Source: http://lawfilesext.leg.wa.gov/law/wsr/2014/13/14-13-068.htm
Timestamp: 2020-07-05 07:53:04
Document Index: 150231659

Matched Legal Cases: ['§ 78', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2']

WSR 14-13-068
[Filed June 12, 2014, 4:42 p.m., effective July 13, 2014]
Purpose: The securities division hereby amends the investment adviser rules set forth in chapter 460-24A WAC. The amendments update various provisions of the investment adviser rules, including the rules regarding examination and registration requirements, financial reporting requirements, custody, performance compensation arrangements, books and records requirements, and unethical business practices. The amendments add new rule sections addressing compliance policies and procedures, proxy voting, and advisory contracts. In addition, the amendments create exemptions from registration for certain private fund and venture capital fund advisers. The amendments repeal WAC 460-24A-058, which defines when an application is considered filed; and make additional updates, clarifications, and changes to the rules.
Citation of Existing Rules Affected by this Order: Repealing WAC 460-24A-058; and amending WAC 460-24A-005, 460-24A-010, 460-24A-020, 460-24A-030, 460-24A-040, 460-24A-045, 460-24A-047, 460-24A-050, 460-24A-057, 460-24A-060, 460-24A-070, 460-24A-080, 460-24A-100, 460-24A-105, 460-24A-106, 460-24A-107, 460-24A 108, 460-24A-109, 460-24A 110, 460-24A-140, 460-24A-145, 460-24A-150, 460-24A-160, 460-24A-170, 460-24A-200, 460-24A-205, 460-24A-210, and 460-24A-220.
Statutory Authority for Adoption: RCW 21.20.005, 21.20.020, 21.20.030, 21.20.040, 21.20.050, 21.20.060, 21.20.070, 21.20.080, 21.20.090, 21.20.100, 21.20.330, 21.20.340, 21.20.450, and 21.20.702.
Adopted under notice filed as WSR 14-08-097 on April 2, 2014.
Number of Sections Adopted on the Agency's Own Initiative: New 7, Amended 28, Repealed 1.
AMENDATORY SECTION (Amending WSR 08-18-033, filed 8/27/08, effective 9/27/08)
WAC 460-24A-005 Definitions.
(1) "Custody" means holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them or the ability to appropriate them.
(ii) Any arrangement (including a general power of attorney) under which an investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon an investment adviser's instruction to the custodian; and
(iii) Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives an investment adviser or its supervised person legal ownership of or access to client funds or securities.
(b) Receipt of checks drawn by clients and made payable to unrelated third parties will not meet the definition of custody if forwarded to the third party within ((twenty-four hours)) three business days of receipt and the adviser maintains a ledger or other listing of all securities or funds held or obtained inadvertently((, including the following information:
(iv) For debt instruments, the denomination, interest rate, and maturity date;
(x) Mail confirmation number, if applicable, or confirmation by client or sender of the fund's or security's return)) as set forth in WAC 460-24A-200.
(2) "Independent party" means a person who:
(b) Does not control and is not controlled by and is not under common control with the investment adviser; ((and))
(d) Shall not negotiate or agree to have material business relations with an investment adviser, or relationships with entities under common control with an investment adviser, for a period of two years after serving as the person engaged in an independent party agreement; and
(3) "Independent representative" means a person who:
(4) "Qualified custodian" means the following independent institutions or entities:
(a) A bank as defined in section 202 (a)(2) of the Advisers Act, 15 U.S.C. 80b-2 (a)(2), or a savings association as defined in section 3 (b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1813 (b)(1), that has deposits insured by the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act, 12 U.S.C. 1811;
(5) "Independent certified public accountant" means a certified public accountant that meets the standards of independence described in rule 2-01 (b) and (c) of Regulation S-X, 17 C.F.R. 210.2-01 (b) and (c).
(6) "Related person" means any person, directly or indirectly, controlling or controlled by the investment adviser, and any person that is under common control with the investment adviser.
(7) "Control" means the power, directly or indirectly, to direct the management or policies of a person whether through ownership of securities, by contract, or otherwise. The following persons are presumed to have control:
(8) "Private fund adviser" means an investment adviser who provides advice solely to one or more qualifying private funds.
(9) "Qualifying private fund" means a private fund that meets the definition of a qualifying private fund in Securities and Exchange Commission Rule 203 (m)-1, 17 C.F.R. 275.203 (m)-1, other than a private fund that qualifies for the exclusion from the definition of "investment company" provided in section 3 (c)(1) of the Investment Company Act of 1940, 15 U.S.C. 80a-3 (c)(1).
(10) "Discretionary authority" means the authority, directly or indirectly, to:
(a) Determine what securities or other property shall be purchased or sold by or on behalf of a client;
(b) Make decisions as to what securities or other property shall be purchased or sold by or for the benefit of a client even though some other person may have responsibility for such investment decisions; or
(11) "FINRA" means the Financial Industry Regulatory Authority, Inc., the self-regulatory organization for broker-dealers and broker-dealer representatives that is registered as a national securities association with the Securities and Exchange Commission under Section 15A of the Securities Exchange Act of 1934, 15 U.S.C. § 78o.
(12) "Central Registration Depository" or "CRD" means the electronic filing system operated by FINRA for the registration of broker-dealers and broker-dealer representatives.
(13) "Investment Adviser Registration Depository" or "IARD" means the electronic filing system operated by FINRA for the registration of investment advisers and investment adviser representatives and submission of filings by exempt reporting advisers.
WAC 460-24A-010 ((Investment advisers—Where rules apply.)) Application of rules to out-of-state investment advisers.
If you are an investment adviser or investment adviser representative with your principal office and place of business outside the state of Washington, these rules apply only to that part of ((the investment advisers')) your business within the state of Washington.
AMENDATORY SECTION (Amending WSR 12-10-051, filed 4/30/12, effective 5/31/12)
WAC 460-24A-020 Investment adviser representatives employed by federal covered advisers.
If you are an individual employed by or associated with a federal covered adviser ((is)) you are an "investment adviser representative," ((pursuant to)) as defined under RCW 21.20.005, if ((the representative has)) you have a "place of business" in this state, as that term is defined under section 203A of the Investment Advisers Act of 1940, and:
(1) ((Is)) You are an "investment adviser representative" ((pursuant to)) as that term is defined in rules or regulations promulgated under the Investment Advisers Act of 1940 by the U.S. Securities and Exchange Commission; or
(2) You solicit((s)), offer((s)), or negotiate((s)) for the sale of or sell((s)) investment advisory services on behalf of a federal covered adviser, but ((is)) are not a "supervised person" as that term is defined under the Investment Advisers Act of 1940.
WAC 460-24A-030 Use of the term "investment counsel((.))" is prohibited.
((No)) If you are an investment adviser or investment adviser representative, you shall not use the title "investment counsel" in the conduct of ((his or its)) your business nor represent that ((he or it is)) you are an "investment counsel" nor use the term "investment counsel" as descriptive of ((his or its)) your business where such use is prohibited under the provisions of the Federal Investment Advisers Act of 1940, as amended.
WAC 460-24A-035 Definition of "client" of an investment adviser.
(1) General. You may deem the following to be a single client for purposes of RCW 21.20.040(3):
AMENDATORY SECTION (Amending WSR 00-01-001, filed 12/1/99, effective 1/1/00)
WAC 460-24A-040 Use of certain terms deemed similar to "financial planner" or "investment counselor."
(1) For the purposes of RCW 21.20.040(((3))) (4), use of any term, or abbreviation for a term, including the word "financial planner" or the word "investment counselor" is considered the same as the use of either of those terms alone.
(2) For the purposes of RCW 21.20.040(((3))) (4), terms that are deemed similar to "financial planner" and "investment counselor" include, but are not limited to, the following:
(g) The abbreviation CFP®.
WAC 460-24A-045 Holding out as a financial planner.
((A person using)) If you use a term deemed similar to "financial planner" or "investment counselor" under WAC 460-24A-040(2), you will not be considered to be holding ((himself)) yourself out as a financial planner for purposes of RCW 21.20.005 and 21.20.040 under the following circumstances:
(1) ((The person is)) You are not in the business of providing advice relating to the purchase or sale of securities, and would not, but for ((his)) your use of such a term, be an investment adviser required to register pursuant to RCW 21.20.040; and
(2) ((The person does)) You do not directly or indirectly receive a fee for providing investment advice. Receipt of any portion of a "wrap fee," that is, a fee for some combination of brokerage and investment advisory services, constitutes receipt of a fee for providing investment advice for the purpose of this section; and
(3) ((The person)) You deliver((s)) to every customer, at least forty-eight hours before accepting any compensation, including commissions from the sale of any investment product, a written disclosure including the following information:
(a) ((The person is)) You are not registered as an investment adviser or investment adviser ((salesperson)) representative in the state of Washington;
(b) ((The person is)) You are not authorized to provide financial planning or investment advisory services and ((does)) do not provide such services; and
(c) A brief description ((the person's)) of your business which description ((should)) shall include a statement of the kind of products offered or services provided (e.g., ((the person is)) you are in the business of selling securities and insurance products) and of the basis on which ((the person is)) you are compensated for the products sold or services provided; and
(4) ((The person has)) You have each customer to whom a disclosure described in subsection (3) of this section is given sign a written dated acknowledgment of receipt of the disclosure; and
(5) ((The person shall)) You retain the executed acknowledgments of receipt required by subsection (4) of this section and of the disclosure given for so long as ((the person)) you continue((s)) to receive compensation from such customers, but in no case for less than three years from date of execution of the acknowledgment; and
(6) If ((the person)) you received compensation from the customer on more than one occasion, ((the person)) you need give the customer the disclosure described in subsection (3) of this section only on the first occasion unless the information in the disclosure becomes inaccurate, in which case ((the person)) you must give the customer updated disclosure before receiving further compensation from the customer.
