Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC; Notice of Application, 88297-88300 [2016-29300]
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Notices
or additional signature line or
alternative means of expressing consent
must be preceded immediately by
prominent, plain English disclosure
containing either: (a) An explanation of:
(i) The circumstances under which the
investment adviser directly or indirectly
may engage in principal transactions;
(ii) the nature and significance of
conflicts with its client’s interests as a
result of the transactions; and (iii) how
the investment adviser addresses those
conflicts; or (b) a statement explaining
that the client is consenting to principal
transactions, followed by a crossreference to a specific document
provided to the client containing the
disclosure in (a)(i)–(iii) above and to the
specific page or pages on which such
disclosure is located; provided,
however, that if the investment adviser
requires time to modify its electronic
systems to provide the disclosure in
(a)(i)–(iii) above immediately preceding
the separate or additional signature line,
the investment adviser may, while
updating such electronic systems, and
for no more than 90 days from the date
of the Order, instead provide a crossreference to a specific document
provided to the client containing the
disclosure in (a)(i)–(iii) above and to the
specific section in such document in
which such disclosure is located.
Transition provision: To the extent that
the adviser obtained fully informed
written revocable consent from an
advisory client for purposes of rule
206(3)–3T(a)(3) prior to the date of this
Order, the adviser may rely on this
Order with respect to such client
without obtaining additional
prospective consent from such client.
5. The investment adviser, prior to the
execution of each transaction in reliance
on this Order, will: (a) Inform the
advisory client, orally or in writing, of
the capacity in which it may act with
respect to such transaction; and (b)
obtain consent from the advisory client,
orally or in writing, to act as principal
for its own account with respect to such
transaction.
6. The investment adviser will send a
written confirmation at or before
completion of each such transaction that
includes, in addition to the information
required by rule 10b–10 under the
Exchange Act, a conspicuous, plain
English statement informing the
advisory client that the investment
adviser: (a) Disclosed to the client prior
to the execution of the transaction that
the adviser may be acting in a principal
capacity in connection with the
transaction and the client authorized the
transaction; and (b) sold the security to,
or bought the security from, the client
for its own account.
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7. The investment adviser will send to
the client, no less frequently than
annually, written disclosure containing
a list of all transactions that were
executed in the client’s account in
reliance upon this Order, and the date
and price of each such transaction.
8. The investment adviser is a brokerdealer registered under section 15 of the
Exchange Act and each account for
which the investment adviser relies on
this Order is a brokerage account subject
to the Exchange Act, and the rules
thereunder, and the rules of the selfregulatory organization(s) of which it is
a member.
9. Each written disclosure required as
a condition to this Order will include a
conspicuous, plain English statement
that the client may revoke the written
consent referred to in Condition 4 above
without penalty at any time by written
notice to the investment adviser in
accordance with reasonable procedures
established by the investment adviser,
but in all cases such revocation must be
given effect within 5 business days of
the investment adviser’s receipt thereof.
10. The investment adviser will
maintain records sufficient to enable
verification of compliance with the
conditions of this Order. Such records
will include, without limitation: (a)
Documentation sufficient to
demonstrate compliance with each
disclosure and consent requirement
under this Order; (b) in particular,
documentation sufficient to demonstrate
that, prior to the execution of each
transaction in reliance on this Order, the
adviser informed the advisory client of
the capacity in which it may act with
respect to the transaction and that it
received the advisory client’s consent (if
the investment adviser informs the
client orally of the capacity in which it
may act with respect to such transaction
or obtains oral consent, such records
may, for example, include recordings of
telephone conversations or
contemporaneous written notations);
and (c) documentation sufficient to
enable assessment of compliance by the
investment adviser with sections 206(1)
and (2) of the Advisers Act in
connection with its reliance on this
Order.3 In each case, such records will
be maintained and preserved in an
easily accessible place for a period of
not less than five years, the first two
years in an appropriate office of the
investment adviser, and be available for
3 For example, under sections 206(1) and (2), an
adviser may not engage in any transaction on a
principal basis with a client that is not consistent
with the best interests of the client or that
subrogates the client’s interests to the adviser’s
own. Cf. Investment Advisers Act Release No. 2106
(Jan. 31, 2003) (adopting Rule 206(4)–6).
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88297
inspection by the staff of the
Commission.
11. The investment adviser will adopt
written compliance policies and
procedures reasonably designed to
ensure, and the investment adviser’s
chief compliance officer will monitor,
the investment adviser’s compliance
with the conditions of this Order. The
investment adviser’s chief compliance
officer will, on at least a quarterly basis,
conduct testing reasonably sufficient to
verify such compliance. Such written
policies and procedures, monitoring and
testing will address, without limitation:
(a) Compliance by the investment
adviser with its disclosure and consent
requirements under this Order; (b) the
integrity and operation of electronic
systems employed by the investment
adviser in connection with its reliance
on this Order; (c) compliance by the
investment adviser with its
recordkeeping obligations under this
Order; and (d) whether there is any
evidence of the investment adviser
engaging in ‘‘dumping’’ in connection
with its reliance on this Order.4 The
investment adviser’s chief compliance
officer will document the frequency and
results of such monitoring and testing,
and the investment adviser will
maintain and preserve such
documentation in an easily accessible
place for a period of not less than five
years, the first two years in an
appropriate office of the investment
adviser, and be available for inspection
by the staff of the Commission.
