Iowa Administrative Code › Agency 191 - Insurance Division › Securities › Chapter 50 - Regulation of Securities Offerings and Those Who Engage in the Securities Business › Rule 191-50.38 - Prohibited Conduct in Providing Investment Advice

Current through Register Vol. 47, No. 3, July 24, 2024
(1) An investment adviser, an investment
				adviser representative, or a federal covered investment adviser is a fiduciary
				and has a duty to act primarily for the benefit of its clients. Rule
				191-5038.
				(502) applies to federal covered investment advisers to the extent that the
				alleged conduct is fraudulent, deceptive, or as otherwise permitted by the
				NSMIA. While the extent and nature of this duty varies according to the nature
				of the relationship between an investment adviser, an investment adviser
				representative, or a federal covered investment adviser and its clients and the
				circumstances of each case, an investment adviser, an investment adviser
				representative, or a federal covered investment adviser shall not engage in
				prohibited fraudulent, deceptive, or manipulative conduct including, but not
				limited to:
a. Recommending to a client to
				whom investment advisory 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 by the
				investment adviser, investment adviser representative, or federal covered
				investment adviser;
b. Exercising
				any discretionary authority 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 discretionary authority, unless the discretionary authority
				relates solely to the price at which, or the time when, an order for a definite
				amount of a specified security shall be executed, or both;
c. Inducing trading in a client's account
				that is excessive in size or frequency compared to the financial resources,
				investment objectives, and character of the account;
d. Placing an order to purchase or sell a
				security for a client account without authority to do so;
e. Placing an order to purchase or sell a
				security for a client account upon instruction of a third party without first
				obtaining a written third-party trading authorization from the
				client;
f. Borrowing money or
				securities from a client unless the client is a broker-dealer, an affiliate of
				the investment adviser, or a financial institution engaged in the business of
				loaning funds;
g. Loaning money or
				securities to a client unless the investment adviser is a financial institution
				engaged in the business of loaning funds or the client is an affiliate of the
				investment adviser;
h.
				Misrepresenting to any client, or prospective client, the qualifications of the
				investment adviser, investment adviser representative, or federal covered
				investment adviser or any employee, or affiliated persons, 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 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 investment adviser,
				investment adviser representative, or federal covered investment adviser
				without disclosing that fact. This prohibition does not apply when the
				investment adviser, investment adviser representative, or federal covered
				investment adviser uses published research reports or statistical analyses to
				render advice or when an investment adviser, investment adviser representative,
				or federal covered investment adviser orders such a report in the normal course
				of providing service;
j. Charging a
				client an unreasonable fee;
k.
				Failing to disclose to clients in writing before any advice is rendered any
				material conflict of interest regarding the investment adviser, investment
				adviser representative, or federal covered investment adviser or any of its
				employees, or affiliated persons which could reasonably be expected to impair
				the rendering of unbiased and objective advice including, but not limited to:
(1) Compensation arrangements connected with
				investment advisory services to clients which are in addition to compensation
				from such clients for such services; and
(2) Charging a client an investment advisory
				fee for rendering advice when compensation for effecting securities
				transactions pursuant to such advice will be received by the investment
				adviser,
investment adviser representative, or federal covered
				  investment adviser or its employees or affiliated persons;
l. Knowingly selling any security
				to or purchasing any security from a client while acting as principal for an
				advisory account of the investment adviser, investment adviser representative,
				or federal covered investment adviser, or knowingly effecting any sale or
				purchase of any security for the account of the client while acting as
				broker-dealer for a person other than the client, without disclosing to the
				client in writing before the completion of the transaction the capacity in
				which the investment adviser, investment adviser representative, or federal
				covered investment adviser is acting and without obtaining the written consent
				of the client to the transaction.
(1) The
				prohibitions of paragraph 50.38(1)"/" shall not apply to any transaction with a
				customer of a broker-dealer if the broker-dealer is not acting as an investment
				adviser in relation to the transaction.