AMENDATORY SECTION (Amending WSR 01-16-125, filed 7/31/01, effective 10/24/01)
WAC 460-24A-047 Electronic filing with designated entity.
(1) Designation. Pursuant to RCW 21.20.050, the director designates the Investment Adviser Registration Depository (IARD) operated by ((the National Association of Securities Dealers (IARD))) FINRA to receive and store filings and collect related fees from investment advisers, federal covered advisers, and investment adviser representatives on behalf of the director.
(2) Use of IARD. Unless otherwise provided, all investment adviser, federal covered adviser, and investment adviser representative applications, amendments, reports, notices, related filings, and fees required to be filed with the director pursuant to the rules promulgated under this chapter, shall be filed electronically with and transmitted to IARD. The following additional conditions relate to such electronic filings:
(a) Electronic signature. When a signature or signatures are required by the particular instructions of any filing to be made through IARD, a duly authorized officer of the applicant or the applicant him or herself, as required, shall affix his or her electronic signature to the filing by typing his or her name in the appropriate fields and submitting the filing to ((Web)) IARD. Submission of a filing in this manner shall constitute irrefutable evidence of legal signature by any individuals whose names are typed on the filing.
(b) When filed. Solely for purposes of a filing made through IARD, a document is considered filed with the director when all fees are received and the filing is accepted by IARD on behalf of the state.
(3) Electronic filing. Notwithstanding subsection (2) of this section, the electronic filing of any particular document and the collection of related processing fees shall not be required until such time as IARD provides for receipt of such filings and fees and thirty days' notice is provided by the director. Any documents required to be filed with the director that are not permitted to be filed with or cannot be accepted electronically by IARD shall be filed ((in paper)) directly with the director.
(i) Investment advisers registered or required to be registered under RCW 21.20.040, who experience unanticipated technical difficulties that prevent submission of an electronic filing to IARD, may request a temporary hardship exemption from the requirements to file electronically.
(A) File Form ADV-H in paper format with the appropriate regulatory authority in the state where the investment adviser's principal place of business is located, no later than one business day after the filing, that is the subject of the Form ADV-H, was due. If the state where the investment adviser's principal place of business is located has not mandated the use of IARD, the investment adviser should file the Form ADV-H with the appropriate regulatory authority in the first state that mandates the use of IARD by the investment adviser; and
(B) Submit the filing that is the subject of the Form ADV-H in electronic format to IARD no later than seven business days after the filing was due.
(iii) Effective date((—)) - Upon filing. The temporary hardship exemption will be deemed effective by the director upon receipt of the complete Form ADV-H by appropriate regulatory authority noted in (a)(ii)(A) of this subsection. Multiple temporary hardship exemption requests within the same calendar year may be disallowed by the director.
(B) If a filing is due to more than one state, the Form ADV-H must be filed with the appropriate regulatory authority in the state where the investment adviser's principal place of business is located. If the state where the investment adviser's principal place of business is located has not mandated the use of IARD, the investment adviser should file the Form ADV-H with the appropriate regulatory authority in the first state that mandates the use of IARD by the investment adviser. Any applications received by the director will be granted or denied within ten business days after the filing of Form ADV-H.
(iii) Effective date((—)) - Upon approval. The exemption is effective upon approval by the director. The time period of the exemption may be no longer than one year after the date on which the Form ADV-H is filed. If the director approves the application, the investment adviser must, no later than five business days after the exemption approval date, submit filings in paper format (along with the appropriate processing fees) for the period of time for which the exemption is granted.
(c) Recognition of exemption. The decision to grant or deny a request for a hardship exemption will be made by the appropriate regulatory authority in the state where the investment adviser's principal place of business is located. If the state where the investment adviser's principal place of business is located has not mandated the use of IARD, the decision to grant or deny a request for a hardship exemption will be made by appropriate regulatory authority in the first state that mandates the use of IARD by the investment adviser. The decision will be followed by the director if the investment adviser is registered in this state.
WAC 460-24A-050 ((Investment adviser and investment adviser representative)) Registration and examination((s)) requirements.
(1) Examination requirements. ((A person)) If you are applying to be registered as an investment adviser or investment adviser representative under RCW 21.20.040, you shall provide the director with proof that ((he or she has)) you have obtained a passing score on ((one of the following examinations)):
(2) ((Grandfathering.)) Exceptions from examination requirements.
(a) ((Any individual who is)) If you were registered as an investment adviser or investment adviser representative in any jurisdiction in the United States on ((the effective date of this amended rule)) January 1, 2000, and there has been no period longer than two years since that date in which you were not registered as an investment adviser or investment adviser representative, you shall not be required to satisfy the examination requirements for initial or continued registration, provided that the director may require additional examinations ((for any individual)) if you are found to have violated the Securities Act of Washington, Chapter 21.20 RCW, or the Uniform Securities Act.
(b) ((An individual who has not been registered in any jurisdiction for a period of two years shall be required to comply with the examination requirements of subsection (1).)) Any person who has been registered as an investment adviser or investment adviser representative in any state requiring the licensing, registration, or qualification of investment advisers or investment adviser representatives within the two-year period immediately preceding the date of filing of an application shall not be required to comply with the examination requirement set forth in subsection (1) of this section provided that the person previously met the examination requirement in subsection (1) of this section.
(c) An applicant who has taken and passed the Uniform Investment Adviser State Law Examination (Series 65 examination) within two years prior to the date the application is filed with the director shall not be required to take and pass the Uniform Investment Adviser State Law Examination again.
(d) An applicant who is an agent for a broker-dealer/investment adviser and who is not required by the agent's home jurisdiction to make a separate filing on CRD as an investment adviser representative but who has previously met the examination requirement in subsection (1) of this section necessary to provide advisory services on behalf of the broker-dealer/investment adviser, shall not be required to take and pass the Uniform Investment Adviser State Law Examination (Series 65 examination) or the Uniform Combined State Law Examination (Series 66 examination) again.
(3) Examination waivers. ((The examination requirements shall not apply to an individual who currently)) You are not required to take the examinations set forth in subsection (1) of this section if you currently hold((s)) one of the following professional designations:
(d) Chartered Financial Analyst (CFA) granted by the ((Association for Investment Management and Research)) CFA Institute;
(e) Chartered Investment Counselor (CIC) granted by the Investment ((Counsel)) Adviser Association ((of America)); or
(4) If ((the person)) you are applying for registration as an investment adviser ((is)) and you are any entity other than a sole proprietor, an officer, general partner, managing member, or other equivalent person of authority in the entity may take the examination on behalf of the entity. If the person ((taking)) that took the examination ceases to be a person of authority in the entity, then ((the investment adviser)) you must notify the director of a substitute person of authority who has ((passed the examinations required in subsection (1) of this section within two months in order to maintain the investment adviser license)) registered with the director as an investment adviser representative.
(a) ((A person applying)) To apply for initial registration as an investment adviser ((shall)), you must file a completed Form ADV with IARD along with the following:
(ii) ((A financial statement demonstrating compliance with the requirements of WAC 460-24A-170)) Such financial statements as are set forth in WAC 460-24A-060, including a copy of the balance sheet for the last fiscal year, and if such balance sheet is as of a date more than ninety days from the date of filing the application, an unaudited balance sheet prepared as set forth in WAC 460-24A-060, if necessary;
(iii) A copy of the surety bond required by WAC 460-24A-170, if applicable;
(iv) The application fee specified in RCW 21.20.340; and
(((iv))) (v) Such other documents as the director may require.
(b) ((A person applying)) To apply for initial registration as an investment adviser representative, you shall file a completed Form ((U-4)) U4 with IARD along with the following:
(c) If you advise one or more pooled investment vehicles, then you must also submit to the division as part of your application, copies of the following documents:
(v) Operating agreement for each pooled investment vehicle; and
(vi) Such other documents as the director may require in order to complete the application.