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016–29297 Filed 12–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–4581; File No. 803–00234]
Wells Fargo Advisors, LLC and Wells
Fargo Advisors Financial Network,
LLC; Notice of Application
December 1, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
exemptive order under section 206A of
the Investment Advisers Act of 1940
AGENCY:
4 See Report of the Securities and Exchange
Commission, Investment Trusts and Investment
Companies, H.R. Doc. No. 279, 76th Cong., 2d Sess.,
pt. 3, at 2581, 2589 (1939); Hearings on S. 3580
Before a Subcommittee of the Commission on
Banking and Currency, 76th Cong., 3d Sess. 209,
212–23 (1940); Hearings on S. 3580 Before the
Subcomm. of the Comm. on Banking and Currency,
76th Cong., 3d Sess. 322 (1940).
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(‘‘Advisers Act’’) providing an
exemption from the written disclosure
and consent requirements of section
206(3).
Applicants: Wells Fargo Advisors,
LLC (‘‘WFA’’) and Wells Fargo Advisors
Financial Network, LLC (‘‘FiNet,’’ and,
together with WFA, ‘‘Applicants’’).
Relevant Advisers Act Sections:
Exemption requested under section
206A from the written disclosure and
consent requirements of section 206(3).
Summary of Application: Applicants
request that the Commission issue an
order under section 206A exempting
them and Future Advisers (as defined
below) from the written disclosure and
consent requirements of section 206(3)
with respect to principal transactions
with nondiscretionary advisory client
accounts.
Filing Dates: The application was
filed on November 22, 2016.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
Applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on December 27, 2016, and
should be accompanied by proof of
service on Applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Advisers Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Applicants, Laura E. Flores and Steven
W. Stone, Morgan, Lewis & Bockius
LLP, 1111 Pennsylvania Ave. NW.,
Washington, DC 20004.
FOR FURTHER INFORMATION CONTACT:
Robert Shapiro, Senior Counsel, at (202)
551–7758 (Chief Counsel’s Office,
Division of Investment Management) or
Melissa Harke, Senior Special Counsel,
at (202) 551–6787 (Investment Adviser
Regulation Office, Division of
Investment Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site at https://www.sec.gov/rules/
iareleases.shtml or by calling (202) 551–
8090.
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Applicants seek relief from the
written disclosure and consent
requirements of section 206(3) of the
Advisers Act that would be similar to
relief currently provided by Advisers
Act rule 206(3)-3T (the ‘‘Rule’’), which
will expire by its terms on December 31,
2016. The relief sought by Applicants, if
granted, would be subject to conditions
similar to those under the Rule, as well
as certain revised or additional
conditions.
Applicants’ Representations
1. WFA and FiNet are each registered
as investment advisers with the
Commission and each is a registered
broker-dealer. WFA and FiNet are each
indirect subsidiaries and under the
common control of Wells Fargo &
Company, a diversified financial
services company with operations
around the world. Each of WFA and
FiNet offers a number of advisory
programs, including Asset Advisor (the
‘‘Program’’), a nondiscretionary advisory
program.
2. WFA created the Program in 2004;
FiNet has been offering the Program
since 2004. In September 2007, a
number of WFA’s and FiNet’s fee-based
brokerage accounts were converted to
nondiscretionary advisory accounts in
the Program following the invalidation
of former Rule 202(a)(11)–1 under the
Advisers Act. When these accounts had
been fee-based brokerage accounts, the
Applicants, in their capacity as brokerdealers, engaged in principal
transactions with their respective
customers in accordance with
applicable law. The Applicants
currently rely on the Rule to engage in
principal transactions with their client
accounts in the Program.
3. The Applicants currently have
more than 260,000 client accounts
enrolled in the Program. Those accounts
have approximately $115 billion in
assets under management as of August
30, 2016. For 2014 and 2015, WFA and
FiNet conducted 27,478 and 2,476
principal trades, respectively, in
reliance on the Rule, involving more
than $1.5 billion and $141 million in
securities, respectively. Approximately
78% percent of the trades done in
reliance on the Rule in 2015 were
purchases by client accounts; the
average purchase was approximately
$43,000. Approximately 22% percent of
the trades done in reliance on the Rule
in 2015 were sales from client accounts;
the average sale was approximately
$36,000.
4. Any principal transactions in
securities that are underwritten by
Applicants or an affiliate are effected in
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accordance with section 206(3) of the
Advisers Act.
5. The Applicants acknowledge that
the Order, if granted, would not be
construed as relieving in any way the
Applicants from acting in the best
interests of an advisory client, including
fulfilling the duty to seek the best
execution for the particular transaction
for the advisory client; nor shall it
relieve the Applicants from any
obligation that may be imposed by
sections 206(1) or (2) of the Advisers
Act or by other applicable provisions of
the federal securities laws or applicable
FINRA rules.
