June 16, 1994
TO: INVESTMENT ADVISERS COMMITTEE NO. 38-94
MASSACHUSETTS INVESTMENT ADVISER ASSOCIATE MEMBERS
RE: MASSACHUSETTS PROPOSES INVESTMENT ADVISER REGULATIONS
__________________________________________________________
The Massachusetts Securities Division (the "Division") has
issued for comment proposed regulations to implement provisions of
recently enacted legislation providing for the registration and
regulation of investment advisers. (See Memorandum to Investment
Adviser Associate Members No. 5-94 and to Investment Adviser
Members No. 5-94, dated January 21, 1994.) The emergency
regulations previously adopted by the Division will remain in
effect until such time as these proposed regulations are adopted.
(See Memorandum to Investment Adviser Associate Members No. 11-94
and Investment Adviser Members No. 10-94, dated March 4, 1994.)
A copy of the proposed regulations, significant aspects of which
are summarized below, is attached.
1. Registration Provisions
The proposed regulations include the procedures for initial
and renewal registration of investment advisers and investment
adviser representatives, as well as for termination of their
registration.
2. Examination Requirement
Unless exempt, each investment adviser representative would be
required by the proposed regulations to score at least 70% on the
Series 65 examination and either: (1) successfully complete a
nationally recognized examination or course of study specifically
designed in part or whole for investment advisers or financial
planners (e.g., the Chartered Financial Analyst ("CFA") exam); (2)
successfully complete an academic program at an accredited
institution of higher education leading to a degree or certificate
in financial planning or involving significant financial and
investment analysis; or (3) pass the Series 2 or 7 examinations
administered by the NASD.
Exempt from this requirement are those representatives that
have been (1) registered with the Division since July 1, 1994 and
(2) continuously registered under or associated with an investment
adviser registered under the Investment Advisers Act of 1940 since
January 1, 1990, so long as such person remains registered under
such Act. The Director of the Division may waive the examination
requirement for certain persons including solicitors and
representatives with no clients in the Commonwealth.
3. Financial Requirements
As proposed, investment advisers that have custody of client
funds or securities or that accept prepayment of advisory fees must
either post a bond or maintain liquid net worth of at least
$25,000. Advisers with discretionary authority over customer funds
must either post a bond of $25,000 or maintain liquid net worth of
$10,000.
4. Disclosure Requirements
In addition to compliance with the federal "brochure" rule
(i.e., Rule 204-3 under the Investment Advisers Act), prior to the
client entering into an advisory contract, the adviser must provide
the client notice that the disciplinary history of the adviser and
its representatives can be obtained from the Division. Also,
unless exempt from such requirement, an adviser must provide the
client with detailed commission or fee information before each
purchase or sale of a security for which the adviser has rendered
advice. An adviser is exempt from this requirement with respect to
advice that either (1) is rendered pursuant to a contract giving
discretionary authority to the adviser or (2) pertains to a
security traded on a national exchange if (a) the commission, mark-
up, or mark-down on the transaction is within NASD guidelines and
(b) the transaction is effected through a broker-dealer that has no
affiliation with the investment adviser or investment adviser
representative.
5. Other Provisions
Other provisions in the proposed regulations would: define the
post-registration filing and record keeping requirements; require
an adviser to establish written supervisory procedures; and define
those practices that shall be deemed fraudulent, dishonest, or
unethical.
* * * * *
Written comments on these proposed regulations are due no
later than July 15, 1994. Please provide me no later than Friday
July 1, 1994 with any comments you would like to have included in
the Institute's letter. Comments may be submitted to me by phone
(202/326-5825) or by fax (202/326-5828).
Tamara K. Cain
Assistant Counsel
Attachment