WAC 460-24A-057 Renewal of investment adviser and investment adviser representative registration—Delinquency fees.
(1) Application for renewal. You may renew your registration as an investment adviser or investment adviser representative ((may be renewed)) by filing the following with IARD:
(c) An electronically submitted Form ((U-4)) U4, unless:
(i) The Form ((U-4)) U4 has been previously submitted to IARD electronically; or
(2) Delinquency fees. For any renewal application received by IARD after the expiration date set forth in WAC 460-24A-055, but on or before March 1 of the following year, the licensee shall pay a delinquency fee in addition to the renewal fee. The delinquency fee for investment advisers shall be one hundred dollars. The delinquency fee for investment adviser representatives shall be fifty dollars.
(((3))) No renewal applications will be accepted after March 1. An investment adviser or investment adviser representative may apply for reregistration by complying with WAC 460-24A-050.
WAC 460-24A-059 Pending application—Notice of termination—Application for continuation.
WAC 460-24A-060 Financial ((statements required on)) reporting requirements for investment advisers.
((Every)) (1) If you are an investment adviser ((shall)) registered or required to be registered under RCW 21.20.040 who has custody of client funds or securities or you require payment of advisory fees six months or more in advance and in excess of five hundred dollars per client, you must file with the director ((a)) an audited balance sheet as of the end of ((the investment adviser's)) your fiscal year. ((The)) Each balance sheet ((shall be prepared in accordance with)) filed pursuant to this subsection must be:
(a) Prepared in conformity with generally accepted accounting principles (GAAP) ((unless the director, on a case-by-case basis, allows another basis of presentation. The balance sheet shall be filed annually with the director not more than ninety days after the end of the investment adviser's fiscal year-end (unless extension of time is granted by the director))) and audited in accordance with generally accepted auditing standards by an independent certified public accountant; and
(2) If you are an investment adviser registered or required to be registered under RCW 21.20.040 that has custody as defined in WAC 460-24A-005 (1)(a)(iii) and you have notified the director on Form ADV that you will comply with the safekeeping requirements in WAC 460-24A-107 (1)(b), you must file with the director a copy of the audited financial statements of each pooled investment vehicle for which you are a general partner (or managing member or other comparable position).
(3) If you are an investment adviser registered or required to be registered under RCW 21.20.040 and are not subject to the financial statement reporting requirements in subsection (1) or (2) of this section, you must file with the director a balance sheet, which need not be audited, but which must be prepared in accordance with generally accepted accounting principles and represented by you or the person who prepared the statement as true and accurate, as of the end of your fiscal year.
(5) If you are an investment adviser that has its principal place of business in a state other than this state, you must file only such reports as required by the state in which you maintain your principal place of business, provided that you are licensed in such state and are in compliance with such state's financial reporting requirements.
WAC 460-24A-070 Notice filing((s)) requirements for federal covered advisers.
(1) Notice filing. If you are a federal covered adviser, you must file the notice filing required ((of a federal covered adviser)) pursuant to RCW 21.20.050 ((shall be filed)) with IARD on a completed Form ADV. ((A)) The notice filing ((of a federal covered adviser)) shall be deemed filed when the fee required by RCW 21.20.340 and the Form ADV are filed with and accepted by IARD on behalf of the state.
(2) ((Portions of Form ADV not yet accepted by IARD. Until IARD provides for the filing of Part 2 of Form ADV, Part 2 will be deemed filed if it is provided to the director within five days of the director's request. The federal covered adviser is not required to submit Part 2 of the Form ADV to the director unless requested.)) Form ADV Part 2. The director will accept a copy of Part 2 of Form ADV as filed electronically with IARD.
(3) Renewal. If you are a federal covered adviser, you must file the annual renewal of ((the)) your notice filing ((for a federal covered adviser shall be filed)) with IARD. The renewal ((of the notice filing for a federal covered adviser)) shall be deemed filed when the fee required by RCW 21.20.340 is filed with and accepted by IARD on behalf of the state.
(4) Updates and amendments. If you are a federal covered adviser, you must file any amendments to ((its)) your Form ADV with IARD in accordance with the instructions in the Form ADV.
(5) Hardship exemption. If you are a federal covered adviser that, because ((it has)) you have received a hardship exemption from the Securities and Exchange Commission (SEC), ((is)) are not required to file ((its)) your Form ADV with the SEC through IARD you shall, in lieu of filing electronically, file the documents and fees required by this section directly with the director.
WAC 460-24A-071 Registration exemption for investment advisers to private funds.
(4) Electronic filing. You must make the report filings described in subsection (1)(b) of this section electronically through IARD. A report shall be deemed filed when the report is filed and accepted by the IARD on the state's behalf.
(6) Waiver authority with respect to statutory disqualification. Subsection (1)(a) of this section shall not apply upon a showing of good cause and without prejudice to any other action of the securities division, if the securities administrator determines that it is not necessary under the circumstances that an exemption be denied.
(1) Exemption for venture capital fund advisers. You are exempt from the registration requirements for investment advisers in RCW 21.20.040 if you are exempt from registration under Section 203(l) of the Investment Advisers Act of 1940, 15 U.S.C. 80b-3(l), and Rule 203 (l)-1 adopted thereunder, 17 C.F.R. 275.203 (l)-1, provided you satisfy each of the following conditions:
WAC 460-24A-080 Termination of investment adviser and investment adviser representative registration and federal covered adviser notice filing status.
(1) Investment advisers and federal covered advisers. If you are an investment adviser or federal covered adviser ((may)) and you want to terminate ((its)) your registration or notice filing ((status)), you must do so by complying with the instructions to Form ADV-W and filing a completed Form ADV-W with IARD.
(2) Investment adviser representative. ((The termination of)) If you are an investment adviser and you terminate an investment adviser representative, you must terminate the registration ((as an)) of the investment adviser representative pursuant to RCW 21.20.080 ((shall be reported)) by complying with the instructions to Form ((U-5)) U5 and filing a completed Form ((U-5)) U5 with IARD within thirty days of termination.
WAC 460-24A-100 Advertisements by investment advisers.
(1) ((It shall constitute)) If you are an investment adviser, federal covered adviser, or investment adviser representative, it is an "act, practice, or course of business" which operates or would operate as a fraud within the meaning of RCW 21.20.020 for ((an investment adviser)) you, directly or indirectly, to publish, circulate or distribute any advertisement:
(a) Which refers, directly or indirectly, to any testimonial of any kind concerning ((the investment adviser)) you or concerning any advice, analysis, report or other service rendered by ((such investment adviser)) you; or
(b) Which refers, directly or indirectly, to any past specific recommendations ((of such investment adviser)) you made which were or would have been profitable to any person: Provided, however, That this clause (b) does not prohibit ((an advertisement which sets)) you from setting out or ((offers)) offering to furnish a list of all recommendations you made ((by such investment adviser)) within the immediately preceding period of not less than one year if such advertisement, and such list if it is furnished separately:
(i) States the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell or hold), the market price at that time, the price at which the recommendation was to be acted upon, and the market price of each such security as of the most recent practicable date((,)); and
(ii) Contains the following cautionary legend on the first page thereof in print or type as large as the largest print or type used in the body or text thereof: "It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list"; or
(c) Which represents, directly or indirectly, that any graph, chart, formula or other device being offered can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; or which represents, directly or indirectly, that any graph, chart, formula or other device being offered will assist any person in making his own decisions as to which securities to buy or sell, or when to buy or sell them, without prominently disclosing in such advertisement the limitations thereof and the difficulties with respect to its use; or
(2) For the purposes of this section, the term "advertisement" includes any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by electronic means, including online, or by radio or television, which offers:
(a) Any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell((,)); or
(b) Any graph, chart, formula or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell((,)); or
(c) Any other investment advisory service with regard to ((security)) securities.
WAC 460-24A-105 Requirements for an investment adviser that has custody or possession of client funds or securities.
If you are an investment adviser registered or required to be registered under RCW 21.20.040, it shall constitute an "act, practice, or course of business" which operates or would operate as a fraud within the meaning of RCW 21.20.020 for you to have custody of client funds or securities unless:
(ii) An independent certified public accountant verifies all client funds and securities by actual examination at least once during each calendar year, pursuant to a written agreement between you and the accountant, at a time that is chosen by the accountant without prior notice or announcement to you and that is irregular from year to year((, and)). The written agreement must provide for the first examination to occur within six months of becoming subject to this subsection, except that, if the investment adviser maintains client funds or securities pursuant to this rule as a qualified custodian, the agreement must provide for the first examination to occur no later than six months after obtaining the internal control report. The written agreement must require the accountant to:
(A) File((s)) a ((copy of the special examination report)) certificate on Form ADV-E with the director within ((thirty)) one hundred twenty days ((after the completion of the examination)) of the time chosen by the independent certified public accountant to conduct the examination, stating that it has examined the funds and securities and describing the nature and extent of the examination; and
(((iii) The independent certified public accountant, upon finding any material discrepancies during the course of the examination, notifies)) (B) Notify the director within one business day of the finding of any material discrepancies during the course of the examination, by means of a facsimile transmission or electronic mail, followed by first class mail, directed to the attention of the director; and
(((c) Account statements are sent to limited partners and members of limited liability companies that you advise. If you are a general partner of a limited partnership (or managing member of a limited liability company, or hold a comparable position for another type of pooled investment vehicle), the account statements required under this subsection are sent to each limited partner (or member or other beneficial owner); and)) (C) File within four business days of the resignation or dismissal from, or other termination of, the engagement, or removing itself or being removed from consideration for being reappointed, Form ADV-E accompanied by a statement that includes:
(5) A client may designate an independent representative to receive account statements. A client may designate an independent representative to receive, on his or her behalf, notices and account statements as required under subsections (3) and (4) of this section;
WAC 460-24A-106 Additional custody requirements for an investment adviser that directly deducts fees from client accounts.