Applicants’ Legal Analysis
1. Section 206(3) provides that it is
unlawful for any investment adviser,
directly or indirectly, acting as principal
for its own account, knowingly to sell
any security to or purchase any security
from a client, without disclosing to the
client in writing before the completion
of the transaction the capacity in which
the adviser is acting and obtaining the
client’s consent to the transaction. Rule
206(3)–3T deems an investment adviser
to be in compliance with the provisions
of section 206(3) of the Advisers Act
when the investment adviser, or a
person controlling, controlled by, or
under common control with the
investment adviser, acting as principal
for its own account, sells to or
purchases from an advisory client any
security, provided that the investment
adviser complies with the conditions of
the Rule.
2. Rule 206(3)–3T requires, among
other things, that the investment adviser
obtain a client’s written, revocable
consent prospectively authorizing the
adviser, directly or indirectly, acting as
principal for its own account, to sell any
security to or purchase any security
from the client. The consent must be
obtained after the adviser provides the
client with written disclosure about: (i)
The circumstances under which the
investment adviser may engage in
principal transactions with the client;
(ii) the nature and significance of the
conflicts the investment adviser has
with its client’s interests as a result of
those transactions; and (iii) how the
investment adviser addresses those
conflicts. The investment adviser also
must provide trade-by-trade disclosure
to the client, before the execution of
each principal transaction, of the
capacity in which the adviser may act
with respect to the transaction, and
obtain the client’s consent (which may
be written or oral) to the transaction.
The Rule is available only to an
investment adviser that is also a brokerdealer registered under section 15 of the
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Securities Exchange Act of 1934
(‘‘Exchange Act’’) and may only be
relied upon with respect to a
nondiscretionary account that is a
brokerage account subject to the
Exchange Act, and the rules thereunder,
and the rules of the self-regulatory
organization(s) of which it is a member.
Rule 206(3)–3T is not available for
principal transactions if the investment
adviser or a person who controls, is
controlled by, or is under common
control with the adviser (‘‘control
person’’) is the issuer or is an
underwriter of the security, except that
an adviser may rely on the Rule for
trades in which the adviser or a control
person is an underwriter of nonconvertible investment-grade debt
securities.
3. The investment adviser also must
provide to the client a trade
confirmation that, in addition to the
requirements of rule 10b–10 under the
Exchange Act, includes a conspicuous,
plain English statement informing the
client that the investment adviser
disclosed to the client before the
execution of the transaction that the
investment adviser may act as principal
in connection with the transaction, that
the client authorized the transaction,
and that the investment adviser sold the
security to or bought the security from
the client for its own account. The
investment adviser also must deliver to
the client, at least annually, a written
statement listing all transactions that
were executed in the account in reliance
on the Rule, including the date and
price of each transaction.
4. Rule 206(3)–3T is scheduled to
expire on December 31, 2016. Upon
expiration, the Applicants would be
required to provide trade-by-trade
written disclosure to each
nondiscretionary advisory client with
whom the Applicants sought to engage
in a principal transaction in accordance
with section 206(3). The Applicants
submit that their nondiscretionary
clients, through the Applicants’ current
reliance on the Rule, have had access to
the Applicants’ inventory through
principal transactions for a number of
years, and expect to continue to have
such access in the future. The
Applicants believe that engaging in
principal transactions with their clients
provides certain benefits to their clients,
including access to securities of limited
availability, such as municipal bonds,
and that the written disclosure and
client consent requirements of section
206(3) act as an operational barrier to
their ability to engage in principal
trades with their clients, especially
when the transaction involves securities
of limited availability.
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5. Unless the Applicants are provided
an exemption from the written
disclosure and client consent
requirements of section 206(3),
Applicants believe that they will be
unable to provide the same range of
services and access to the same types of
securities to their nondiscretionary
advisory clients as they currently is able
to provide to clients under the Rule.
6. The Applicants note that, if the
requested relief is granted, they will
remain subject to the fiduciary duties
that are generally enforceable under
sections 206(1) and 206(2) of the
Advisers Act, which, in general terms,
require the Applicants to: (i) Disclose
material facts about the advisory
relationship to their clients; (ii) treat
each client fairly; and (iii) act only in
the best interests of their client,
disclosing conflicts of interest when
present and obtaining client consent to
arrangements that present such
conflicts.
7. The Applicants further note that, in
their capacity as broker-dealers with
respect to these accounts, they will
remain subject to a comprehensive set of
Commission and FINRA regulations that
apply to the relationship between a
broker-dealer and its customer in
addition to the fiduciary duties an
adviser owes a client. These rules
require, among other things, that the
Applicants deal fairly with their
customers, seek to obtain best execution
of customer orders, and make only
suitable recommendations. These
obligations are designed to promote
business conduct that protects
customers from abusive practices that
may not necessarily be fraudulent, and
to protect against unfair prices and
excessive commissions. Specifically,
these provisions, among other things,
require that the prices charged by the
Applicants be reasonably related to the
prevailing market, and limit the
commissions and mark-ups the
Applicants can charge. Additionally,
these obligations require that the
Applicants have a reasonable basis to
believe that a recommended transaction
or investment strategy involving a
security or securities is suitable for the
customer, based on information
obtained through reasonable diligence.
