Current through February 26, 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.
(17)
(a)
While acting as principal for its own advisory account, to knowingly sell any
security to or purchase any security from a client, or while acting as
broker-dealer for a person other than the client, to knowingly effect any sale
or purchase of any security for the account of the client, without disclosing
to the client in writing before the completion of the transaction the capacity
in which it is acting and obtaining the consent of the client to the
transaction.
(b) The prohibitions
of this subsection shall not apply to any transaction with a client of a
broker-dealer if the broker-dealer is not acting as an investment adviser in
relation to the transaction.
(c)
The prohibitions of this subsection shall not apply to any transaction with a
client of a broker-dealer if the broker-dealer acts as an investment adviser
solely:
1. By means of publicly distributed
written materials or publicly made oral statements;
2. By means of written materials or oral
statements not purporting to meet the objectives or needs of specific
individuals or accounts;
3. Through
the issuance of statistical information containing no expressions of opinion as
to the investment merits of a particular security; or
4. Any combination of the foregoing
services.
(d) Publicly
distributed written materials or publicly made oral statements shall disclose
that, if the purchaser of the advisory communication uses the investment
adviser's services in connection with the sale or purchase of a security which
is a subject of the communication, the investment adviser may act as principal
for its own account or as agent for another person. Compliance by the
investment adviser with the foregoing disclosure requirement shall not relieve
it of any other disclosure obligations under ch. 551, Stats.
(e) In this subsection:
1. "Publicly distributed written materials"
means written materials which are distributed to 35 or more persons who pay for
those materials.
2. "Publicly made
oral statements" means oral statements made simultaneously to 35 or more
persons who pay for access to those statements.
(18) Guaranteeing a client that a specific
result will be achieved with advice rendered.
(19) Publishing, circulating or distributing
any advertisement which directly or indirectly does any one of the following:
(a) Refers to any testimonial of any kind
concerning the investment adviser, investment adviser representative or federal
covered investment adviser, or concerning any advice, analysis, report, or
other service rendered by such investment adviser or investment adviser
representative.
(b) Refers to past
specific recommendations of the investment adviser, investment adviser
representative or federal covered investment adviser that were or would have
been profitable to any person; except that an investment adviser or investment
adviser representative may furnish or offer to furnish a list of all
recommendations made by the investment adviser, investment adviser
representative or federal covered investment adviser within the immediately
preceding period of not less than one year if the advertisement or list also
includes both of the following:
1. The name
of each security recommended, the date and nature of each recommendation, the
market price at that time, the price at which the recommendation was to be
acted upon, and the most recently available market price of each such
security.
2. A legend on the first
page in prominent print or type that states that the reader should not assume
that recommendations made in the future will be profitable or will equal the
performance of the securities in the list.
(c) Represents that any graph, chart,
formula, or other device being offered can in and of itself be used to
determine which securities to buy or sell, or when to buy or sell them; or
which represents, directly or indirectly, that any graph, chart, formula, or
other device being offered will assist any person in making that person's own
decisions as to which securities to buy or sell, or when to buy or sell them,
without prominently disclosing in such advertisement the limitations thereof
and the difficulties with respect to its use.
(d) Represents that any report, analysis, or
other service will be furnished for free or without charge, unless such report,
analysis, or other service actually is or will be furnished entirely free and
without any direct or indirect condition or obligation.
(e) Represents that the division has approved
any advertisement.
(f) Contains any
untrue statement of a material fact, or that is otherwise false or
misleading.
(g) In this subsection,
the term "advertisement" includes any notice, circular, letter, or other
written communication addressed to more than one person, or any notice or other
announcement in any electronic or paper publication, by radio or television, or
by any medium, that offers any one of the following:
1. Any analysis, report, or publication
concerning securities.
2. Any
analysis, report, or publication that is to be used in making any determination
as to when to buy or sell any security or which security to buy or
sell.
