710 Ind. Admin. Code 4-9-15

Current through December 4, 2024

Section 710 IAC 4-9-15 - Dishonest or unethical practices

Authority: IC 23-19-6-5

Affected: IC 23-19-4-12

Sec. 15.

(a) Investment advisers and investment adviser representatives are fiduciaries and have a duty to act primarily for the benefit of their clients. While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser or an investment adviser representative and his or her clients and the circumstances of each case, an investment adviser or an investment adviser representative shall not engage in unethical or dishonest business practices. Each of the following actions or activities shall constitute an unethical or dishonest practice within the meaning of IC 23-19-4-12(d)(13):

(1) 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:

(A) the client's investment objectives;

(B) the client's financial situation;

(C) the client's needs; and

(D) any other information known or acquired by the client's financial records as may be provided to the investment adviser.

(2) Placing an order to purchase or sell a security for the account of a client without authority to do so.

(3) 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 trading authorization from the client.

(4) 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 (10) business days after the date of the first transaction placed pursuant to oral discretionary authority. Discretionary power does not include a power relating 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.

(5) Inducing trading in a client's account that is excessive in size or frequency in view of the:

(A) financial resources;

(B) investment objectives; and

(C) character of the account.

(6) Misrepresenting to any advisory client or prospective advisory client any of the following:

(A) Qualifications of the investment adviser or any employee of the investment adviser.

(B) The nature of the advisory services being offered or fees to be charged for the service.

(C) Omitting to state a material fact necessary to make the statements made regarding:

(i) qualifications;

(ii) services; or

(iii) fees;

in light of the circumstances under which they are made, not misleading.

(7) Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing that fact. This prohibition does not apply to a situation where the adviser:

(A) uses published research reports or statistical analyses to render advice; or

(B) orders this type of report in the normal course of providing service.

(8) Charging a client an advisory fee that is unreasonable in the light of the:

(A) type of services to be provided;

(B) experience and expertise of the adviser; and

(C) sophistication and bargaining power of the client.

(9) Failing to disclose to a client in writing before entering into or renewing an advisory agreement with that client any material conflict of interest relating to the adviser or any of its employees that could reasonably be expected to impair the rendering of unbiased and objective advice, including, but not limited to, the following:

(A) Compensation arrangements connected with advisory services to clients that are in addition to compensation from the clients for the services.

(B) Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to the advice will be received by the adviser of its employees.

(10) Guaranteeing a client that a specific result will be achieved, gained, or no loss, as a result of the advice that will be rendered.

(11) Disclosing the identity, affairs, or investments of any client to any third party, unless:

(A) required by law to do so; or

(B) the client consents to the disclosure.

(12) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, or the investment adviser has custody or possession of the securities or funds when the adviser's action is subject to and does not comply with the safekeeping requirements of SEC Rule 206(4)-2 (17 CFR 275.206(4)-2) under the Investment Advisers Act of 1940 or the investment adviser is exempt from those requirements by virtue of SEC Rule 206(4)-2(b) (17 CFR 275.206(4)-2(b)) .

(13) Paying a cash fee, directly or indirectly, to a solicitor with respect to solicitation activities in a manner that does not comply with Rule 206(4)-3 under the Investment Advisers Act of 1940 (17 CFR 275.206(4)-3) , as amended.

(14) Failing to disclose to any client or prospective client all material facts with respect to the financial and disciplinary information required to be disclosed under Rule 206(4)-4 under Investment Advisers Act of 1940 (17 CFR 275.206(4)-4) , as amended.

(15) While acting as principal for the investment adviser's own account, knowingly effecting any sale or purchase of any security for the account of a client without disclosing to the client in writing before the completion of the transaction the capacity in which the investment adviser is acting and obtaining the consent of the client to the transaction.

(16) For an investment adviser, employing any investment adviser representative who is not registered as required by IC 23-19, provided that no investment adviser that is exempt from registration under IC 23-19 shall be required to register its investment adviser representatives.

(b) The conduct set forth in subsection (a) is not inclusive. It also includes employing any device, scheme, or artifice to defraud or engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit.

710 IAC 4-9-15

Securities Division; 710 IAC 4-9-15; filed Jun 28, 2010, 2:36 p.m.: 20100728-IR-710100044FRA

Readopted filed 5/12/2016, 1:47 p.m.: 20160608-IR-710160136RFA

Readopted filed 11/30/2022, 4:01 p.m.: 20221228-IR-710220301RFA