(1) If you are an investment adviser registered or required to be registered under RCW 21.20.040 who has custody as defined in WAC 460-24A-005(1) ((solely)) because you have the authority to directly deduct fees from client accounts, you must comply with the safekeeping requirements in WAC 460-24A-105 and the following additional safeguards:
(ii) Send your client an invoice itemizing the fee. Itemization includes the formula used to calculate the fee, the amount of assets under management the fee is based on, and the time period covered by the fee.
(c) You must notify the director that you will comply with these safekeeping requirements. You must notify the director on Form ADV that you will comply with the safekeeping requirements set forth in this section.
(2) Waiver of net worth and bonding requirements. If you have custody as defined in WAC 460-24A-005(1) solely because you have the authority to have fees directly deducted from client accounts and you comply with the safekeeping requirements set forth in this section, you are not required to comply with the net worth and bonding requirements for an investment adviser that has custody set forth in WAC 460-24A-170.
(3) Waiver of audited balance sheet requirement. If you have custody as defined in WAC 460-24A-005(1) solely because you have the authority to directly deduct fees from client accounts, you are not required to comply with the requirement to file an audited balance sheet as set forth in WAC 460-24A-060(1) if you comply with WAC 460-24A-060(3), the safekeeping requirements in WAC 460-24A-105, and subsection (1) of this section.
WAC 460-24A-107 Additional custody requirements for an investment adviser that manages a pooled investment vehicle or trust.
(1) If you are an investment adviser registered or required to be registered under RCW 21.20.040 that has custody as defined in WAC 460-24A-005 (1)(a)(iii), you must, in addition to complying with the safekeeping requirements set forth in WAC 460-24A-105, either:
(a) ((Comply with additional safekeeping requirements. In addition to the safekeeping requirements set forth in WAC 460-24A-105, you must comply with the following safekeeping requirements:)) Engage an independent party to authorize withdrawals from the pooled account.
(i) ((You must engage an independent party to authorize withdrawals from the pooled account.)) You must ((hire)) enter into a written agreement with an independent party to review all fees, expenses, and capital withdrawals from the pooled accounts;
(ii) ((You must send detailed invoices or receipts to the independent party.)) You must send all invoices or receipts to the independent party, detailing the amount of the fee, expenses, or capital withdrawal and the method of calculation such that the independent party can:
(iii) ((You must notify the director that you will comply with these additional safekeeping requirements.)) You must notify the director on Form ADV that you will comply with the safekeeping requirements in (a) of this subsection; or
(b) ((You must)) Provide audited financial statements of the pooled investment vehicle to all limited partners or members. ((If you do not comply with the safekeeping requirements set forth in WAC 460-24A-105 and (a) of this subsection, you must comply with the following alternative safekeeping requirements:))
(i) ((The pooled investment vehicle must be subject to annual audits.)) You must cause the financial statements of the limited partnership (or limited liability company, or another type of pooled investment vehicle) for which you are a general partner (or managing member or other comparable position) to be subject to audit, at least annually, by an independent certified public accountant to be conducted in accordance with generally accepted auditing standards;
(ii) ((You must distribute audited financial statements for the pooled investment vehicle to all beneficial owners.)) You must distribute the audited financial statements ((prepared in accordance with generally accepted accounting principles for the limited partnership (or limited liability company, or another type of pooled investment vehicle) for which you are a general partner (or managing member or other comparable position))) to all limited partners (or members or other beneficial owners), or the independent representative where one has been designated, within one hundred twenty days of the end of ((its)) the pooled investment vehicle's fiscal year. If the limited partners (or members or other beneficial owners) are themselves limited partnerships (or limited liability companies, or another type of pooled investment vehicle) that are related persons to you, you must distribute the audited financial statements to each beneficial owner that is unrelated to you; ((and))
(iii) ((You must notify the director that you will distribute audited financial statements of the pooled investment vehicle to all beneficial owners.)) You must distribute, upon liquidation, the fund's final audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners (or members or other beneficial owners), or the independent representative where one has been designated, and the director promptly after the completion of such audit;
(v) You must notify the director on Form ADV that you will comply with the safekeeping requirements in (b)(i) and (ii) of this subsection((.));
(ii) A listing of the fund's long and short positions on the closing date of the statement in a form and to the extent required by FASB Rule ASC 946-210-50; and
(3) If you ((comply with the additional safekeeping requirements)) engage an independent party, you are not required to comply with the net worth and bonding requirements for an investment adviser that has custody. If you have custody solely as defined in WAC ((460-24A-105)) 460-24A-005 (1)(a)(iii) and you comply with the safekeeping requirements in WAC 460-24A-105 and subsection (1)(a) of this section, you are not required to comply with the net worth and bonding requirements for an investment adviser that has custody set forth in WAC 460-24A-170.
(((3))) (4) If you distribute audited financial statements of the pooled investment vehicle to all beneficial owners, you are not required to comply with the surprise examination requirements. You are not required to comply with the surprise examination requirements set forth in WAC 460-24A-105 (4)(b)(ii) ((and (iii))) with respect to the account of a limited partnership (or limited liability company, or another type of pooled investment vehicle) that is subject to audit if you otherwise comply with the safekeeping requirements in WAC 460-24A-105 and subsection (1)(b) of this section.
(5) If you distribute audited financial statements of the pooled investment vehicle to all beneficial owners, you are not required to file an audited balance sheet. If you have custody solely as defined in WAC 460-24A-005 (1)(a)(iii), you are not required to comply with the requirement to file an audited balance sheet as set forth in WAC 460-24A-060(1) if you comply with WAC 460-24A-060(3), the safekeeping requirements in WAC 460-24A-105, and subsections (1)(b) and (2) of this section.
WAC 460-24A-108 Additional custody requirements for an investment adviser that acts as trustee and investment adviser to a trust.
(3) You must notify the director that you will comply with these safekeeping requirements. You must notify the director on Form ADV that you will comply with the safekeeping requirements set forth in this section.
(4) You are not required to comply with the net worth and bonding requirements for an investment adviser that has custody if you comply with these safekeeping requirements. If you have custody solely as defined in WAC 460-24A-005 (1)(a)(iii) because you are the trustee of a trust and you comply with the safekeeping requirements in WAC 460-24A-105 and this section, you are not required to comply with the net worth and bonding requirements for an investment adviser that has custody set forth in WAC 460-24A-170.
WAC 460-24A-109 Exceptions from custody requirements.
(1)(a) You are not required to ((comply with the custody requirements for)) engage a qualified custodian to hold certain privately offered securities. You are not required to comply with WAC 460-24A-105(2) ((through 460-24A-108)) with respect to securities that are:
(3) You are not required to comply with the custody requirements with respect to a trust for the benefit of your relative. You are not required to comply with the safekeeping requirements of WAC 460-24A-105 through 460-24A-108 or the net worth and bonding requirements for an investment adviser that has custody set forth in WAC 460-24A-170 if you have custody solely because you or one of your representatives, employees, directors, or owners is a trustee for a beneficial trust, if all of the following conditions are met for each trust:
(a) The beneficial owner of the trust is your parent, a grandparent, a spouse, a sibling, a child, or a grandchild. These relationships shall include "step" relationships.
WAC 460-24A-110 Agency cross transactions.
(((a))) (1) For purposes of this rule, "agency cross transaction for an advisory client" means a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, or any person controlling, controlled by, or under common control with such investment adviser, including an investment adviser representative, acts as a broker-dealer for both the advisory client and another person on the other side of the transaction. When acting in such capacity such person is required to be registered as a broker-dealer in this state unless excluded from the definition.