8. The Applicants request that the
Commission issue an Order pursuant to
section 206A exempting them from the
written disclosure and consent
requirements of section 206(3) only with
respect to client accounts in the
Program and any similar
nondiscretionary program to be created
in the future. The Applicants also
request that the Commission’s Order
apply to future investment advisers
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88299
controlling, controlled by, or under
common control with the Applicants
(‘‘Future Advisers’’). Any Future
Adviser relying on any Order granted
pursuant to the application will comply
with the terms and conditions stated in
the application.1
Applicants’ Conditions
The Applicants agree that any Order
granting the requested relief will be
subject to the following conditions:
1. The Applicants will exercise no
‘‘investment discretion’’ (as such term is
defined in section 3(a)(35) of the
Exchange Act), except investment
discretion granted by the advisory client
on a temporary or limited basis 2, with
respect to the client’s account.
2. The Applicants will not trade in
reliance on this Order any security for
which either Applicant or any person
controlling, controlled by, or under
common control with the Applicants is
the issuer, or, at the time of the sale, an
underwriter (as defined in section
202(a)(20) of the Advisers Act).
3. The Applicants will not directly or
indirectly require the client to consent
to principal trading as a condition to
opening or maintaining an account with
an Applicant.
4. The advisory client has executed a
written revocable consent prospectively
authorizing the Applicants directly or
indirectly to act as principal for their
own account in selling any security to
or purchasing any security from the
advisory client. The advisory client’s
written consent must be obtained
through a signature or other positive
manifestation of consent that is separate
from or in addition to the signature
indicating the client’s consent to the
advisory agreement. The separate or
additional signature line or alternative
means of expressing consent must be
1 All entities that currently intend to rely on any
order granted pursuant to the application are named
as Applicants.
2 Discretion is considered to be temporary or
limited for purposes of this condition when the
investment adviser is given discretion: (i) As to the
price at which or the time to execute an order given
by a client for the purchase or sale of a definite
amount or quantity of a specified security; (ii) on
an isolated or infrequent basis, to purchase or sell
a security or type of security when a client is
unavailable for a limited period of time not to
exceed a few months; (iii) as to cash management,
such as to exchange a position in a money market
fund for another money market fund or cash
equivalent; (iv) to purchase or sell securities to
satisfy margin requirements; (v) to sell specific
bonds and purchase similar bonds in order to
permit a client to take a tax loss on the original
position; (vi) to purchase a bond with a specified
credit rating and maturity; and (vii) to purchase or
sell a security or type of security limited by specific
parameters established by the client. See, e.g.,
Temporary Rule Regarding Principal Trades with
Certain Advisory Clients, Investment Advisers Act
Release No. 2653 (Sept. 24, 2007) at n. 31.
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preceded immediately by prominent,
plain English disclosure containing
either: (a) An explanation of: (i) The
circumstances under which an
Applicant directly or indirectly may
engage in principal transactions; (ii) the
nature and significance of conflicts with
its client’s interests as a result of the
transactions; and (iii) how an Applicant
addresses those conflicts; or (b) a
statement explaining that the client is
consenting to principal transactions,
followed by a cross-reference to a
specific document provided to the client
containing the disclosure in (a)(i)–(iii)
above and to the specific page or pages
on which such disclosure is located;
provided, however, that if an Applicant
requires time to modify its electronic
systems to provide the specific page
cross-reference required by clause (b),
the Applicant may, while updating such
electronic systems, and for no more than
90 days from the date of the Order,
instead provide a cross-reference to a
specific document provided to the client
containing the disclosure in (a)(i)–(iii)
above and to the specific section in such
document in which such disclosure is
located. Transition provision: To the
extent that the Applicants obtained fully
informed written revocable consent
from an advisory client for purposes of
rule 206(3)–3T(a)(3) prior to December
31, 2016, the Applicants may rely on
this Order with respect to such client
without obtaining additional
prospective consent from such client.
5. The Applicants, prior to the
execution of each transaction in reliance
on this Order, will: (a) Inform the
advisory client, orally or in writing, of
the capacity in which they may act with
respect to such transaction; and (b)
obtain consent from the advisory client,
orally or in writing, to act as principal
for their own account with respect to
such transaction.
6. The Applicants will send a written
confirmation at or before completion of
each such transaction that includes, in
addition to the information required by
rule 10b–10 under the Exchange Act, a
conspicuous, plain English statement
informing the advisory client that the
Applicants: (a) Disclosed to the client
prior to the execution of the transaction
that the Applicants may be acting in a
principal capacity in connection with
the transaction and the client authorized
the transaction; and (b) sold the security
to, or bought the security from, the
client for its own account.
7. The Applicants will send to the
client, no less frequently than annually,
written disclosure containing a list of all
transactions that were executed in the
client’s account in reliance upon this
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Order, and the date and price of each
such transaction.
8. Each Applicant is a broker-dealer
registered under section 15 of the
Exchange Act and each account for
which the Applicants rely on this Order
is a brokerage account subject to the
Exchange Act, and the rules thereunder,
and the rules of the self-regulatory
organization(s) of which it is a member.
9. Each written disclosure required as
a condition to this Order will include a
conspicuous, plain English statement
that the client may revoke the written
consent referred to in Condition 4 above
without penalty at any time by written
notice to the Applicants in accordance
with reasonable procedures established
by the Applicants, but in all cases such
revocation must be given effect within
5 business days of the Applicants’
receipt thereof.
