January 28, 1992
TO: INVESTMENT ADVISERS COMMITTEE NO. 4-92
CALIFORNIA ASSOCIATE INVESTMENT ADVISER MEMBERS
RE: INSTITUTE COMMENT LETTER ON PROPOSED CALIFORNIA INVESTMENT
ADVISER REGULATIONS
__________________________________________________________
As we previously informed you, the California Department of
Corporations has proposed several regulations relating to
investment adviser activities. (See Memorandum to Investment
Advisers Committee No. 59-91, California Associate Investment
Adviser Members, dated December 9, 1991). The Institute
submitted the attached letter on the proposed rules.
In its letter, the Institute commended the Department's
efforts to conform California investment adviser regulations to
the regulations of the Securities and Exchange Commission and the
North American Securities Administrators Association. We noted
that regulation that is coordinated with federal requirements and
conforms to the requirements of other states helps ensure
compliance and ameliorates the regulatory burdens on investment
advisers.
Specifically, the Institute supported the proposed rules
regarding agency cross transactions and financial and
disciplinary disclosures, which are substantially similar to the
federal requirements in these areas. With respect to the
proposed rule enumerating certain activities that do not promote
"fair, equitable or ethical principles", we questioned generally
the need for such a rule since there are comprehensive anti-fraud
provisions on both the federal and state levels that have proved
adequate to deal with the problems that have arisen. However, if
the Department is inclined to adopt such a provision, the
Institute expressed its support for the proposal since it is
substantially similar to NASAA Uniform Rule 102(a)(4)-1, but
recommended that it be modified in two respects. First, we
objected to the inclusion of a ceiling (i.e., 3%) as to what is
deemed to be a reasonable fee charged by an investment adviser.
Second, we requested that reports prepared by an affiliate of an
adviser be explicitly excluded from the disclosure requirement in
connection with the use of reports prepared by third parties.
Amy B.R. Lancellotta
Associate General Counsel
Attachment