(((b))) (2) If you are an investment ((effecting)) adviser or investment adviser representative, it shall be unlawful for you to effect an agency cross transaction for an advisory client ((shall be in compliance with)) under RCW 21.20.020(((3)))(2) ((if the following)) unless you satisfy these conditions ((are met)):
(((1))) (a) You obtain the written consent of the advisory client ((executes a written consent)) prospectively authorizing ((the investment adviser)) you to effect agency cross transactions for such client;
(((2))) (b) Before obtaining such written consent from the client, ((the investment adviser)) you make((s)) full written disclosure to the client that, with respect to agency cross transactions, ((the investment adviser)) you will act as broker-dealer for, receive commissions from and have a potentially conflicting division of loyalties and responsibilities regarding both parties to the transactions;
(((3))) (c) At or before the completion of each agency cross transaction, ((the investment adviser)) you or any other person relying on this rule sends the client a written confirmation. You must include the following in the written confirmation ((shall include (A))):
(i) A statement of the nature of the transaction((, (B)));
(ii) The date the transaction took place (((C)));
(((D))) (iv) The source and amount of any other remuneration the investment adviser received or will receive in connection with the transaction. In the case of a purchase, if the investment adviser was not participating in a distribution, or, in the case of a sale, if the investment adviser was not participating in a tender offer, the written confirmation may state whether the investment adviser has been receiving or will receive any other remuneration and that the investment adviser will furnish the source and amount of such remuneration to the client upon the client's written request;
(((4))) (3) At least annually, and with or as part of any written statement or summary of the account from the investment adviser, the investment adviser or any other person relying on this rule sends each client a written disclosure statement identifying (((A))):
(((B))) (b) The total amount of all commissions or other remuneration the investment adviser received or will receive in connection with agency cross transactions for the client during the period((;)).
(((5))) (4) Each written disclosure and confirmation required by this rule must include a conspicuous statement that the client may revoke the written consent required under subsection (((b)(1))) (2)(a) of this ((rule)) section at any time by providing written notice to the investment adviser((;)).
(((6))) (5) No agency cross transaction may be effected in which the same investment adviser recommended the transaction to both any seller and any purchaser.
(((c))) (6) Nothing in this rule shall be construed to relieve an investment adviser or investment adviser representative from acting in the best interest of the client, including fulfilling his duty with respect to the best price and execution for the particular transaction for the client nor shall it relieve any investment adviser or investment adviser representative of any other disclosure obligations imposed by the Securities Act of Washington, chapter 21.20 RCW, and the rules and regulations thereunder.
WAC 460-24A-120 Compliance procedures and practices.
If you are an investment adviser registered or required to be registered under RCW 21.20.040, or a federal covered adviser, and have more than one employee, it is unlawful under RCW 21.20.020 for you to provide investment advice to clients unless you:
(1) Policies and procedures. Adopt and implement written policies and procedures reasonably designed to prevent violation, by you and your supervised persons, of the Securities Act of Washington, chapter 21.20 RCW, and the rules adopted thereunder, and the federal securities laws;
(2) Annual review of policies and procedures. Review, no less frequently than annually, the adequacy of the policies and procedures established pursuant to this section and the effectiveness of their implementation; and
(3) Chief compliance officer. Designate an individual responsible for administering the policies and procedures that you adopt under subsection (1) of this section.
WAC 460-24A-125 Proxy voting.
If you are an investment adviser registered or required to be registered under RCW 21.20.040, or a federal covered adviser, it is unlawful under RCW 21.20.020 for you to exercise voting authority with respect to client securities, unless you:
(1) Adopt and implement written policies and procedures that are reasonably designed to ensure that you vote client securities in the best interest of clients, which procedures must include how you address material conflicts that may arise between your interests and those of your clients;
WAC 460-24A-130 Contents of investment advisory contract.
If you are an investment adviser registered or required to be registered under RCW 21.20.040, it is unlawful under RCW 21.20.020 and 21.20.030 for you to enter into, extend, or renew any investment advisory contract unless it provides in writing:
(1) The services to be provided, the term of the contract, the investment advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of termination or nonperformance of the contract, and whether and the extent to which the contract grants discretionary authority to you and any limits on such authority;
(2) That no direct or indirect assignment or transfer of the contract may be made by you without the written consent of the client or other party to the contract;
(3) That you shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client except as permitted under WAC 460-24A-150;
(4) That if you are a partnership, you shall notify the client or other party to the investment contract of any change in the membership of the partnership within a reasonable time after the change;
(5) That if you are an investment adviser who has custody as a consequence of your authority to make withdrawals from client accounts to pay your advisory fee, that the contract gives you the authority to deduct your advisory fees from the account held with the qualified custodian;
(8) The nature and extent to which you may deliver electronically the documents specified in WAC 460-24A-145, account statements, fee invoices, and other documents and the extent and manner in which a client may opt out of receiving documents electronically; and
(9) For clients residing in Washington, the advisory contract shall not waive or limit compliance with, or require indemnification for any violations of, any provision of the Securities Act of Washington, chapter 21.20 RCW.
WAC 460-24A-140 Guarantees of success are prohibited.
((No representation or statement, whether direct or by implication, should be made guaranteeing the success of investments made pursuant to recommendations of the advisory service concerned.)) It is an unlawful act, practice, or course of business which operates or would operate as a fraud or deceit under RCW 21.20.020 (1)(b) to make any representation or statement, whether directly or by implication, guaranteeing the success of investments made pursuant to the recommendations of an investment adviser or investment adviser representative.
AMENDATORY SECTION (Amending WSR 02-19-093, filed 9/17/02, effective 10/18/02)
WAC 460-24A-145 Investment adviser brochure rule.
(1) General requirements. Unless otherwise provided in this rule, if you are an investment adviser((,)) registered or required to be registered pursuant to RCW 21.20.040, you shall, in accordance with the provisions of this section, ((offer and)) deliver to each advisory client and prospective advisory client ((written disclosure materials containing at least the information then so required by Part II of Form ADV and such other information as the director may require. If a federal covered adviser may utilize a copy of Part II of its Form ADV to provide the disclosures required pursuant to 17 CFR 275.204-3, then an investment adviser may use a copy of Part II of its ADV to provide the disclosures required by this section)):
(a) ((An investment adviser,)) Initial delivery. Except as provided in (((b))) (c) of this subsection, you shall deliver the materials required by this section to an advisory client or prospective advisory client (i) not less than forty-eight hours prior to entering into any investment advisory contract with such client or prospective client, or (ii) at the time of entering into any such contract, if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.
(b) ((Delivery of the)) Annual delivery. Except as provided in (c) of this subsection, if there have been any material changes that have taken place since the last summary and brochure delivery to your clients, you must:
(c) Exception for certain clients. You are not required to deliver the materials ((required by (a))) set forth in (1) of this ((subsection need not be made in connection with entering into a contract for impersonal advisory services.
(3) Offer to deliver.
(a) An investment adviser, except as provided in (b) of this subsection, annually shall, without charge, deliver or offer in writing to deliver upon written request to each of its advisory clients the materials required by this section.
(b) The delivery or offer required by (a) of this subsection need not be made to advisory clients receiving advisory services solely pursuant to a contract for impersonal advisory services requiring a payment of less than $200.00.
(c) With respect to an advisory client entering into a contract or receiving advisory services pursuant to a contract for impersonal advisory services which requires a payment of $200.00 or more, an offer of the type specified in (a) of this subsection shall also be made at the time of entering into an advisory contract.
(d) Any materials requested in writing by an advisory client pursuant to an offer required by this subsection must be mailed or delivered within seven days of the receipt of the request.)) section to:
(c) Prepare the electronically delivered materials in the format prescribed in (a) of this subsection and the instructions to Form ADV Part 2;
(d) Deliver the materials in a format that can be retained by the client in either electronic or paper form; and
(e) Establish procedures to supervise personnel transmitting the materials and prevent violations of this rule.
(4) Delivery to limited partners. If ((the investment adviser is)) you are the ((general partner of)) adviser to a limited partnership, ((the manager of)) a limited liability company, or ((the trustee of)) a trust, then((, for purposes of this section, the investment adviser)) you must treat each of the partnership's limited partners, the company's members, or the trust's beneficial owners, as a client. For purposes of this section, a limited liability partnership or limited liability limited partnership is a "limited partnership."
(5) ((Wrap fee program brochures.
(a) If the investment adviser is a sponsor of a wrap fee program, then the materials required to be delivered, by subsection (2) of this section, to a client or prospective client of the wrap fee program, must contain all information required by Form ADV. Any additional information must be limited to information applicable to wrap fee programs that the investment adviser sponsors.
(b) The investment adviser does not have to offer or deliver wrap fee information if another sponsor of the wrap fee program offers or delivers to the client or prospective client of the wrap fee program warp fee program information containing all the information the investment adviser's wrap fee program brochure must contain.
(6) Delivery of updates and amendments. When the disclosure materials required to be delivered pursuant to subsection (2) of this section become materially inaccurate, the investment adviser must amend and promptly deliver to its clients amendments to such disclosure materials. The instructions to Part 2 of Form ADV contain updating and delivery instructions that the investment adviser must follow. An amendment will be considered to be delivered promptly if the amendment is delivered within thirty days of the event that requires the filing of the amendment.