10. The Applicants will maintain
records sufficient to enable verification
of compliance with the conditions of
this Order. Such records will include,
without limitation: (a) Documentation
sufficient to demonstrate compliance
with each disclosure and consent
requirement under this Order; (b) in
particular, documentation sufficient to
demonstrate that, prior to the execution
of each transaction in reliance on this
Order, each Applicant informed the
relevant advisory client of the capacity
in which the Applicant may act with
respect to the transaction and that it
received the advisory client’s consent (if
the Applicant informs the client orally
of the capacity in which it may act with
respect to such transaction or obtains
oral consent, such records may, for
example, include recordings of
telephone conversations or
contemporaneous written notations);
and (c) documentation sufficient to
enable assessment of compliance by the
Applicants with sections 206(1) and (2)
of the Advisers Act in connection with
its reliance on this Order.3 In each case,
such records will be maintained and
preserved in an easily accessible place
for a period of not less than five years,
the first two years in an appropriate
office of the Applicants, and be
available for inspection by the staff of
the Commission.
11. The Applicants will adopt written
compliance policies and procedures
reasonably designed to ensure, and each
Applicant’s chief compliance officer
will monitor, the Applicant’s
3 For example, under sections 206(1) and (2), an
adviser may not engage in any transaction on a
principal basis with a client that is not consistent
with the best interests of the client or that
subrogates the client’s interests to the adviser’s
own. Cf. Investment Advisers Act Release No. 2106
(Jan. 31, 2003) (adopting Rule 206(4)–6).
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compliance with the conditions of this
Order. Each Applicant’s chief
compliance officer will, on at least a
quarterly basis, conduct testing
reasonably sufficient to verify such
compliance. Such written policies and
procedures, monitoring and testing will
address, without limitation: (a)
Compliance by the Applicant with its
disclosure and consent requirements
under this Order; (b) the integrity and
operation of electronic systems
employed by the Applicant in
connection with its reliance on this
Order; (c) compliance by the Applicant
with its recordkeeping obligations under
this Order; and (d) whether there is any
evidence of the Applicant engaging in
‘‘dumping’’ in connection with its
reliance on this Order.4 Each
Applicant’s chief compliance officer
will document the frequency and results
of such monitoring and testing, and
each Applicant will maintain and
preserve such documentation in an
easily accessible place for a period of
not less than five years, the first two
years in an appropriate office of the
Applicant, and be available for
inspection by the staff of the
Commission.
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016–29300 Filed 12–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32375; 812–14685]
CWM Advisors, LLC, et al.; Notice of
Application
December 1, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d), and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
17(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
AGENCY:
4 See Report of the Securities and Exchange
Commission, Investment Trusts and Investment
Companies, H.R. Doc. No. 279, 76th Cong., 2d Sess.,
pt. 3, at 2581, 2589 (1939); Hearings on S. 3580
Before a Subcommittee of the Commission on
Banking and Currency, 76th Cong., 3d Sess. 209,
212–23 (1940); Hearings on S. 3580 Before the
Subcomm. of the Comm. on Banking and Currency,
76th Cong., 3d Sess. 322 (1940).
E:\FR\FM\07DEN1.SGM
07DEN1
Agencies
[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Notices]
[Pages 88297-88300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29300]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-4581; File No. 803-00234]
Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial
Network, LLC; Notice of Application
December 1, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an exemptive order under section 206A
of the Investment Advisers Act of 1940
[[Page 88298]]
(``Advisers Act'') providing an exemption from the written disclosure
and consent requirements of section 206(3).
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Applicants: Wells Fargo Advisors, LLC (``WFA'') and Wells Fargo
Advisors Financial Network, LLC (``FiNet,'' and, together with WFA,
``Applicants'').
Relevant Advisers Act Sections: Exemption requested under section
206A from the written disclosure and consent requirements of section
206(3).
Summary of Application: Applicants request that the Commission
issue an order under section 206A exempting them and Future Advisers
(as defined below) from the written disclosure and consent requirements
of section 206(3) with respect to principal transactions with
nondiscretionary advisory client accounts.
Filing Dates: The application was filed on November 22, 2016.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving Applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on December 27, 2016, and should be accompanied by proof of
service on Applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Advisers Act,
hearing requests should state the nature of the writer's interest, any
facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Commission's Secretary.
Addresses: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants, Laura E. Flores and
Steven W. Stone, Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Ave.
NW., Washington, DC 20004.
For Further Information Contact: Robert Shapiro, Senior Counsel, at
(202) 551-7758 (Chief Counsel's Office, Division of Investment
Management) or Melissa Harke, Senior Special Counsel, at (202) 551-6787
(Investment Adviser Regulation Office, Division of Investment
Management).
Supplementary Information: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site at https://www.sec.gov/rules/iareleases.shtml or
by calling (202) 551-8090.
Applicants seek relief from the written disclosure and consent
requirements of section 206(3) of the Advisers Act that would be
similar to relief currently provided by Advisers Act rule 206(3)-3T
(the ``Rule''), which will expire by its terms on December 31, 2016.
