Ala. Admin. Code r. 830-X-3-.21
Current through Register Vol. 43, No. 1, October 31, 2024
Section 830-X-3-.21 - Dishonest Or Unethical Practices By Investment Advisers(1) An investment adviser is a fiduciary and has a duty to act primarily for the benefit of its clients. While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser and its clients and the circumstances of each case, an investment adviser shall not engage in unethical practices, including but not limited to the following: (a) Recommending to a client to whom investment supervisory, management or consulting services are provided 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 or acquired by the investment adviser after reasonable examination of the client's financial records.(b) Placing an order to purchase or sell a security for the account of a client without written authority to do so.(c) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third party authorization from the client.(d) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten business days after the date of the first transaction placed pursuant to oral discretionary authority, 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.(e) Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account.(f) Borrowing money or securities from a client unless the client is a dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds or securities.(g) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.(h) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting 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.(i) Providing a report or recommendation to any advisory client prepared by someone other than the investment adviser without disclosing that fact. This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.(j) Charging a client an unreasonable advisory fee in light of the fees charged by other investment advisers providing essentially the same services.(k) Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the investment adviser or any of its employees which could reasonably be expected to impair the rendering of unbiased and objective advice including: 1. Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; or2. Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.(l) Guaranteeing a client that a specific result will be achieved as a result of the advice which will be rendered. (m) Publishing, circulating or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940.(n) Disclosing the identity, affairs, or investments of any client to any third party unless required by law or an order of a court or a regulatory agency to do so, or unless consented to by the client.(o) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser has custody or possession of such securities or funds, when the investment adviser's action is subject to and does not comply with the safekeeping requirements of Rule 830-X-3-.19.(p) Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the investment adviser and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract.(q) Engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices.(2) An investment adviser representative is a fiduciary and has a duty to act primarily for the benefit of his clients. While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser representative and his clients and the circumstances of each case, an investment adviser representative shall not engage in unethical practices, including but not limited to the following:(a) Recommending to a client to whom investment supervisory, management or consulting services are provided 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 or acquired by the investment adviser representative after reasonable examination of the client's financial records.(b) Placing an order to purchase or sell a security for the account of a client without written authority to do so.(c) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third party authorization from the client.(d) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten business days after the date of the first transaction placed pursuant to oral discretionary authority, 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.(e) Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account.(f) Borrowing money or securities from a client unless the client is a dealer, an affiliate of the investment adviser representative, or a financial institution engaged in the business of loaning funds or securities.(g) Loaning money to a client unless the investment adviser representative is engaged in the business of loaning funds or the client is an affiliate of the investment adviser representative.(h) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser representative, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omission 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.(i) Providing a report or recommendation to any advisory client prepared by someone other than the investment adviser who the investment adviser representative is employed by or associated with without disclosing that fact. This prohibition does not apply to a situation where the investment adviser uses published research reports or statistical analyses to render advice or where an investment adviser orders such a report in the normal course of providing service.(j) Charging a client an unreasonable advisory fee in light of the fees charged by other investment adviser representatives providing essentially the same services.(k) Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the investment adviser representative which could reasonably be expected to impair the rendering of unbiased and objective advice including:1. Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; or2. Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the investment adviser representative. (l) Guaranteeing a client that a specific result will be achieved as a result of the advice which will be rendered.(m) Publishing, circulating or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940.(n) Disclosing the identity, affairs, or investments of any client to any third party unless required by law or an order of a court or a regulatory agency to do so, or unless consented to by the client.(o) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser representative has custody or possession of such securities or funds, when the investment adviser representative's action is subject to and does not comply with the safekeeping requirement of Rule 830-X-3-.19.(p) Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the investment adviser representative and that no assignment of such contract shall be made by the investment adviser representative without the consent of the other party to the contract.(q) Engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices.Author:
Ala. Admin. Code r. 830-X-3-.21
Filed September 28, 1990.Statutory Authority:Code of Ala. 1975, § 8-6-23.