Hawaii Administrative Rules › Title 16 - DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS › Chapter 38 - SECURITIES - REPEALED › Subchapter 11 - INVESTMENT ADVISERS › Section 16-38-41 - Books and records

Current through June, 2024
(a) Every
				investment adviser registered or required to be registered under chapter
				485, HRS, and this chapter shall make
				and keep true, accurate, and current the following books, ledgers, and records:
(1) A journal or journals, including cash
				receipts and disbursements records, and any other records of original entry
				forming the basis of entries in any ledger;
(2) General and auxiliary ledgers (or other
				comparable records) reflecting assets, liabilities, reserves, capital, and
				income and expense accounts;
(3) A
				memorandum of each order given by the investment adviser for the purchase or
				sale of any security, of any instruction received by the investment adviser
				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 memorandum shall show the terms and conditions of the
				order, instruction, modification, or cancellation; identify the person
				connected with the investment adviser who recommended the transaction to the
				client and the person who placed the order; and show the account for which the
				order is entered, the date of entry, and the bank or dealer by or through whom
				the order is executed, where appropriate. Orders entered pursuant to the
				exercise of discretionary power shall be so designated;
(4) All checkbooks, bank statements, canceled
				checks, and cash reconciliations of the investment adviser;
(5) All bills or statements (or copies of),
				paid or unpaid, relating to the investment adviser's business as an investment
				adviser;
(6) All trial balances,
				financial statements, and internal audit working papers relating to the
				investment adviser's business as an investment adviser. For purposes of this
				section, "financial statements" means without limitation a balance sheet
				prepared in accordance with generally accepted accounting principles, an income
				statement, a cash flow statement, and a net worth computation, if
				applicable;
(7) Originals of all
				written communications received, and copies of all written communications sent,
				by the investment adviser relating to:
(A)
				Any recommendation made or proposed to be made and any advice given or proposed
				to be given;
(B) Any receipt,
				disbursement, or delivery of funds or securities; or
(C) The placing or execution of any order to
				purchase or sell any security; provided that;
(i) The investment adviser 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; and
(ii) If the
				investment adviser sends any notice, circular, or other advertisement offering
				any report, analysis, publication, or other investment advisory service to more
				than ten persons, the investment adviser shall not be required to keep a record
				of the names and addresses of the persons to whom it was sent; provided that if
				the notice, circular, or other advertisement is distributed to persons named on
				any list, the investment adviser shall retain with the copy of the notice,
				circular, or advertisement a memorandum describing the list and its
				source;
(8) A
				list or other record of all accounts which identifies the accounts in which the
				investment adviser is vested with any discretionary power with respect to the
				funds, securities, or transactions of any client;
(9) A copy of all powers of attorney and
				other evidences of the granting of any discretionary authority by any client to
				the investment adviser;
(10) A copy
				in writing of each agreement entered into by the investment adviser with any
				client, and all other written agreements otherwise relating to the investment
				adviser's business as an investment adviser;
(11) A file containing a copy of each notice,
				circular, advertisement, newspaper article, investment letter, bulletin, or
				other communication including by electronic media that the investment adviser
				circulates or distributes, directly or indirectly, to two or more persons
				(other than persons connected with the investment adviser); and if the notice,
				circular, advertisement, newspaper article, investment letter, bulletin, or
				other communication (including by electronic media) recommends the purchase or
				sale of a specific security and does not state the reasons for the
				recommendation, a memorandum from the investment adviser indicating the reasons
				for the recommendation;
(12)
(A) A record of every transaction in a
				security in which the investment adviser or any investment adviser
				representative (as defined in subparagraph (B)) of the investment adviser has,
				or by reason of any transaction acquires, any direct or indirect beneficial
				ownership, excluding:
(i) Transactions
				effected in any account over which neither the investment adviser nor any
				adviser representative of the investment adviser has any direct or indirect
				influence or control; and
(ii)
				Transactions in securities which are direct obligations of the United States.
				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 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
				or adviser representative has any direct or indirect beneficial ownership in
				the security. A transaction shall be recorded not later than ten days after the
				end of the calendar quarter in which the transaction was effected;
(B) For purposes of paragraph (12)
				the following definitions shall apply: "investment adviser representative"
				means any partner, officer, or director of the investment adviser; any employee
				who participates in any way in the determination of which recommendation shall
				be made, any employee who, in connection with the employee's 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 prior to the effective dissemination of the
				recommendations:
(i) Any person in a control
				relationship to the investment adviser;
(ii) Any affiliated person of such
				controlling person; and
(iii) Any
				affiliated person of an affiliated person.