3. Any graph, chart, formula,
or other device to be used in making any determination as to when to buy or
sell any security, or which security to buy or sell.
4. Any other investment advisory service with
regard to securities.
(20) Making, in the solicitation of clients,
any untrue statement of a material fact, or omitting to state a material fact
necessary in order to make the statement made, in light of the circumstances
under which they are made, not misleading.
(21) Failing 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.
(22) Disclosing the identity, investments, or
other financial information of any client or former client unless required by
law to do so, or unless consented to by the client.
(23) Engaging in conduct or any act,
indirectly or through or by any other person, which would be unlawful for such
person to do directly under ch. 551, Stats., or any rule thereunder.
(24) Using any term or abbreviation thereof
in a manner that misleadingly states or implies that a person has special
expertise, certification, or training in financial planning, including the
misleading use of a senior-specific certification or designation as set forth
in ch. DFI-Sec 10.
(25) Paying a
cash fee or any other economic benefit, directly or indirectly, in connection
with solicitation activities unless the requirements of pars. (a) through (d)
are met.
(a) The solicitor is registered as
an investment adviser or investment adviser representative or is exempt from
registration as provided for in s. DFI-Sec 5.13(2).
(b) The cash fee or any other economic
benefit is paid by the investment adviser with respect to solicitation
activities that are impersonal in nature in that they are provided solely by
means of:
1. Written material or oral
statements which do not purport to meet the objectives or needs of the specific
client; or
2. Statistical
information containing no expressions of opinions as to the merits of
particular securities or investment advisers; or
3. Any combination of the foregoing
services.
(c) The cash
fee or any other economic benefit is paid pursuant to a written agreement to
which the investment adviser is a party and all of the following conditions are
met:
1. The written agreement;
a. Describes the solicitation or referral
activities to be engaged in by the solicitor on behalf of the investment
adviser and the cash fee or any other economic benefit to be received for such
activities; and
b. 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 ch. 551, Stats., and rules there under; and
c. Requires that the solicitor, at the time
of any solicitation or referral activities for which a cash fee or any other
economic benefit is paid or to be paid by the investment adviser, provide the
client with a current copy of the investment adviser's disclosure document
required under s. DFI-Sec 5.05(8) and a separate disclosure statement as
described in par. (d), either in paper or electronic format; and
2. The investment adviser receives
from the client, prior to or at the time of entering into any written
investment advisory contract, a signed and dated acknowledgement of receipt of
the investment adviser's written disclosure statement and the solicitor's
written disclosure document; and
3.
The investment adviser makes a bona fide effort and has a reasonable basis for
believing that the solicitor has complied with the agreement; and
4. The requirements in subds. 1., 2. and 3.
shall not apply if the solicitor is any of the following:
a. A partner, officer, director or employee
of such investment adviser; or
b. A
partner, officer, director or employee of a person that controls, is controlled
by, or is under common control with such investment adviser, provided the
status of the solicitor is disclosed to the client at the time of the
solicitation or referral.
(d) The separate written disclosure document
required to be furnished by the solicitor to the client pursuant to par. (c) 1.
c. shall contain the following information:
1. The name of the solicitor;
2. The name of the investment
adviser;
3. The nature of the
relationship, including any affiliation, between the solicitor and the
investment adviser;
4. A statement
that the solicitor will be compensated for solicitation or referral services by
the investment adviser;
5. The
terms of the compensation arrangement including a description of the cash fee
or any other economic benefit paid or to be paid to the solicitor;
and
6. The amount of compensation
the client will pay, if any, in addition to the advisory fees, and whether the
cash fee or any other economic benefit paid to the solicitor will be added to
the advisory fee, creating a differential with respect to the amount charged to
other advisory clients who are not subject to the solicitor compensation
arrangement.
(e) Nothing
in this subsection shall be deemed to relieve any person of any fiduciary or
other obligation to which such person may be subject under any law.