N.J. Admin. Code § 13:47A-2.12

Current through Register Vol. 56, No. 21, November 4, 2024

Section 13:47A-2.12 - Supervision

(a) Duty of reasonable supervision. Every investment adviser registered by the Bureau shall reasonably supervise employees who give investment advice with a view toward preventing violations of the New Jersey Uniform Securities Law, and other Federal and/or state securities laws. Final responsibility for proper supervision shall rest with the investment adviser. In determining whether an investment adviser registered by the Bureau has reasonably supervised, the following factors will be taken into consideration:

1. The investment adviser has established written policies and procedures and a system for applying the policies and procedures, with consideration for the size and number of locations of the investment adviser, that would reasonably be expected to prevent and detect, insofar as practicable, any violation by its investment adviser representatives or other persons, employed by or associated with, the investment adviser;

2. The investment adviser has reasonably discharged the duties and obligations incumbent on the investment adviser by reason of the established written policies and procedures and the system for applying the policies and procedures without reasonable cause to believe that there was not compliance with the policies and procedures and systems; and

3. Any additional information, as needed by the Bureau, to make a determination.

(b) This supervisory system, including written supervisory policies and procedures, shall provide, at a minimum, to the extent relevant, for the following:

1. Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients' investment objectives, disclosures by the investment adviser, and applicable regulatory restrictions;

2. Trading practices, including policies and procedures by which the investment adviser satisfies its best execution obligation, uses client brokerage to obtain research and other services (soft dollar arrangements), and allocates aggregated trades among clients;

3. Proprietary trading of the investment adviser and personal trading activities of supervised persons;

4. The accuracy of disclosures made to investors, clients, and regulators, including account statements and advertisements;

5. Safeguarding of client assets from conversion or inappropriate use by advisory personnel;

6. The accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction;

7. Marketing advisory services, including the use of solicitors;

8. Processes to value client holdings and assess fees based on those valuations;

9. Safeguards for the privacy protection of client records and information; and

10. Business continuity plans, which generally provide for, but are not limited to, the following:

i. The protection, back-up, and recovery of books and records;

ii. Establishing alternate means of communication with customers, employees, and regulators;

iii. Office relocation, in the event of a loss of principal place of business; and

iv. A designation of duties to responsible person(s) in the event of the death or disability of a key individual, principal, owner, or other such personnel.

(c) Annual review. Every investment adviser registered by the Bureau shall review, no less frequently than annually, the adequacy of the policies and procedures established pursuant to this section and the effectiveness of their implementation.

(d) Chief Compliance Officer. Every investment adviser registered by the Bureau shall designate an individual (who is a supervised person) responsible for administering the policies and procedures that are adopted pursuant to (a) above. The designated individual shall have successfully passed the Uniform Investment Adviser Law Examination (Series 65 Examination), or its successor exam.

N.J. Admin. Code § 13:47A-2.12

Adopted by 47 N.J.R. 2155(a), effective 8/17/2015

Amended by 56 N.J.R. 1876(a), effective 9/16/2024