June 7, 1989
TO: INVESTMENT ADVISER MEMBERS NO. 30-89
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 30-89
RE: MARYLAND PASSES INVESTMENT ADVISER LAW
__________________________________________________________
On May 25, 1989, Maryland Governor William Donald Schaefer
signed Maryland House Bill No. 712 into law. This law, affecting
both investment advisers and investment adviser representatives,
becomes effective July 1, 1989. A copy of the law is attached.
This new law contains both disclosure and registration
provisions. The disclosure provisions go into effect on July 1,
1989. The registration requirements in Maryland go into effect
on July 1, 1990.
In Section 11-101, an investment adviser is defined as one
which generally gives investment advice about securities as part
of a regular business or which holds itself out as an investment
adviser in any way. The definition of investment adviser
representative, amended as the result of substantial comments
made by the Institute and Institute members, includes individuals
who manage accounts or portfolios of clients, solicit, offer or
negotiate for the sale of or sell investment advisory services,
etc.
Section 11-302 makes it unlawful for an investment adviser
to engage in any fraud or deceit and investment advisers are
prohibited from engaging in dishonest or unethical practices as
the Maryland Securities Commissioner may define by rule.
Section 11-401 contains registration requirements for
investment advisers and investment adviser representatives.
Registration exemptions are available for (i) advisers whose only
clients are investment companies or insurance companies, (ii)
advisers which have only institutional clients, (iii) advisers
with no more than five clients in Maryland during any twelve
month period, and (iv) an adviser which is not an investment
adviser as defined in the law, does not accept commissions, does
not maintain custody of client funds, and which is already
subject to regulation by a Maryland agency or board that has
disciplinary authority relating to financial counseling and
advice.
In Section 11-409, the Securities Commissioner may by rule
or order establish minimum financial requirements for investment
advisers. These requirements may be higher for advisers with
custody of client funds or securities.
Section 11-410 states that the Securities Commissioner may
by rule or order require an adviser which has custody of client
funds to post a surety bond in amounts up to $10,000. Also,
advisers are required to disclose to clients and prospective
clients certain information required by the Securities
Commissioner. This information is typically satisfied by meeting
the similar disclosure requirements under Section 204-3 of the
Investment Advisers Act of 1940. These disclosure requirements
must be complied with by July 1, 1989. In this section,
investment advisers are also required to file financial reports
which the Commissioner prescribes.
In Section 11-703, advisers and investment adviser
representatives are subject to civil liability provisions for
fraudulent activity by advisers or representatives. The statute
of limitations for civil liability is three years after the
contract of sale or the rendering of investment advice or the
expiration of two years after the discovery of the facts
constituting the violation, whichever first occurs.
We will keep you informed of any developments.
Robert L. Bunnen, Jr.
Assistant General Counsel
Attachment