Wisconsin Administrative Code › Department of Financial Institutions › DFI-Sec 1-36 - Department of Financial Institutions-Securities › Chapter DFI-Sec 5 - Registration and notice filing procedures for investment advisers, federal covered investment advisers, and investment adviser representatives › Section DFI-Sec 5.06 - Prohibited conduct

Current through June 24, 2024
Except as otherwise provided in sub. (13), the following are
				  deemed "dishonest or unethical business practices" or "taking unfair advantage
				  of a client" by an investment adviser or an investment adviser representative
				  under s.
				  551.412(4)
				  (m), Stats., without limiting those terms to
				  the practices specified in this section:
(1) Exercising any discretionary power in
				placing an order for the purchase or sale of securities for the account of a
				client without first obtaining written discretionary authority from the client
				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.
(2) Placing
				an order to purchase or sell a security for the account of a client upon
				instructions of a third party without first having obtained written third party
				trading authorization from the client;
(3) Inducing trading in a client's account
				that is excessive in size or frequency in view of the financial resources and
				character of the account;
(4)
				Recommending to a client 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;
(5) Placing an order to purchase or sell a
				security for the account of a client without authority to do so;
(6) Borrowing money or securities from, or
				lending money or securities to, a client, unless that client is a financial
				institution or institutional investor designated in s.
				551.401(2)
				(b) or (c), Stats.
(7) Misrepresenting to any client, or
				prospective client, the qualifications of the investment adviser, investment
				adviser representative, federal covered investment adviser, or any employee, or
				person affiliated with the investment adviser, investment adviser
				representative or federal covered investment adviser, or misrepresenting the
				nature of the advisory services being offered or fees to be charged for such
				service, or to omit 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.
(8) Placing an order for the purchase or sale
				of a security if the security is not registered or the security or transaction
				is not exempt from registration under ch. 551, Stats.
(9) Placing an order for a client, or
				recommending that the client place an order, to purchase or sell a security
				through a broker-dealer or agent not registered under ch. 551, Stats., unless
				the client is a person described in s.
				551.403(2)
				(a), Stats., or s. DFI-Sec 5.12.
(10) Recommending to a client that the client
				engage the services of a broker-dealer, agent or investment adviser not
				registered under ch. 551, Stats., unless the client is a person described in s.
				551.403(2)
				(a), Stats., or s. DFI-Sec 5.12.
(11) Failing accurately to describe or
				disclose in advertising or other materials used in connection with the
				promotion or transaction of investment advisory services in this state, the
				identity of the investment adviser or the nature of the investment advisory
				services offered or the employment relationship between the investment adviser
				and its representatives. For purposes of this subsection, "other materials"
				include, but are not limited to, business cards, business stationery and
				display signs.
(12) Taking or
				having custody of client funds or securities without being in compliance with
				s. DFI-Sec 5.035 and the net worth requirement in s. DFI-Sec 5.02(2).
(13) The subsections of this section shall
				apply to an investment adviser representative of a federal covered investment
				adviser only to the extent permitted by section 203 (b) (2) of the investment
				advisers act of 1940, and only to the extent the prohibited conduct involves
				fraud or deceit.
(14) Providing a
				report or recommendation to any 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 to a situation where the investment adviser, investment adviser
				representative or federal covered investment adviser uses published research
				reports or statistical analyses to render advice or where an investment
				adviser, investment adviser representative or federal covered investment
				adviser orders such a report in the normal course of providing
				service.
(15) Charging a client an
				unreasonable fee.
(16) Failing to
				disclose to clients in writing before any advice is rendered any material
				conflict of interest relating to 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:
(a) Compensation arrangements connected with
				investment advisory services to clients which are in addition to compensation
				from such clients for such services; and
(b) Charging a client an investment advisory
				fee for rendering investment 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.