California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 2 - Corporate Securities › Article 10 - Licensing and Regulation of Investment Advisers › Section 260.238 - Investment Advisers: Fair, Equitable and Ethical Principles

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
The following activities do not promote "fair, equitable or
					 ethical principles," as that phrase is used in Section
					 25238 of the Code:
(a) Recommending to a client to whom
				  investment supervisory, management or consulting services are provided the
				  purchase, sale or exchange of any security without reasonable grounds to
				  believe that the recommendation is suitable for the client on the basis of
				  information furnished by the client after reasonable inquiry concerning the
				  client's investment objectives, financial situation and needs, and any other
				  information known or acquired by the adviser after reasonable examination of
				  such of the client's records as may be provided to the adviser.
(b) Placing an order to purchase or sell a
				  security for the account of a client without authority to do so.
(c) Placing an order to purchase or sell a
				  security for the account of a client upon instruction of a third party without
				  first having obtained a written third-party trading authorization from the
				  client.
(d) Exercising any
				  discretionary power, including any power of attorney, in placing an order for
				  the purchase or sale of securities without first obtaining written
				  discretionary authority, unless the discretionary power 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.
(e) Inducing trading in a client's account
				  that is excessive in size and frequency in view of the financial resources,
				  investment objectives and character of the account.
(f) Borrowing money or securities from a
				  client unless the client is a broker-dealer, an affiliate of the adviser, or a
				  financial institution engaged in the business of loaning funds or
				  securities.
(g) Loaning money to a
				  client unless the adviser is a financial institution engaged in the business of
				  loaning funds or the client is an affiliate of the adviser.
(h) Misrepresenting to any advisory client,
				  or any prospective advisory client, the qualifications of the adviser, its
				  representatives or any employees, or misrepresenting the nature of the advisory
				  services being offered or fees to be charged for such service, or omitting to
				  state a material fact necessary to make the statements made regarding the
				  qualifications, services or fees, in light of the circumstances under which
				  they are made, not misleading.
(i)
				  Providing a report or recommendation to any advisory client prepared by someone
				  other than the adviser without disclosing the fact. This prohibition does not
				  apply, however, to a situation where the adviser uses published research
				  reports or statistical analyses to render advice or where an adviser orders
				  such a report in the normal course of providing service.
(j) Charging a client an advisory fee that is
				  unreasonable in light of the type of services to be provided, the experience
				  and expertise of the adviser, the sophistication and bargaining power of the
				  client, and whether the adviser has disclosed that lower fees for comparable
				  services may be available from other sources.
(k) Failing to disclose to a client in
				  writing before entering into or renewing an advisory agreement with that client
				  any material conflict of interest relating to the adviser, its representatives
				  or any of its employees, which could be reasonably expected to impair the
				  rendering of unbiased and objective advice including:
(1) Compensation arrangements connected with
				  advisory services to clients which are in addition to compensation from such
				  clients for such services; and
(2)
				  Charging a client an advisory fee for rendering advice without disclosing that
				  a commission for executing securities transactions pursuant to such advice will
				  be received by the adviser, its representatives or its employees, or that such
				  advisory fee is being reduced by the amount of the commission earned by the
				  adviser, its representatives or employees for the sale of securities to the
				  client.