fr a perid f 5 years, and maintained in principal place f business fr first tw years Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 13
14 Recrd-keeping Requirements There are three categries f bks and recrds Categry One applies t all investment advisers Categry Tw applies t investment advisers wh have custdy f client assets and are in additin t Categry One Categry Three applies t investment advisers wh manage client assets and are in additin t Categry One Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 14
15 Bks and Recrds Categry One Transactin jurnals, incl. cash receipts and disbursements jurnals General ledgers Financial statements, incl. incme statement and balance sheet Bank recrds, incl. statements and canceled checks Bills and statements relating t advisry business Order memrandum Written cmmunicatins relating t advice prvided Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 15
16 Bks and Recrds Categry One List f all accunts ver which adviser has discretin Cpies f all pwers f attrney granting discretin t adviser All written agreements relating t advisry business Cpies f all advertising material Recrds f persnal securities transactins fr adviser s persnnel Cpies f all versins f disclsure dcuments given t clients, and recrds f delivery Recrds supprting calculatins fr perfrmance claims/perfrmance advertising Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 16
17 Bks and Recrds Categry Tw In additin t Categry One recrds, advisers with custdy must maintain additinal recrds: Jurnal r recrd f all securities transactins Buys, sells, receipt and delivery f securities Fr each client, a separate ledger shwing all securities transactins Cpies f all cnfirmatins Fr each security, a recrd shwing each client s interest in security Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 17
18 Bks and Recrds Categry Three In additin t Categry One recrds, advisers wh manage assets must maintain additinal recrds: Fr each client, a recrd f all purchases and sales, incl. date, amunt and price Fr each security, a recrd shwing each client s psitin Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 18
19 Bks and Recrds Unlike the SEC s rule, Maryland des nt currently have a Pay-t-play r Cde f Ethics rule; thus, nt required t maintain such recrds Hwever, similar t the SEC s plicies and prcedures rule, Maryland has a rule that requires each adviser t maintain supervisry guidelines that are reasnably designed t: supervise the adviser s supervised persns t achieve cmpliance with the Securities Act, and t achieve cmpliance by the adviser with the Securities Act Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 19
20 Financial Requirements If investment adviser has custdy f client assets r cllects fees f $500 r mre at least six mnths r mre in advance, the adviser must: Cmply with net capital requirements, and File financial reprts with the Divisin Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 20
21 Financial Requirements - Net Capital Adviser must either: Maintain at all times a minimum net capital f $20,000, r minimum tangible net assets f $35,000, r Be bnded in the amunt f $10,000 Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 21
22 Financial Requirements Financial Reprting Current rule requires the annual filing f bth: an audited balance sheet, and a surprise examinatin f client funds reprt Next year, Divisin intends t adpt a versin f NASAA s custdy mdel rule which is very similar t the SEC s custdy rule Surprise examinatin reprt fr mst advisers with custdy Fr hedge fund advisers, an annual audit f the fund by PCAOB CPA Advisers that use a custdian that is affiliated with the adviser must engage PCAOB CPA t prepare an Internal Cntrl reprt Other safeguards Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 22
23 Field Examinatins Pursuant t sectin f Maryland Securities Act, the bks and recrds that are required t be maintained by investment advisers are subject t reasnable peridic, special, r ther examinatins Examinatins may be fr cause, but the vast majrity are rutine Exams are always unannunced Fter Text Office f the Attrney General, Maryland Divisin 2/28/2012 f Securities 23