The relief sought by Applicants, if granted, would be subject to
conditions similar to those under the Rule, as well as certain revised
or additional conditions.
Applicants' Representations
1. WFA and FiNet are each registered as investment advisers with
the Commission and each is a registered broker-dealer. WFA and FiNet
are each indirect subsidiaries and under the common control of Wells
Fargo & Company, a diversified financial services company with
operations around the world. Each of WFA and FiNet offers a number of
advisory programs, including Asset Advisor (the ``Program''), a
nondiscretionary advisory program.
2. WFA created the Program in 2004; FiNet has been offering the
Program since 2004. In September 2007, a number of WFA's and FiNet's
fee-based brokerage accounts were converted to nondiscretionary
advisory accounts in the Program following the invalidation of former
Rule 202(a)(11)-1 under the Advisers Act. When these accounts had been
fee-based brokerage accounts, the Applicants, in their capacity as
broker-dealers, engaged in principal transactions with their respective
customers in accordance with applicable law. The Applicants currently
rely on the Rule to engage in principal transactions with their client
accounts in the Program.
3. The Applicants currently have more than 260,000 client accounts
enrolled in the Program. Those accounts have approximately $115 billion
in assets under management as of August 30, 2016. For 2014 and 2015,
WFA and FiNet conducted 27,478 and 2,476 principal trades,
respectively, in reliance on the Rule, involving more than $1.5 billion
and $141 million in securities, respectively. Approximately 78% percent
of the trades done in reliance on the Rule in 2015 were purchases by
client accounts; the average purchase was approximately $43,000.
Approximately 22% percent of the trades done in reliance on the Rule in
2015 were sales from client accounts; the average sale was
approximately $36,000.
4. Any principal transactions in securities that are underwritten
by Applicants or an affiliate are effected in accordance with section
206(3) of the Advisers Act.
5. The Applicants acknowledge that the Order, if granted, would not
be construed as relieving in any way the Applicants from acting in the
best interests of an advisory client, including fulfilling the duty to
seek the best execution for the particular transaction for the advisory
client; nor shall it relieve the Applicants from any obligation that
may be imposed by sections 206(1) or (2) of the Advisers Act or by
other applicable provisions of the federal securities laws or
applicable FINRA rules.
Applicants' Legal Analysis
1. Section 206(3) provides that it is unlawful for any investment
adviser, directly or indirectly, acting as principal for its own
account, knowingly to sell any security to or purchase any security
from a client, without disclosing to the client in writing before the
completion of the transaction the capacity in which the adviser is
acting and obtaining the client's consent to the transaction. Rule
206(3)-3T deems an investment adviser to be in compliance with the
provisions of section 206(3) of the Advisers Act when the investment
adviser, or a person controlling, controlled by, or under common
control with the investment adviser, acting as principal for its own
account, sells to or purchases from an advisory client any security,
provided that the investment adviser complies with the conditions of
the Rule.
2. Rule 206(3)-3T requires, among other things, that the investment
adviser obtain a client's written, revocable consent prospectively
authorizing the adviser, directly or indirectly, acting as principal
for its own account, to sell any security to or purchase any security
from the client. The consent must be obtained after the adviser
provides the client with written disclosure about: (i) The
circumstances under which the investment adviser may engage in
principal transactions with the client; (ii) the nature and
significance of the conflicts the investment adviser has with its
client's interests as a result of those transactions; and (iii) how the
investment adviser addresses those conflicts. The investment adviser
also must provide trade-by-trade disclosure to the client, before the
execution of each principal transaction, of the capacity in which the
adviser may act with respect to the transaction, and obtain the
client's consent (which may be written or oral) to the transaction. The
Rule is available only to an investment adviser that is also a broker-
dealer registered under section 15 of the
[[Page 88299]]
Securities Exchange Act of 1934 (``Exchange Act'') and may only be
relied upon with respect to a nondiscretionary account that is a
brokerage account subject to the Exchange Act, and the rules
thereunder, and the rules of the self-regulatory organization(s) of
which it is a member. Rule 206(3)-3T is not available for principal
transactions if the investment adviser or a person who controls, is
controlled by, or is under common control with the adviser (``control
person'') is the issuer or is an underwriter of the security, except
that an adviser may rely on the Rule for trades in which the adviser or
a control person is an underwriter of non-convertible investment-grade
debt securities.
3. The investment adviser also must provide to the client a trade
confirmation that, in addition to the requirements of rule 10b-10 under
the Exchange Act, includes a conspicuous, plain English statement
informing the client that the investment adviser disclosed to the
client before the execution of the transaction that the investment
adviser may act as principal in connection with the transaction, that
the client authorized the transaction, and that the investment adviser
sold the security to or bought the security from the client for its own
account. The investment adviser also must deliver to the client, at
least annually, a written statement listing all transactions that were
executed in the account in reliance on the Rule, including the date and
price of each transaction.
