Kansas Administrative Regulations › Agency 81 - OFFICE OF THE SECURITIES COMMISSIONER › Article 14 - INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES › Section 81-14-5 - Dishonest and unethical practices of investment advisers, investment adviser representatives, and federal covered investment advisers

Current through Register Vol. 43, No. 28, July 11, 2024
(a) Unethical conduct. "Dishonest or
					unethical practices," as used in K.S.A. 17-12a412(d)(13)  and amendments
					thereto, shall include the conduct prohibited in this regulation.
(b) Fraudulent conduct. "An act, practice, or
					course of business that operates or would operate as a fraud or deceit," as
					used in K.S.A. 17-12a502(a)(2)  and amendments thereto, shall include the
					conduct prohibited in paragraphs (d)(6), (9), (10), and (11) and subsections
					(e), (f), (g), and (h).
(c) General
					standard of conduct. Each person registered as an investment adviser or
					investment adviser representative under the act shall not fail to observe high
					standards of commercial honor and just and equitable principles of trade in the
					conduct of the person's business. An investment adviser or investment adviser
					representative is a fiduciary and shall act primarily for the benefit of its
					clients.
(d) Prohibited conduct:
					sales and business practices. Each person registered as an investment adviser
					or investment adviser representative under the act shall refrain from the
					practices specified in this subsection in the conduct of the person's business.
					For purposes of this subsection, a security shall include any security as
					defined by K.S.A. 17-12a102, and amendments thereto, including a federal
					covered security as defined by K.S.A. 17-12a102, and amendments thereto, or
					section 2 of the securities act of 1933,  15 U.S.C. §
									77 b, as adopted by
					reference in   K.A.R. 81-2-1.
(1) Unsuitable
					recommendations. An investment adviser or investment adviser representative
					shall not recommend to any 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 by the
					investment adviser or investment adviser representative.
(2) Improper use of discretionary authority.
					An investment adviser or investment adviser representative shall not exercise
					any discretionary power in placing an order for the purchase or sale of
					securities for any client without obtaining written discretionary authority
					from the client within 10 business days after the date of the first transaction
					placed pursuant to oral discretionary authority, unless the discretionary power
					is limited to the price at which and the time when an order shall be executed
					for a definite amount of a specified security.
(3) Excessive trading. An investment adviser
					or investment adviser representative shall not induce trading in a client's
					account that is excessive in size or frequency in light of the financial
					resources, investment objectives, and character of the account.
(4) Unauthorized trading. An investment
					adviser or investment adviser representative shall not perform either of the
					following:
(A) Place an order to purchase or
					sell a security for the account of a client without authority to do so;
					or
(B) place 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.
(5)
					Borrowing from or loaning to a client. An investment adviser or investment
					adviser representative shall not perform either of the following:
(A) Borrow 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;
					or
(B) loan money 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.
(6)
					Misrepresenting qualifications, services, or fees. An investment adviser or
					investment adviser representative shall not misrepresent to any advisory client
					or prospective client the qualifications of the investment adviser, investment
					adviser representative, or any employee of the investment adviser, or
					misrepresent the nature of the advisory services being offered or fees to be
					charged for the service. An investment adviser or investment adviser
					representative shall not omit to state a material fact that is necessary to
					make any statements made regarding qualifications, services, or fees, in light
					of the circumstance under which the statements are made, not
					misleading.
(7) Failure to disclose
					source of report. An investment adviser or investment adviser representative
					shall not provide a report or recommendation to any advisory client prepared by
					someone other than the investment adviser or investment adviser representative
					without disclosing that fact. This prohibition shall not apply to a situation
					in which the adviser uses published research reports or statistical analyses to
					render advice or in which an adviser orders a research report in the normal
					course of providing service.
(8)
					Unreasonable fee. An investment adviser or investment adviser representative
					shall not charge a client an unreasonable advisory fee.
(9) Failure to disclose conflicts of
					interest. An investment adviser or investment adviser representative shall not
					fail to disclose to a client, in writing and before any advice is rendered, any
					material conflict of interest relating to the investment adviser, investment
					adviser representative, or any of the investment adviser's employees that could
					reasonably be expected to impair the rendering of unbiased and objective
					advice, including the following:
(A)
					Compensation arrangements connected with advisory services to the client that
					are in addition to compensation from the client for the advisory services;
					and
(B) charging a client an
					advisory fee for rendering advice when a commission for executing securities
					transactions pursuant to the advice will be received by the investment adviser,
					investment adviser representative, or any of the adviser's employees.
(10) Guaranteeing performance. An
					investment adviser or investment adviser representative shall not guarantee a
					client that a specific result will be achieved with advice that is
					rendered.
(11) Deceptive
					advertising. An investment adviser or investment adviser representative shall
					not publish, circulate, or distribute any advertisement that does not comply
					with SEC rule 206(4)-1,  17 C.F.R. 275.206(4)-1, as adopted by reference in
				 	 K.A.R. 81-2-1,  despite the fact that the adviser may be exempt from federal
					registration pursuant to section 203(b) of the investment advisers act of 1940,
					 15 U.S.C. § 80b - 3(b)  as adopted by reference in   K.A.R. 81-2-1.
(12) Failure to protect confidential
					information.
(A) An investment adviser or
					investment adviser representative shall not disclose the identity, affairs, or
					investments of any client unless required by law to do so or unless the client
					consents to the disclosure.
(B) An
					investment adviser shall not fail to establish, maintain, and enforce written
					policies and procedures reasonably designed to prevent the misuse of material
					nonpublic information contrary to the provisions of section 204A of the
					investment advisers act of 1940,  15 U.S.C. §
											80b-4a, as adopted by
					reference in   K.A.R. 81-21,  despite the fact that the adviser may be exempt from
					federal registration pursuant to section 203(b) of the investment advisers act
					of 1940,  15 U.S.C. § 80b - 3(b), as adopted by reference in   K.A.R. 81-2-1.
(13) Improper advisory
					contract. An investment adviser shall not engage in the following conduct, even
					though the adviser may be exempt from federal registration pursuant to section
					203(b) of the investment advisers act of 1940,  15 U.S.C. § 80b - 3(b), as
					adopted by reference in   K.A.R. 81-2-1:
(A)
					Enter into, extend, or renew any investment advisory contract unless the
					contract is in writing, discloses 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, and an indication of whether the contract grants discretionary
					power to the adviser, and contains a provision that no assignment of the
					contract shall be made by the investment adviser without the consent of the
					other party to the contract;
(B)
					enter into, extend, or renew any advisory contract containing performance-based
					fees contrary to the provisions of section 205 of the investment advisers act
					of 1940,  15 U.S.C. §
											80b-5, as adopted by reference in   K.A.R. 81-2-1,
					 except as permitted by SEC rule 205-3,  17 C.F.R. 275.205-3, as adopted by
					reference in   K.A.R. 81-2-1; and
(C)
					include in an advisory contract any indication of a condition, stipulation, or
					provision binding a person to waive compliance with any provision of the act or
					of the investment advisers act of 1940, or engage in any other practice
					contrary to the provisions of section 215 of the investment advisers act of
					1940,  15 U.S.C. §
											80b-15, as adopted by reference in   K.A.R. 81-2-1.
(14) Indirect
					misconduct. An investment adviser or investment adviser representative shall
					not engage in any conduct or any act, indirectly or through or by any other
					person, that would be unlawful for the person to do directly under the
					provisions of the act or these regulations.