"Control" shall mean the power to exercise a controlling
				  influence over the management or policies of a company, unless this power is
				  solely the result of an official position with the company. Any person who owns
				  beneficially, either directly or through one or more controlled companies, more
				  than twenty-five per cent of the voting securities of a company shall be
				  presumed to control the company;
(C) An investment adviser shall not be deemed
				to have violated the provisions of this paragraph because of the failure to
				record securities transactions of any investment adviser representative if the
				investment adviser establishes that it instituted adequate procedures and used
				reasonable diligence to obtain promptly reports of all transactions required to
				be recorded;
(13)
(A) Notwithstanding the provisions of
				paragraph (12), where the investment adviser is primarily engaged in a business
				or businesses other than advising investment advisory clients, a record shall
				be maintained of every transaction in a security in which the investment
				adviser or any adviser representative (as defined below) of the investment
				adviser has, or by reason of any transaction acquires, any direct or indirect
				beneficial ownership; excluding:
(i)
				Transactions effected in any account over which neither the investment adviser
				nor any adviser representative of the investment adviser has any direct or
				indirect influence or control; and
(ii) Transactions in securities which are
				direct obligations of the United States. 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 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 or advisory representative has any direct
				or indirect beneficial ownership in the security. A transaction shall be
				recorded not later than ten days after the end of the calendar quarter in which
				the transaction was effected.
(B) An investment adviser is "primarily
				engaged in a business or businesses other than advising investment advisory
				clients" when, for each of its most recent three fiscal years or for the period
				of time since organization, whichever is lesser, the investment adviser
				derived, on an unconsolidated basis, more than fifty per cent of:
(i) Its total sales and revenues;
				and
(ii) Its income (or loss)
				before income taxes and extraordinary items, from such other business or
				businesses.
(C) For
				purposes of this paragraph the following definitions shall apply:
(i) "Investment adviser 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: any person in a control relationship to the investment
				adviser; any affiliated person of a controlling person; and any affiliated
				person of an affiliated person.
(ii) "Control" shall mean the power to
				exercise a controlling influence over the management or policies of a company,
				unless this power is solely the result of an official position with the
				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 the voting securities of a company shall be presumed to control
				the company.
(D) An
				investment adviser shall not be deemed to have violated the provisions of this
				paragraph because of the failure to record securities transactions of any
				investment adviser representative if the investment adviser establishes that
				the investment adviser instituted adequate procedures and used reasonable
				diligence to obtain promptly reports of all transaction required to be
				recorded.
(14) A copy of
				each written statement and each amendment or revision thereof, given or sent to
				any client or prospective client of the investment adviser and a record of the
				dates that each written statement, and each amendment or revision, was given,
				or offered to be given, to any client or prospective client who subsequently
				becomes a client;
(15) For each
				client that was obtained by the investment adviser by means of a solicitor to
				whom a cash fee was paid by the investment adviser;
(A) Evidence of a written agreement to which
				the investment adviser is a party related to the payment of the cash
				fee;
(B) A signed and dated
				acknowledgment of receipt from the client evidencing the client 's receipt of
				the investment adviser's disclosure statement and a written disclosure
				statement of the solicitor; and
(C)
				A copy of the solicitor's written disclosure statement. The written agreement,
				acknowledgment, and solicitor's written disclosure statement will be considered
				to be in compliance if these documents are in compliance with rule 275.206(4)-3
				under the Investment Advisers Act of 1940.
For purposes of this section, the term "solicitor" shall
				  mean any person or entity who, for compensation, acts as an agent of an
				  investment adviser in referring potential clients.
(16) 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 circulates or distributes, directly or indirectly, to two or
				more persons (other than persons connected with the investment adviser);
				provided 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 paragraph;
(17) A file containing a copy of all written
				communication received or sent regarding any litigation involving the
				investment adviser or any investment adviser representative or employee, and
				regarding any written customer or client complaint;
(18) Written information about each
				investment advisory client that is the basis for making any recommendation or
				providing any investment advice to such client;
(19) Written procedures to supervise the
				activities of employees and investment adviser representatives that are
				reasonably designed to achieve compliance with applicable securities laws and
				regulations;
(20) 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 or its investment adviser
				representatives as that term is defined in this section. This file shall
				contain, but not be limited to, all applications, amendments, renewal filings,
				and correspondence.