4. Rule 206(3)-3T is scheduled to expire on December 31, 2016. Upon
expiration, the Applicants would be required to provide trade-by-trade
written disclosure to each nondiscretionary advisory client with whom
the Applicants sought to engage in a principal transaction in
accordance with section 206(3). The Applicants submit that their
nondiscretionary clients, through the Applicants' current reliance on
the Rule, have had access to the Applicants' inventory through
principal transactions for a number of years, and expect to continue to
have such access in the future. The Applicants believe that engaging in
principal transactions with their clients provides certain benefits to
their clients, including access to securities of limited availability,
such as municipal bonds, and that the written disclosure and client
consent requirements of section 206(3) act as an operational barrier to
their ability to engage in principal trades with their clients,
especially when the transaction involves securities of limited
availability.
5. Unless the Applicants are provided an exemption from the written
disclosure and client consent requirements of section 206(3),
Applicants believe that they will be unable to provide the same range
of services and access to the same types of securities to their
nondiscretionary advisory clients as they currently is able to provide
to clients under the Rule.
6. The Applicants note that, if the requested relief is granted,
they will remain subject to the fiduciary duties that are generally
enforceable under sections 206(1) and 206(2) of the Advisers Act,
which, in general terms, require the Applicants to: (i) Disclose
material facts about the advisory relationship to their clients; (ii)
treat each client fairly; and (iii) act only in the best interests of
their client, disclosing conflicts of interest when present and
obtaining client consent to arrangements that present such conflicts.
7. The Applicants further note that, in their capacity as broker-
dealers with respect to these accounts, they will remain subject to a
comprehensive set of Commission and FINRA regulations that apply to the
relationship between a broker-dealer and its customer in addition to
the fiduciary duties an adviser owes a client. These rules require,
among other things, that the Applicants deal fairly with their
customers, seek to obtain best execution of customer orders, and make
only suitable recommendations. These obligations are designed to
promote business conduct that protects customers from abusive practices
that may not necessarily be fraudulent, and to protect against unfair
prices and excessive commissions. Specifically, these provisions, among
other things, require that the prices charged by the Applicants be
reasonably related to the prevailing market, and limit the commissions
and mark-ups the Applicants can charge. Additionally, these obligations
require that the Applicants have a reasonable basis to believe that a
recommended transaction or investment strategy involving a security or
securities is suitable for the customer, based on information obtained
through reasonable diligence.
8. The Applicants request that the Commission issue an Order
pursuant to section 206A exempting them from the written disclosure and
consent requirements of section 206(3) only with respect to client
accounts in the Program and any similar nondiscretionary program to be
created in the future. The Applicants also request that the
Commission's Order apply to future investment advisers controlling,
controlled by, or under common control with the Applicants (``Future
Advisers''). Any Future Adviser relying on any Order granted pursuant
to the application will comply with the terms and conditions stated in
the application.\1\
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\1\ All entities that currently intend to rely on any order
granted pursuant to the application are named as Applicants.
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Applicants' Conditions
The Applicants agree that any Order granting the requested relief
will be subject to the following conditions:
1. The Applicants will exercise no ``investment discretion'' (as
such term is defined in section 3(a)(35) of the Exchange Act), except
investment discretion granted by the advisory client on a temporary or
limited basis \2\, with respect to the client's account.
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\2\ Discretion is considered to be temporary or limited for
purposes of this condition when the investment adviser is given
discretion: (i) As to the price at which or the time to execute an
order given by a client for the purchase or sale of a definite
amount or quantity of a specified security; (ii) on an isolated or
infrequent basis, to purchase or sell a security or type of security
when a client is unavailable for a limited period of time not to
exceed a few months; (iii) as to cash management, such as to
exchange a position in a money market fund for another money market
fund or cash equivalent; (iv) to purchase or sell securities to
satisfy margin requirements; (v) to sell specific bonds and purchase
similar bonds in order to permit a client to take a tax loss on the
original position; (vi) to purchase a bond with a specified credit
rating and maturity; and (vii) to purchase or sell a security or
type of security limited by specific parameters established by the
client. See, e.g., Temporary Rule Regarding Principal Trades with
Certain Advisory Clients, Investment Advisers Act Release No. 2653
(Sept. 24, 2007) at n. 31.
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2. The Applicants will not trade in reliance on this Order any
security for which either Applicant or any person controlling,
controlled by, or under common control with the Applicants is the
issuer, or, at the time of the sale, an underwriter (as defined in
section 202(a)(20) of the Advisers Act).
3. The Applicants will not directly or indirectly require the
client to consent to principal trading as a condition to opening or
maintaining an account with an Applicant.
4. The advisory client has executed a written revocable consent
prospectively authorizing the Applicants directly or indirectly to act
as principal for their own account in selling any security to or
purchasing any security from the advisory client. The advisory client's
written consent must be obtained through a signature or other positive
manifestation of consent that is separate from or in addition to the
signature indicating the client's consent to the advisory agreement.