(7))) Omission of inapplicable information. If ((an investment adviser)) you render((s)) substantially different types of investment advisory services to different advisory clients, ((the investment adviser)) you may provide them with different disclosure materials, provided that each client receives all applicable information about services and fees. The disclosure delivered to a client may omit any information required by Part ((II)) 2 of Form ADV if such information is applicable only to a type of investment advisory service or fee which is not rendered or charged, or proposed to be rendered or charged, to that client or prospective client.
(((8))) (6) Other disclosure obligations. Nothing in this section shall relieve ((any investment adviser)) you from any obligation to disclose any information to ((its)) your advisory clients or prospective advisory clients not specifically required by this rule under chapter 21.20 RCW, the rules and regulations thereunder, or any other federal or state law.
(((9))) (7) Definitions. For the purposes of this rule:
(((c) "Sponsor" of a wrap fee program means an investment adviser that is compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting, or providing advice to clients regarding the selection of other investment advisers in the program.
(d) "Wrap fee program" means an advisory program under which a specified fee or fees, not based directly upon transactions in a client's account, is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions.))
WAC 460-24A-150 Performance compensation arrangements.
(1) General. If you are an investment adviser you may, without violating RCW 21.20.030(1), enter into ((a performance compensation arrangement with a customer that complies with Securities and Exchange Commission Rule 205-3, as made effective in Release No. IA-996 and as amended in Release No. IA-1731, under the Investment Advisers Act of 1940. Rule 205-3 is found in the CCH Federal Securities Law Reports published by Commerce Clearing House. Copies of the rule are also available at the office of the securities administrator.)), extend, or renew an investment advisory contract which provides for compensation to you on the basis of a share of capital gains upon or capital appreciation of the funds, or any portion of the funds, of the client if:
(A) Has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than two million dollars. For purposes of calculating a natural person's net worth:
(d) The term "executive officer" means the president, any vice-president in charge of a principal business unit, division or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions, for the investment adviser.
(a) In the case of securities for which market quotations are readily available within the meaning of Rule 2a-(4)(a)(1) under the Investment Company Act of 1940 (Definition of "Current Net Asset Value" for Use in Computing Periodically the Current Price of Redeemable Security), 17 C.F.R. 270.2a-4 (a)(1), the formula must include the realized capital losses and unrealized capital depreciation of the securities over the period;
(b) In the case of securities for which market quotations are not readily available within the meaning of Rule 2a-4 (a)(1) under the Investment Company Act of 1940, 17 C.F.R. 270.2a-4 (a)(1), the formula must include:
(ii) If the unrealized capital appreciation of the securities over the period is included, the unrealized capital depreciation of the securities over the period; and
(c) The formula must provide that any compensation paid to you under this section is based on the gains less the losses (computed in accordance with (a) and (b) of this subsection) in the client's account for a period of not less than one year.
(e) Where your compensation is based in part on the unrealized appreciation of securities for which market quotations are not readily available within the meaning of Rule 2a-4 (a)(1) under the Investment Company Act of 1940, 17 C.F.R. 270.2a-4 (a)(1), how the securities will be valued and the extent to which the valuation will be independently determined.
(8) Obligations of independent representative. Nothing in this section shall relieve a client's independent representative from any obligation to the client under applicable law.
(b) Registered investment advisers that were previously not registered. This section shall not apply to an advisory contract entered into when you were not required to register and were not registered. If a natural person or a company who was not a party to the contract becomes a party (including an equity owner of a private investment company advised by the adviser) when you are registered or required to register, however, the conditions of this section in effect at that time will apply with regard to that person or company.
WAC 460-24A-160 Restrictions on advertising refunds.
((Advisory services should not)) If you are in an investment adviser or investment adviser representative, it is unlawful under RCW 21.20.020 to advertise or represent to subscribers or customers for advisory services that subscriptions, fees or other payments will be refunded if they are not satisfied unless:
(2) ((the investment adviser's)) Your financial ((responsibility)) situation is adequate to ((insure its)) ensure your ability to meet all such refund demands.
WAC 460-24A-170 Minimum financial requirements for investment advisers.
(1) If you are an investment adviser registered or required to be registered under RCW 21.20.040, who has custody of client funds or securities, you shall maintain at all times a minimum net worth of $35,000 unless provided otherwise in this chapter. If you are an investment adviser registered or required to be registered under RCW 21.20.040, who has discretionary authority over client funds or securities, but does not have custody of client funds or securities, you shall maintain at all times a minimum net worth of $10,000.
(2) If you are an investment adviser registered or required to be registered under RCW 21.20.040 who has custody or ((discretion of)) discretionary authority over client funds or securities, but does not meet the minimum net worth requirements in subsection (1) of this section you shall ((be bonded)) maintain a bond in the amount of the net worth deficiency rounded up to the nearest $5,000. Any bond required by this section shall be in the form determined by the director, issued by a company qualified to do business in this state, and shall be subject to the claims of all clients of the investment adviser regardless of the ((client's)) clients' states of residence.
(3) If you are an investment adviser registered or required to be registered under RCW 21.20.040, ((who accepts prepayment of more than $500 per client and six or more months in advance,)) you shall maintain at all times a positive net worth.
(4) Unless otherwise exempted, as a condition of the right to transact business in this state, ((every)) if you are an investment adviser registered or required to be registered under RCW 21.20.040 you shall, by the close of business on the next business day, notify the director if ((the investment adviser's)) your net worth is less than the minimum required. After transmitting such notice, ((each investment adviser)) you shall file, by the close of business on the next business day, a report with the director of its financial condition, including the following:
(5) For purposes of this section, the term "net worth" shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets: Prepaid expenses (except as to items properly classified as assets under generally accepted accounting principles), deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, all other assets of intangible nature; primary residence, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual; advances or loans to stockholders and officers in the case of a corporation; and advances or loans to partners in the case of a partnership.
(6) For purposes of this section, if you are an investment adviser you shall not be deemed to be exercising discretion when you place trade orders with a broker-dealer pursuant to a third-party trading agreement if:
(((7) Every)) (8) If you are an investment adviser that has its principal place of business in a state other than this state, you shall maintain only such minimum net worth as required by the state in which ((the investment adviser)) you maintain((s its)) your principal place of business, provided ((the investment adviser is)) you are licensed in that state and ((is)) are in compliance with that state's minimum capital requirements.
WAC 460-24A-200 Books and records to be maintained by investment advisers.
(1) ((Every)) If you are an investment adviser registered or required to be registered pursuant to RCW 21.20.040, you shall make and keep true, accurate, and current the following books, ledgers, and records:
(a) A journal or journals, including cash receipts and disbursement((s)) records, and any other records of original entry forming the basis of entries in any ledger.
(c) A memorandum of each order given by ((the investment adviser)) you for the purchase or sale of any security, of any instruction received by ((the investment adviser)) you from a client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any such order or instruction. The memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with ((the investment adviser)) you who recommended the transaction to the client and the person who placed the order; and shall show the account for which entered, the date of entry, and the bank or broker-dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of a power of attorney shall be so designated.
(e) All bills or statements (or copies thereof), paid or unpaid, relating to ((the)) your business ((of the investment adviser)).
(f) All trial balances, financial statements, and internal audit working papers or other supporting financial records relating to ((the investment adviser's)) your business as an investment adviser. For purposes of this subsection, "financial statements" shall mean a balance sheet prepared in accordance with generally accepted accounting principles, ((and)) an income statement, a cash flow statement, and a net worth computation, if applicable, as required by WAC 460-24A-170.
(g) Originals of all written communications received and copies of all written communications sent by ((the investment adviser)) you relating to your investment advisory business including, but not limited to:
(i) Any recommendation made or proposed to be made and any advice given or proposed to be given((,));
(ii) Any receipt, disbursement or delivery of funds or securities((, or)); and
(iii) The placing or execution of any order to purchase or sell any security: Provided, however, That ((the investment adviser)) you shall not be required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for ((the investment adviser)) you: And provided, That if ((the investment adviser)) you send((s)) any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service to more than ten persons, ((the investment adviser)) you shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except that if such notice, circular or advertisement is distributed to persons named on any list, ((the investment adviser)) you shall retain with the copy of such notice, circular or advertisement a memorandum describing the list and the source thereof.
(h) A list or other record of all accounts in which ((the investment adviser is)) you are vested with any discretionary ((power with respect to)) authority over the funds, securities or transactions of any client.
(i) A copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to ((the investment adviser)) you.
(j) A written copy of each signed agreement entered into by ((the investment adviser)) you with any client and all other written agreements otherwise relating to ((the investment adviser's)) your business as an investment adviser.
(k) A file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication, including by electronic media, and all amendments thereto, that ((the investment advisers)) you circulate((s)) or distribute((s)), directly or indirectly, to two or more persons (other than persons connected with ((the investment adviser)) you), and if such communication recommends the purchase or sale of a specific security and does not state the reasons for the recommendation, a memorandum ((of the investment adviser)) by you indicating the reasons for the recommendation.
