Rule 6.10.402 - FRAUDULENT AND UNETHICAL PRACTICES PROHIBITED BY INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES(1) A person who is a federal covered adviser, investment adviser, or an investment adviser representative is a fiduciary and has a duty to act for the benefit of its clients. The provisions of this rule apply to federal covered advisers to the extent that the conduct alleged is fraudulent, deceptive, or as otherwise permitted by the National Securities Markets Improvement Act of 1996 ( PL 104-290). While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser or a federal covered adviser and its clients and the circumstances of each case, an investment adviser or a federal covered adviser shall not engage in unethical business practices, including the following: (a) recommending to a client the purchase, sale, or exchange of a 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;(b) exercising any discretionary power in placing an order for the purchase or sale of a security for a client without first 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;(c) inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objective, and character of the account if the adviser can directly or indirectly benefit from the number of securities transactions effected in a client's account;(d) placing an order to purchase or sell a security for the account of a client without authority to do so;(e) 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;(f) borrowing money or securities from a client unless the client is a broker-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 a client or prospective client the qualifications of the investment adviser or an employee of the investment adviser; misrepresenting the nature of the advisory services being offered or fees to be charged for the investment advisory 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 a client prepared by someone other than the investment adviser without disclosing that fact. This prohibition does not apply to a situation where the investment adviser uses a published research report or statistical analysis to render advice or where an investment adviser orders such a report in the normal course of providing service.(j) charging a client an advisory fee that is unreasonable in light of the type of services to be provided, the experience and expertise of the investment adviser, the sophistication and bargaining power of the client, and whether the investment adviser has disclosed that a lower fee for comparable services may be available from other sources;(k) failing to disclose to a client in writing before any advice is rendered a 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: (i) compensation arrangements connected with advisory services to a client which are in addition to compensation from the client for the services; and(ii) 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 investment adviser or its employees;(l) guaranteeing a client that a specific result will be achieved (gain or no loss) with advice which will be rendered;(m) publishing, circulating or distributing sales material which does not comply with rule 206(4)-1 under the Investment Adviser Act of 1940;(n) disclosing to a third party the identity, affairs, or investment of a client unless: (i) required by law to do so; or(ii) consented to by the client;(o) taking action, directly or indirectly, with respect to those securities or funds in which a client has a beneficial interest, if the investment adviser has custody or possession of the securities or funds when the investment adviser's action is subject to, and does not comply with, the requirements of Rule 206(4)-2 under the Investment Advisers Act of 1940, or the investment adviser is exempt from these requirements by virtue of Rule 206(4)-2(b);(p) entering into, extending, or renewing an investment advisory contract, other than a contract for impersonal services, unless the 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 or the manner of calculation of the prepaid fee to be returned in the event of contract termination or nonperformance, and whether the contract grants discretionary power to the investment adviser or its representative, and that no assignment of such contract shall be made by the adviser without the consent of the other party;(q) failing to disclose to a client or prospective client each material fact with respect to: (i) the financial condition of the investment adviser that is reasonably likely to impair the ability of the investment adviser to meet contractual commitments to a client, if the investment adviser has express or implied discretionary authority or custody over the client's funds or securities or requires prepayment of advisory fees of more than $500 from the client, six months or more in advance; or(ii) a legal or disciplinary action that is material to an evaluation of the investment adviser's integrity or ability to meet contractual commitments to a client;(r) 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;(s) entering into, extending, or renewing any advisory contract contrary to the provisions of section 205 of the Investment Advisers Act of 1940. This provision is adopted and incorporated, and applies to all advisers registered or required to be registered under the Securities Act of Montana, notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940. Section 205 establishes standards for investment advisory contracts entered into by the adviser and may be obtained from the Commissioner of Securities, 840 Helena Avenue, Helena, MT 59601;(t) to indicate, in an advisory contract, any condition, stipulation, or provisions binding any person to waive compliance with any provision of this act or of the Investment Advisers Act of 1940, or any other practice contrary to the provisions of section 215 of the Investment Advisers Act of 1940, which is adopted and incorporated notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940. Section 215 of the Investment Advisers Act of 1940 establishes standards for the validity of advisory contracts, and may be obtained from the Commissioner of Securities, 840 Helena Avenue, Helena, MT 59601;(u) engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative, or contrary to the provisions of section 206(4) of the Investment Advisers Act of 1940, which is adopted and incorporated, notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940. Section 206(4) of the Investment Advisers Act of 1940 establishes prohibited practices in the investment advisory business, and may be obtained from the Commissioner of Securities, 840 Helena Avenue, Helena, MT 59601;(v) engaging in conduct or any act, indirectly through any other person, which would be unlawful for such person to do directly under the provisions of the Securities Act of Montana or any rule or regulation thereunder; and(w) engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices.NEW, 1989 MAR p. 221, Eff. 1/27/89; AMD, 1998 MAR p. 2527, Eff. 12/18/98; AMD, 1999 MAR p. 56, Eff. 1/15/99; TRANS and AMD, from ARM 6.10.127, 2008 MAR p. 2046, Eff. 9/26/08.30-10-107, MCA; IMP, 30-10-201, 30-10-301, MCA;