(2) The prohibitions of paragraph 50.38(1)"/"
				shall not apply to any transaction with a customer of a broker-dealer if the
				broker-dealer acts solely as an investment adviser:
1. By means of publicly distributed written
				materials or publicly made oral statements;
2. By means of written materials or oral
				statements not purporting to meet the objectives or needs of specific
				individuals or accounts;
3. Through
				the issuance of statistical information containing no expressions of opinion as
				to the investment merits of a particular security; or
4. Any combination of the foregoing
				services.
(3) Publicly
				distributed written materials or publicly made oral statements shall disclose
				that, if the purchaser of the advisory communication uses the investment
				adviser's services in connection with the sale or purchase of a security which
				is a subject of the communication, the investment adviser may act as principal
				for its own account or as agent for another person. Compliance by the
				investment adviser with the foregoing disclosure requirement shall not relieve
				the investment adviser of any other disclosure obligations under the
				Act.
(4) Definitions for purposes
				of rule
				191-5038.
				(502):
1.
"Publicly distributed
				written materials "
means written materials which are distributed to
				35 or more persons who pay for those materials.
2.
"Publicly made oral
				statements"
means oral statements made simultaneously to 35 or more
				persons who pay for access to those statements.
m. Guaranteeing a client that a
				specific result will be achieved with advice rendered;
n. Making, in the solicitation of clients,
				any untrue statement of a material fact, or omitting to state a material fact
				necessary in order to make the statement made, in light of the circumstances
				under which they are made, not misleading;
o. Disclosing the identity, affairs, or
				investments of any client unless required by law to do so, or unless disclosed
				with the client's consent;
p.
				Taking any action, directly or indirectly, regarding securities or funds in
				which any client has any beneficial interest when the investment adviser has
				custody or possession of such securities or funds and when the action of the
				investment adviser or investment adviser representative is subject to and in
				violation of the custody requirements provided by rule
				191-5039.
				(502);
q. Failing to establish,
				maintain, and enforce written policies and procedures reasonably designed to
				prevent the misuse of material nonpublic information in violation of Section
				204A of the Investment Advisers Act of 1940;
r. Engaging in any act, practice, or course
				of business which is fraudulent, deceptive, manipulative, or unethical;
s. Engaging in conduct or any act,
				indirectly or through or by any other person, which is unlawful for such person
				to do directly under the provisions of this Act, its implementing rules, or
				order of the administrator;
t.
				Failing to disclose or providing incomplete disclosure to a client regarding
				any securities-related activities, or engaging in deceptive
				practices;
u. Soliciting or
				accepting a gift, directly or indirectly, from an unrelated customer that in
				the aggregate exceeds $250 in a calendar year. A gift accepted by an immediate
				family member from an unrelated client shall be included in the aggregate
				limit. An investment adviser shall not solicit or accept from a client a gift
				transferred through a relative or third party to the investment adviser's
				benefit that would have the effect of evading this paragraph;
v. Soliciting or accepting being named as a
				beneficiary, executor, or trustee in a will or trust of an unrelated
				customer;
w. Evading or otherwise
				negating the requirements of paragraph 50.38(1)
'f".
"g,
				" "u"
or
"v, "
by terminating the customer
				relationship for the purpose of soliciting or accepting a loan or gift or being
				named as a beneficiary, executor or trustee in a will or trust that the agent
				is otherwise not permitted to solicit or accept. An investment adviser or
				investment adviser representative will not be in violation of this rule if the
				investment adviser or investment adviser representative has made a bona fide
				termination of the client relationship and conducted no securities-related
				business or other business for a period of three years with the
				client;
x. Engaging in conduct
				deemed dishonest or unethical in rule 191-50.55 (502); and
y. Employing any method or tactic which uses
				undue pressure, force, fright, or threat, whether explicit or implied, in
				connection with providing investment advice, or committing any act which shows
				that an investment adviser or investment adviser representative has exerted
				undue influence over a client.