February 24, 1994
TO: INVESTMENT ADVISERS COMMITTEE NO. 15-94
ILLINOIS INVESTMENT ADVISER ASSOCIATE MEMBERS
RE: DRAFT ILLINOIS LEGISLATION RELATING TO REGULATION OF
INVESTMENT ADVISERS
__________________________________________________________
The Illinois Secretary of State (the "Secretary") has announced plans to
have legislation introduced in the near future to amend the Illinois Securities
Law of 1953 (the "Securities Law"). The legislation would amend various
provisions in the Securities Law relating to the regulation of investment
advisers. The relevant sections of the draft legislation are attached.
Among other things, the legislation would (1) require registration of
investment adviser representatives; (2) authorize the Secretary to require
continuing education of any registrant; and (3) require investment adviser
applicants to furnish clients with information in the form prescribed by the
Secretary by rule, "including without limitation, the fees paid directly or
indirectly, any disciplinary history of the investment adviser, its officers or
directors for the immediate past 10 years and the toll free number of the
Secretary of state."
Other significant provisions in the Secretary's proposed legislation would:
-- amend the definitional section of the Securities Law to
delete
t h e
exclus
i o n
f o r
banks,
trust
compan
i e s ,
lawyer
s ,
accoun
tants,
engine
e r s ,
geolog
ists,
a n d
teache
r s
f r o m
t h e
defini
t i o n
o f
"inves
tment
advise
r " ,
a n d
a d d
defini
tions
f o r
"regis
tered
invest
m e n t
advise
r
repres
entati
v e "
a n d
"inves
tment
advise
r
solici
t o r "
( p p .
1 0 3 -
106);
-- require an investment adviser applicant to include a list
o f
solici
t o r s
w i t h
i t s
applic
ation
(p. 196);
-- define what constitutes unethical business practices for an
investment adviser or its representatives. These practices,
which include recommending unsuitable advice; exercising
unauthorized discretion; engaging in excessive trading;
borrowing money from a client; misrepresenting qualifications,
services, or fees; and charging unreasonable fees, are
consistent with the NASAA Model Amendments to the Uniform
Securities Act (pp. 200-202);
-- authorize the Secretary to require investment advisers to
obtain a
surety bond
except those
persons who
maintain net
capital in
excess of
t h a t
required by
t h e
Secretary by
rule (pp.
202-203);
-- authorize the Secretary to "inspect and observe, withou
t
limita
tion,
t h e
entire
premis
es on
a n y
a r e a
o r
locati
on of
t h e
princi
pal or
branch
office
" and
conduc
t
interv
i e w s
of any
person
affili
a t e d
w i t h
t h e
advise
r (pp.
2 1 0 -
211);
-- require an adviser to maintain records in the p r i n c i p a l
and each
b r a n c h
office of
the adviser
(p. 210);
-- create private and other civil remedies for clients of
investment advisers; preclude an action by a client if the
client had been offered rescission equal to the full amount of
consideration plus interest; and provide a three year statute
of limitations (pp. 246-249); and
-- require that any arbitration clause in a contract o r
agreem
ent to
purcha
s e
invest
m e n t
advice
o r
servic
es be
printe
d in
boldfa
ce, 10
point
t y p e
( p .
249).
* * * * *
Please provide me with any comments you have on the proposed legislation
by Friday March 11, 1994. My direct number is 202/326-5825.
We will keep you advised of developments.
Tamara K. Cain
Assistant Counsel
Attachment