The separate or additional signature line or alternative means of
expressing consent must be
[[Page 88300]]
preceded immediately by prominent, plain English disclosure containing
either: (a) An explanation of: (i) The circumstances under which an
Applicant directly or indirectly may engage in principal transactions;
(ii) the nature and significance of conflicts with its client's
interests as a result of the transactions; and (iii) how an Applicant
addresses those conflicts; or (b) a statement explaining that the
client is consenting to principal transactions, followed by a cross-
reference to a specific document provided to the client containing the
disclosure in (a)(i)-(iii) above and to the specific page or pages on
which such disclosure is located; provided, however, that if an
Applicant requires time to modify its electronic systems to provide the
specific page cross-reference required by clause (b), the Applicant
may, while updating such electronic systems, and for no more than 90
days from the date of the Order, instead provide a cross-reference to a
specific document provided to the client containing the disclosure in
(a)(i)-(iii) above and to the specific section in such document in
which such disclosure is located. Transition provision: To the extent
that the Applicants obtained fully informed written revocable consent
from an advisory client for purposes of rule 206(3)-3T(a)(3) prior to
December 31, 2016, the Applicants may rely on this Order with respect
to such client without obtaining additional prospective consent from
such client.
5. The Applicants, prior to the execution of each transaction in
reliance on this Order, will: (a) Inform the advisory client, orally or
in writing, of the capacity in which they may act with respect to such
transaction; and (b) obtain consent from the advisory client, orally or
in writing, to act as principal for their own account with respect to
such transaction.
6. The Applicants will send a written confirmation at or before
completion of each such transaction that includes, in addition to the
information required by rule 10b-10 under the Exchange Act, a
conspicuous, plain English statement informing the advisory client that
the Applicants: (a) Disclosed to the client prior to the execution of
the transaction that the Applicants may be acting in a principal
capacity in connection with the transaction and the client authorized
the transaction; and (b) sold the security to, or bought the security
from, the client for its own account.
7. The Applicants will send to the client, no less frequently than
annually, written disclosure containing a list of all transactions that
were executed in the client's account in reliance upon this Order, and
the date and price of each such transaction.
8. Each Applicant is a broker-dealer registered under section 15 of
the Exchange Act and each account for which the Applicants rely on this
Order is a brokerage account subject to the Exchange Act, and the rules
thereunder, and the rules of the self-regulatory organization(s) of
which it is a member.
9. Each written disclosure required as a condition to this Order
will include a conspicuous, plain English statement that the client may
revoke the written consent referred to in Condition 4 above without
penalty at any time by written notice to the Applicants in accordance
with reasonable procedures established by the Applicants, but in all
cases such revocation must be given effect within 5 business days of
the Applicants' receipt thereof.
10. The Applicants will maintain records sufficient to enable
verification of compliance with the conditions of this Order. Such
records will include, without limitation: (a) Documentation sufficient
to demonstrate compliance with each disclosure and consent requirement
under this Order; (b) in particular, documentation sufficient to
demonstrate that, prior to the execution of each transaction in
reliance on this Order, each Applicant informed the relevant advisory
client of the capacity in which the Applicant may act with respect to
the transaction and that it received the advisory client's consent (if
the Applicant informs the client orally of the capacity in which it may
act with respect to such transaction or obtains oral consent, such
records may, for example, include recordings of telephone conversations
or contemporaneous written notations); and (c) documentation sufficient
to enable assessment of compliance by the Applicants with sections
206(1) and (2) of the Advisers Act in connection with its reliance on
this Order.\3\ In each case, such records will be maintained and
preserved in an easily accessible place for a period of not less than
five years, the first two years in an appropriate office of the
Applicants, and be available for inspection by the staff of the
Commission.
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\3\ For example, under sections 206(1) and (2), an adviser may
not engage in any transaction on a principal basis with a client
that is not consistent with the best interests of the client or that
subrogates the client's interests to the adviser's own. Cf.
Investment Advisers Act Release No. 2106 (Jan. 31, 2003) (adopting
Rule 206(4)-6).
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11. The Applicants will adopt written compliance policies and
procedures reasonably designed to ensure, and each Applicant's chief
compliance officer will monitor, the Applicant's compliance with the
conditions of this Order. Each Applicant's chief compliance officer
will, on at least a quarterly basis, conduct testing reasonably
sufficient to verify such compliance. Such written policies and
procedures, monitoring and testing will address, without limitation:
(a) Compliance by the Applicant with its disclosure and consent
requirements under this Order; (b) the integrity and operation of
electronic systems employed by the Applicant in connection with its
reliance on this Order; (c) compliance by the Applicant with its
recordkeeping obligations under this Order; and (d) whether there is
any evidence of the Applicant engaging in ``dumping'' in connection
with its reliance on this Order.\4\ Each Applicant's chief compliance
officer will document the frequency and results of such monitoring and
testing, and each Applicant will maintain and preserve such
documentation in an easily accessible place for a period of not less
than five years, the first two years in an appropriate office of the
Applicant, and be available for inspection by the staff of the
Commission.
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\4\ See Report of the Securities and Exchange Commission,
Investment Trusts and Investment Companies, H.R. Doc. No. 279, 76th
Cong., 2d Sess., pt. 3, at 2581, 2589 (1939); Hearings on S. 3580
Before a Subcommittee of the Commission on Banking and Currency,
76th Cong., 3d Sess. 209, 212-23 (1940); Hearings on S. 3580 Before
the Subcomm. of the Comm. on Banking and Currency, 76th Cong., 3d
Sess. 322 (1940).
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016-29300 Filed 12-6-16; 8:45 am]
BILLING CODE 8011-01-P