(l)(i) A record of every transaction in a security in which ((the investment adviser)) you or any ((advisory representative (as hereinafter defined) of the investment adviser)) of your advisory representatives has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, except:
(A) Transactions effected in any account over which neither ((the investment adviser)) you nor any of your advisory representatives ((of the investment adviser)) has any direct or indirect influence or control; and
The record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. The record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that ((the investment adviser)) you or your advisory representative has any direct or indirect beneficial ownership in the security. ((A)) You shall record each transaction ((shall be recorded)) not later than ten days after the end of the calendar quarter in which the transaction was effected.
(A) "Advisory representative" shall mean any of your partners, officers or directors ((of the investment adviser)); any employee who participates in any way in the determination of which recommendations shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; any employee who, in connection with his or her duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of the recommendations; and any of the following persons who obtain information concerning securities recommendations being made by ((the investment adviser)) you prior to the effective dissemination of the recommendations:
(I) Any person in a control relationship to ((the investment adviser)) you;
(B) "Control" shall mean the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Any person who owns beneficially, either directly or through one or more controlled companies, more than twenty-five percent of the voting securities of a company shall be presumed to control such company.
(iii) ((An investment adviser)) You shall not be deemed to have violated the provisions of this subsection (1) because of the failure to record securities transactions of any advisory representative if ((the investment adviser establishes)) you establish that ((it)) you instituted adequate procedures, and used reasonable diligence to obtain promptly, reports of all transactions required to be recorded.
(m)(i) Notwithstanding the provisions of (l) of this subsection, ((where the investment adviser is)) if you are primarily engaged in a business or businesses other than advising investment advisory clients, you must maintain a record ((must be maintained)) of every transaction in a security in which ((the investment adviser)) you or any of your advisory representatives (as hereinafter defined) ((of the investment adviser)) has, or by reason of any transaction acquires, any direct or indirect beneficial ownership, except:
The record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale, or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. The record may also contain a statement declaring that the reporting or recording of any transaction shall not be construed as an admission that ((the investment adviser)) you or any of your advisory representatives has any direct or indirect beneficial ownership in the security. You shall record a transaction ((shall be recorded)) not later than ten days after the end of the calendar quarter in which the transaction was effected.
(ii) ((An investment adviser is)) You are "primarily engaged in a business or businesses other than advising investment advisory clients" ((when)) if, for each of ((its)) your most recent three fiscal years or for the period of time since organization, whichever is lesser, ((the investment adviser)) you derived, on an unconsolidated basis, more than fifty percent of:
(A) ((Its)) Your total sales and revenues; and
(B) ((Its)) Your income (or loss) before income taxes and extraordinary items,
(A) "Advisory representative," when used in connection with a company primarily engaged in a business or businesses other than advising investment advisory clients, shall mean any partner, officer, director, or employee of the investment adviser who participates in any way in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which securities are being recommended prior to the effective dissemination of the recommendations; and any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations or of the information concerning the recommendations:
(iv) ((An investment adviser)) You shall not be deemed to have violated the provisions of this subsection (1)(m) because of ((the)) your failure to record securities transactions of any advisory representative if ((the investment adviser establishes)) you establish that ((it)) you instituted adequate procedures, and used reasonable diligence to obtain promptly, reports of all transactions required to be recorded.
(n) The following items related to WAC 460-24A-145 and Part ((II)) 2 of Form ADV:
(i) A copy of each written statement, and each amendment or revision, given or sent to any of your clients or prospective clients ((of the investment adviser)) as required by WAC 460-24A-145;
(ii) Any summary of material changes that is required by Part ((II)) 2 of Form ADV that is not included in the written statement; and
(o) For each client that ((was)) you obtained ((by the adviser)) by means of a solicitor to whom you paid a cash fee ((was paid by the adviser)):
(i) Evidence of a written agreement to which ((the adviser is)) you are a party related to the payment of such fee;
(ii) A signed and dated acknowledgment of receipt from the client evidencing the client's receipt of ((the investment adviser's)) your disclosure statement and a written disclosure statement of the solicitor; and
For purposes of this subsection, the term "solicitor" shall mean any person or entity who, for compensation, acts as an agent of an investment adviser in referring potential clients.
(p) All accounts, books, internal working papers, and any other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication including, but not limited to, electronic media that ((the investment adviser)) you circulate((s)) or distribute((s)), directly or indirectly, to two or more persons (other than persons connected with ((the investment adviser)) you); provided however, that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits, and other transactions in a client's account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts shall be deemed to satisfy the requirements of this subsection.
(q) A file containing a copy of all written communications received or sent regarding any litigation involving ((the investment adviser)) you or any investment adviser representative or employee, and regarding any written customer or client complaint.
(r) Written information about each investment advisory client that is the basis for making any recommendation or providing any investment advice to such client.
(((t))) (u) A file containing a copy of each document (other than any notices of general dissemination) that was filed with or received from any state or federal agency or self regulatory organization and that pertains to ((the registrant)) you or ((its)) your advisory representatives as that term is defined in (m)(iii)(A) of this subsection, which file should contain, but is not limited to, all applications, amendments, renewal filings, and correspondence.
(((u))) (v) If you inadvertently held or obtained a client's securities or funds and returned them to the client within three business days or forwarded third-party checks within three business days, you shall keep the following records relating to the inadvertent custody:
(w) Copies, with original signatures of ((the investment adviser's)) your appropriate signatory and the investment adviser representative, of each initial Form ((U-4)) U4 and each amendment to Disclosure Reporting Pages (DRPs ((U-4))) must be retained by ((the investment adviser)) you (filing on behalf of the investment adviser representative) and must be made available for inspection upon regulatory request.
(((2))) (x) If you obtain possession of securities that are acquired from the issuer in a transaction or chain of transactions not involving any public offering that comply with the exception from custody under WAC 460-24A-109(1), you shall keep the following records:
(y) A copy of a current written business continuity plan which identifies procedures to be followed in the event of an emergency or significant business disruption and which is reasonably designed to enable you to meet your fiduciary obligations to your clients.
(2)(a) If ((an investment adviser)) you are subject to subsection (1) of this section ((has)) and have custody or possession of securities or funds of any client, the records required to be made and kept under subsection (1) of this section shall include:
(((a))) (i) A copy of any and all documents executed by the client (including a limited power of attorney) under which the adviser is authorized or permitted to withdraw a client's funds or securities maintained with a custodian upon the adviser's instruction to the custodian.
(((b))) (iii) A separate ledger account for each such client showing all purchases, sales, receipts and deliveries of securities, the date and price of each purchase or sale, and all debits and credits.
(((c))) (iv) Copies of confirmations of all transactions effected by or for the account of any client.
(((d))) (v) A record for each security in which any client has a position, which record shall show the name of each client having any interest in each security, the amount of interest of each client, and the location of each security.
(((3) Every investment adviser)) (vi) A copy of each of the client's quarterly account statements, as generated and delivered by the qualified custodian. If you also generate a statement that is delivered to the client, you shall also maintain copies of such statements along with the date such statements were sent to the clients.
(b) If you have custody because you advise a pooled investment vehicle, as defined in WAC 460-24A-005 (1)(a)(iii), you shall also keep the following records:
(ii) Where you comply with WAC 460-24A-107 (1)(b) the records required to be made and kept shall include:
(iii) Where you comply with WAC 460-24A-107 (1)(a) the records required to be made and kept shall include:
(c) If you have custody because you are acting as the trustee for a beneficial trust as it is described in WAC 460-24A-109(3), you shall also keep the following records until the account is closed or the adviser is no longer acting as trustee:
(3) If you are subject to subsection (1) of this section ((who)) and you render((s)) any investment supervisory or management service to any client, you shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by ((the investment adviser)) you, make and keep true, accurate and current:
(b) For each security in which any client has a current position, information from which ((the investment adviser)) you can promptly furnish the name of each client, and the current amount ((of)) or the interest of the client.
(4) Any books or records required by this section may be maintained by ((the investment adviser)) you in such manner that the identity of any client to whom ((such investment adviser)) you render((s)) investment supervisory services is indicated by numerical or alphabetical code or some similar designation.
(5) ((Every investment adviser)) If you are subject to subsection (1) of this section, you shall preserve the following records in the manner prescribed:
(a) All books and records required to be made under the provisions of subsections (1) to (3)(((a))), inclusive, of this section except for books and records required to be made pursuant to subsection (1)(k) and (p) of this section shall be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on the record, the first two years in ((the)) your principal office ((of the investment adviser)).
(b) Your partnership articles and any amendments, articles of incorporation, charter documents, minute books and stock certificate books of ((the investment adviser)) you and ((of)) any of your predecessors, shall be maintained in ((the)) your principal office ((of the investment adviser)) and preserved until at least three years after termination of the enterprise.
