June 22, 1992
TO: INVESTMENT ADVISER MEMBERS NO. 29-92
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 21-92
RE: CALIFORNIA ADOPTS SEVERAL NEW INVESTMENT ADVISER REGULATIONS
__________________________________________________________
The California Commissioner of Corporations has adopted
several new investment adviser regulations under the Corporate
Securities Law of 1968. (See Memorandum to Investment Advisers
Committee Nos. 59-91 and 10-92, dated December 9, 1991 and March
9, 1992, respectively.) The regulations, a copy of which is
attached, became effective on June 11, 1992.
Specifically, the regulations include: (1) a provision
relating to agency-cross transactions, which is modeled after
Rule 206(3)-2 under the Investment Advisers Act of 1940; (2) a
provision similar to Rule 206(4)-4 under the Advisers Act
regarding financial and disciplinary disclosures by investment
advisers; and (3) a provision describing activities that do not
promote "fair, equitable or ethical principles", which is similar
to NASAA Uniform Rule 102(a)(4) (such as charging a client an
advisory fee that is unreasonable in light of certain specified
factors).
The final regulations incorporate the Institute’s
recommendation that with respect to the prohibition on charging
an unreasonable fee, a specific ceiling (e.g., 3%) should not be
included as to what is deemed reasonable. Instead, the
regulation states that the following is not a fair or equitable
practice: "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 adviser, the sophistication and
bargaining power of the client, and whether the adviser has
disclosed that lower fees for comparable services may be
available from other sources."
Amy B.R. Lancellotta
Associate Counsel
Attachment