Pennsylvania Code › Title 10 - BANKING AND SECURITIES › Part VII - Securities › Subpart D - Fraudulent and Prohibited Practices › Chapter 404 - PROHIBITED ACTIVITIES; INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES › Section 404.012 - Cash payment for client solicitation

Current through Register Vol. 54, No. 28, July 13, 2024
(a) An investment adviser's failure to comply
				  with the requirements of this section concerning cash payments for client
				  solicitation constitutes a fraudulent, deceptive or manipulative act, practice
				  or course of business, within the meaning of section 404 of the act
				  (70
				  P.S. §
											1-404).
(b) An investment adviser may not pay a cash
				  fee or other economic benefit, directly or indirectly, to a solicitor with
				  respect to solicitation activities unless:
(1)
				  The investment adviser is registered under the act.
(2) The solicitor is registered as an
				  investment adviser representative or is exempt from registration under §
											302.071 (relating to registration
				  exemption for solicitors) or qualifies for another exemption under the
				  act.
(3) The cash fee or other
				  economic benefit is paid under a written agreement to which the investment
				  adviser is a party.
(4) The written
				  agreement required under paragraph (3):
(i)
				  Describes the solicitation activities to be engaged in by the solicitor on
				  behalf of the investment adviser and the compensation to be received
				  therefor.
(ii) Contains an
				  undertaking by the solicitor to perform its duties under the agreement in a
				  manner consistent with the instructions of the investment adviser and the
				  provisions of the act and the rules thereunder.
(iii) Requires that the solicitor, at the
				  time of any solicitation activities for which compensation is paid or to be
				  paid by the investment adviser, provide the prospective client with a current
				  copy of the following:
(A) The investment
				  adviser's written disclosure statement required under §
													404.011 (relating to investment
				  adviser brochure disclosure).
(B) A
				  separate written disclosure document which contains all of the following:
(I) The name of the solicitor.
(II) The name of the investment
				  adviser.
(III) The nature of the
				  relationship, including any affiliation, between the solicitor and the
				  investment adviser.
(IV) A
				  statement that the solicitor will be compensated for the solicitation services
				  by the investment adviser.
(V) The
				  terms of the compensation arrangement, including a description of the
				  compensation paid or to be paid to the solicitor.
(VI) The amount, if any, for the cost of
				  obtaining his account the prospective client will be charged in addition to the
				  advisory fee, and the differential, if any, among clients with respect to the
				  amount or level of the advisory fees charged by the investment adviser if the
				  differential is attributable to the existence of any arrangement under which
				  the investment adviser has agreed to compensate the solicitor for soliciting
				  prospective clients for, or referring prospective clients to, the investment
				  adviser.
(5) The investment adviser receives from the
				  prospective client before, or at the time of, entering into any written or oral
				  investment advisory contract with the prospective client, a signed and dated
				  acknowledgment of receipt of the investment adviser's written disclosure
				  statement required under §
											404.011 and the solicitor's
				  written disclosure document required under paragraph
				  (4)(iii)(B).