(c) Books and records required to be made pursuant to subsection (1)(k) and (p) of this section shall be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in ((the)) your principal office ((of the investment adviser)), from the end of the fiscal year during which ((the investment adviser)) you last published or otherwise disseminated, directly or indirectly, including by electronic media, the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication.
(d) Notwithstanding other record preservation requirements of this section, you shall maintain the following records or copies ((shall be maintained)) at ((the)) your business location ((of the investment adviser)) from which the customer or client is being provided or has been provided with investment advisory services:
(i) Records required to be preserved under subsections (1)(c), (g) through (j), (n), (o), and (q) through (s), (2), and (3) of this section shall be maintained for the period prescribed in (a) of this subsection; and
(ii) Records or copies required pursuant to subsection (1)(k) and (p) of this section which records or related records identify the name of the investment adviser representative providing investment advice from that business location, or which identify the business locations' physical address, mailing address, electronic mailing address, or telephone number shall be maintained for the period prescribed in (c) of this subsection.
(6) If you are an investment adviser subject to subsection (1) of this section, you shall, before ceasing to conduct or discontinuing business as an investment adviser, ((shall)) arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the period specified in this section, and shall notify the director in writing of the exact address where the books and records will be maintained during the period.
(7)(a) ((The records required to be maintained and preserved pursuant to this section may be immediately produced or reproduced by photograph on film or, as provided in (b) of this subsection, on magnetic disk, tape, or other computer storage medium, and be maintained and preserved for the required time in that form. If records are produced or reproduced by photographic film or computer storage medium, the investment adviser shall:
(i) Arrange the records and index the films or computer storage medium so as to permit the immediate location of any particular record;
(ii) Be ready at all times to promptly provide any facsimile enlargement of film or computer printout or copy of the computer storage medium that the director, by its examiners or other representatives, may request;
(iii) Store, separately from the original, one copy of the film or computer storage medium for the time required;
(iv) With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction; and
(v) With respect to records stored on photographic film, at all times have available for the director's examination of its records pursuant to RCW 21.20.100, facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.
(b) Pursuant to (a) of this subsection, an investment adviser may maintain and preserve on computer tape, disk, or other computer storage medium records which, in the ordinary course of the adviser's business, are created by the adviser on electronic media or received by the adviser solely on electronic media or by electronic data transmission.)) The records required to be maintained and preserved pursuant to this section may be immediately produced or reproduced, and maintained and preserved for the required time, by an investment adviser on:
(8) As used in this section, "investment supervisory services" means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client; and "discretionary authority" shall not include discretion as to the price at which, or the time when, a transaction is or is to be effected, if, before the order is given by the investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security.
(9) Any book or other record made, kept, maintained, and preserved in compliance with Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, which is substantially the same as the book or other record required to be made, kept, maintained, and preserved under this section, shall be deemed to be made, kept, maintained, and preserved in compliance with this section.
(10) ((Every)) If you are an investment adviser registered or required to be registered in this state and ((that has its)) have your principal place of business in a state other than this state ((shall be)), you are exempt from the requirements of this section, provided ((the investment adviser is)) you are licensed in the state where ((it has its)) you have your principal place of business and ((is)) are in compliance with that state's recordkeeping requirements.
WAC 460-24A-205 Notice of changes by investment advisers and investment adviser representatives.
(1) ((Each licensed investment adviser must)) If you are an investment adviser registered or required to be registered pursuant to RCW 21.20.040, you must:
(a) Promptly file with IARD, in accordance with the instructions to Form ADV, any amendments to ((its)) your Form ADV. An amendment will be considered promptly filed if it is filed within thirty days of the event that requires the filing of the amendment; ((and))
(b) File an ((updated)) annual updating amendment to the Form ADV with IARD within ninety days ((of)) after the end of ((the investment adviser's)) your fiscal year; and
(c) File thirty days prior to use any amendments to your advisory contracts or offering materials for any pooled investment vehicles that you advise.
(2) ((Each)) If you are an investment adviser representative ((has)) registered or required to be registered pursuant to RCW 21.20.040, you have a continuing obligation to update the information required by Form ((U-4)) U4 as changes occur and you must promptly file with IARD any amendments to ((the representative's)) your Form ((U-4)) U4. An amendment will be considered promptly filed if it is filed within thirty days of the event that requires the filing of the amendment.
WAC 460-24A-210 Notice of complaint must be filed with director.
((Each licensed)) If you are an investment adviser registered or required to be registered pursuant to RCW 21.20.040 who has filed a complaint against any of ((its)) your partners, officers, directors, agents licensed in Washington or associated persons with any law enforcement agency, any other regulatory agency having jurisdiction over the securities industry, or with any bonding company regarding any loss arising from alleged acts of such person, you shall send a copy of such complaint to the director, within ten days following its filing with such other agency or bonding company.
AMENDATORY SECTION (Amending WSR 08-14-006, filed 6/19/08, effective 7/20/08)
WAC 460-24A-220 Unethical business practices—Investment advisers and federal covered advisers.
((A person who is)) If you are an investment adviser, investment adviser representative, or a federal covered adviser ((is)), you are a fiduciary and ((has)) have a duty to act primarily for the benefit of ((its)) your clients. If you are a federal covered adviser, the provisions of this subsection apply ((to federal covered advisers)) to the extent that the conduct alleged is fraudulent, deceptive, or as otherwise permitted by the National Securities Markets Improvement Act of 1996 (Pub. L. No. 104-290). While the extent and nature of this duty varies according to the nature of the relationship with the client and the circumstances of each case, in accordance with RCW 21.20.020 (1)(c) and 21.20.110 (1)(g) ((an investment adviser or a federal covered adviser)) you shall not engage in dishonest or unethical business practices((,)) including, but not limited to, the following:
(2) Exercising any ((discretionary power)) discretion in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten business days after the date of the first transaction placed pursuant to oral discretionary authority, unless the ((discretionary power)) discretion relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.
(7) Loaning money or securities to a client unless ((the investment adviser is)) you are a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.
(8) ((To misrepresent)) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser, investment adviser representative, federal covered adviser, or any employee((s of the investment adviser)), or person affiliated with the investment adviser, or ((to misrepresent)) misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or to omit to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.
(9) Providing a report or recommendation to any advisory client prepared by someone other than ((the adviser)) you without disclosing that fact. (This prohibition does not apply to a situation where ((the adviser)) you use((s)) published research reports or statistical analyses to render advice or where ((an adviser)) you order((s)) such a report in the normal course of providing service.)
(11) Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the investment adviser, investment adviser representative, federal covered adviser, or any ((of its)) employees or affiliated persons thereof which could reasonably be expected to impair the rendering of unbiased and objective advice including:
(b) Charging a client an advisory fee for rendering advice when ((a commission)) compensation for ((executing)) effecting securities transactions pursuant to such advice will be received by the investment adviser, investment adviser representative, federal covered investment adviser, or ((its)) employees or affiliated persons thereof.
(14) Disclosing the identity, ((affairs, or)) investments, or other financial information of any client or former client unless required by law to do so, or unless consented to by the client.
(15) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where ((the investment adviser has)) you have custody or possession of such securities or funds when the ((adviser's)) action of the investment adviser, federal covered adviser, or investment adviser representative or employee is subject to and does not comply with ((the)) applicable custody requirements ((of Reg. 206(4)-2 under the Investment Advisers Act of 1940)).
(16) Entering into, extending or renewing any investment advisory contract ((unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the adviser and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract)) that does not comply with the requirements set forth in WAC 460-24A-130.
(18) Entering into, extending, or renewing any advisory contract contrary to the provisions of section 205 of the Investment Advisers Act of 1940. This provision shall apply to all advisers and investment adviser representatives registered or required to be registered under the Securities Act of Washington, chapter 21.20 RCW, notwithstanding whether ((such adviser)) you would be exempt from federal registration pursuant to section 203(b) of the Investment Advisers Act of 1940.
(19) To indicate, in an advisory contract, any condition, stipulation, or provisions binding any person to waive or limit compliance with, or require indemnification for any violations of, any provision of the Securities Act of Washington, chapter 21.20 RCW, or of the Investment Advisers Act of 1940, or any other practice contrary to the provisions of section 215 of the Investment Advisers Act of 1940.
(20) Engaging in any act, practice, or course of business which is fraudulent, deceptive, ((or)) manipulative ((contrary to the provisions of section 206(4) of the Investment Advisers Act of 1940, notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940)) or unethical.
The conduct set forth above is not inclusive. Engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices shall be deemed an unethical business practice. The federal statutory and regulatory provisions referenced herein shall apply to investment advisers, investment adviser representatives, and federal covered advisers, to the extent permitted by the National Securities Markets Improvement Act of 1996 (Pub. L. No. 104-290).
WAC 460-24A-058