Current through September 24, 2024
(1)
It shall constitute an act, practice, or course of conduct which operates as a
fraud or deceit upon a person, as provided under T.C.A. §
48-1-121(b)(2),
for any investment adviser to pay a cash fee, directly or indirectly, to a
solicitor with respect to solicitation activities unless:
(a) The solicitor is not a person:
1. Subject to an order issued by the
commissioner under T.C.A. §
48-1-112(a) of
the Act;
2. Convicted of any felony
or any misdemeanor within the previous ten (10) years involving conduct
described in T.C.A. §
48-1-112(a)(2)(C);
3. Who has been found by the commissioner to
have engaged, or has been convicted of engaging, in any of the conduct
specified in T.C.A. §§
48-1-121,
48-1-112(a)(2)(B),
48-1-112(a)(2)(J),
or has materially aided in the action in violation of T.C.A. §§
48-1-112(a)(2)(B),
48-1-112(a)(2)(J),
or 48-1-121;
4. Subject to an order, judgment, or decree
described in T.C.A. §
48-1-112(a)(2)(D)
of the Act; or
5. Described in SEC Rule 206(4)-3(a)(1)(ii)
(17, C.F.R. §275.206(4)-3(a)(1)(ii));
(b) Such cash fee is paid pursuant to a
written agreement to which the adviser is a party;
(c) Such cash fee is paid to a solicitor:
1. With respect to solicitation activities
for the provision of impersonal advisory services only;
2. Who is:
(i) A partner, officer, director, or employee
of such investment adviser; or
(ii)
A partner, officer, director, or employee of a person which controls, is
controlled by, or is under common control with such investment adviser;
provided that the status of such solicitor as a partner, officer, director, or
employee of such investment adviser or other person, and any affiliation
between the investment adviser and such other person, is disclosed to the
client at the time of the solicitation or referral; or
3. Other than a solicitor specified in parts
(1)(c)1. or (1)(c)2. of this Rule if all of the following conditions are met:
(i) The written agreement required by
subparagraph (1)(b) of this Rule:
(I)
Describes the solicitation activities to be engaged in by the solicitor on
behalf of the investment adviser and the compensation to be received
thereof;
(II) Contains an
undertaking by the solicitor to perform his duties under the agreement in a
manner consistent with the instructions of the investment adviser and the
provisions of the Act and these Rules or of the Investment Advisers Act and the
rules promulgated thereunder, whichever is applicable; and
(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 client with a current copy of the
investment adviser's written disclosure statement required by Rule
0780-04-03-.10 or SEC Rule 204-3 (
17 C.F.R.
§275.204-3) as applicable, and a
separate written disclosure statement described in paragraph (2) of this
Rule;
(ii) The
investment adviser receives from the client, prior to, or at the time of,
entering into any written or oral investment advisory contract with such
client, a signed and dated acknowledgment of receipt of the investment
adviser's written disclosure statement and the solicitor's written disclosure
document; and
(iii) The investment
adviser makes a bona fide effort to ascertain whether the solicitor has
complied with the agreement, and has a reasonable basis for believing that the
solicitor has so complied.
(2) The separate written disclosure statement
required to be furnished by the solicitor to the client pursuant to subpart
(1)(c)3.(ii) of this Rule shall contain the following information:
(a) The name of the solicitor;
(b) The name of the investment
adviser;
(c) The nature of the
relationship, including any affiliation, between the solicitor and the
investment adviser;
(d) A statement
that the solicitor will be compensated for his solicitation services by the
investment adviser;
(e) The terms
of such compensation arrangement, including a description of the compensation
paid or to be paid to the solicitor; and
(f)
1. The
amount, if any, the client will be charged for the cost of obtaining his
account in addition to the advisory fee; and
2. The differential, if any, among clients,
with respect to the amount or level of advisory fees charged by the investment
adviser, if such differential is attributable to the existence of any
arrangement pursuant to which the investment adviser has agreed to compensate
the solicitor for soliciting clients for, or referring clients to, the
investment adviser.
(3) Nothing in this Rule shall be deemed to
relieve any person of any fiduciary or other obligation to which such person
may be subject under any law.
(4)
For purposes of this Rule:
(a) "Solicitor"
means any person who, directly or indirectly, solicits any client for, or
refers any client to, an investment adviser.
(b) "Client" includes any prospective
client.
(c) "Impersonal advisory
services" means investment advisory services provided solely by means of (i)
written materials or oral statements which do not purport to meet the
objectives or needs of the specific client, (ii) statistical information
containing no expressions of opinions as to the investment merits of particular
securities, or (iii) any combination of the foregoing services.
(5) The investment adviser shall
retain a copy of each written agreement required by subparagraph (1)(b) of this
Rule as part of the records required to be kept under T.C.A. §
48-1-111(a) and
paragraph (3) of Rule 0780-04-03-.02.
(6) The investment adviser shall retain a
copy of each acknowledgement and solicitor disclosure document referred to in
subpart (1)(c)3.(ii) of this Rule as part of the records required to be kept
under T.C.A. §
48-1-111(a) and
paragraph (3) of Rule 0780-04-03-.02.
(7) An investment adviser registered in this
state whose principal place of business is located outside this state shall not
be subject to the record maintenance requirements of paragraphs (5) or (6) of
this Rule if such investment adviser:
(a) Is
registered as an investment adviser in the state in which it maintains its
principal place of business;
(b) Is
in compliance with applicable books and records requirements of the state in
which it maintains its principal place of business; and
(c) The provisions of paragraphs (5) or (6)
of this Rule would require the investment adviser to maintain books or records
in addition to those required under the laws of the state in which the
investment adviser maintains its principal place of business.
(8) As used herein "principal
place of business" of an investment adviser means the executive office of the
investment adviser from which the officers, partners, or managers of the
investment adviser direct, control, or coordinate the activities of the
investment adviser.
Authority: T.C.A. §§
48-1-111,
48-1-112,
48-1-115, 48-1-116, 48-1-121,
Public Acts of 1997, Chapter 164,
17 C.F.R. §
275.204-3, and 17 C.F.R. §
275.206(4)-3.
