September 27, 1995
TO: INVESTMENT ADVISER ASSOCIATE MEMBERS No. 38-95
INVESTMENT ADVISERS COMMITTEE No. 39-95
RE: VERMONT ISSUES FOR COMMENT PROPOSED INVESTMENT ADVISER
RULES
______________________________________________________________________________
The Vermont Securities Division recently published for comment proposed investment
adviser rules. These rules are, in large part, uniform with the NASAA Model Amendments to
the Uniform Securities Act and consistent with the Investment Advisers Act of 1940 and the
rules thereunder. The Institute has filed a comment letter with the Vermont Securities Division
recommending that the non-uniform provisions be amended to make them uniform. These
non-uniform provisions and our comments thereon are summarized below.
Rule 3.01, Vermont Certification Form
This rule would require the filing of a unique "Vermont Investment Adviser
Certification Form" to obtain or renew a registration. Though a copy of this Form was not
included with the proposed rules, the Institute presumes that it is the same Form that was
recently provided to registrants as part of their renewal package for 1996. A review of the Form
indicates that with one exception, which relates to the adviser being "in good standing" with
the Vermont Department of Taxes, the information sought by the Division through the Form
would be available through Form ADV, which must be filed with the Division, and Form ADV-
S. Accordingly, the Institute strongly recommends that the Division require the annual filing of
Form ADV-S in lieu of the Divisions unique Form. We also note that adoption of the Form
ADV-S should facilitate the Divisions use of the Central Registration Depository ("CRD")
when the CRD is redesigned to accommodate investment adviser registrations. With respect to
the Department of Taxes information, the Institute recommends that, to the extent the Division
wishes to obtain such information, it do so through the Tax Certification Form it has previously
used.
Rule 3.03, Examinations Requirements
The Division has proposed requiring all investment adviser representatives to pass the
Series 65 or 66 examinations and either (1) pass the Series 2 (General Securities Representative
Non-Member Examinations) or Series 7 (General Securities Representative Examination) or (2)
successfully complete a nationally recognized course of study (e.g., the CFA or CFP
examinations). The Institute recommends that, consistent with the NASAA Model
Amendments, (1) representatives not be required to take any test in addition to the Series 65 or
66 and (2) persons currently registered with the Division be exempt from having to qualify by
examination. In the event the Division insists upon representatives passing the Series 2 or 7,
the Institute further recommends that the Division add as an alternative the Series 6, which
relates to investment company products and annuity contracts.
Rule 3.04, Supervision
The Institute strongly recommends that the Division delete a provision that would
require each adviser to "have the responsibility and duty to ascertain by investigation the good
character, business repute, qualifications, and experience of each person prior to making a
certification in the application of such person for registration." The Institute comments that this
requirement is vague and ambiguous and enforcement will be arbitrary due to the subjective
nature of the certification.
Rule 3.15, Books and Records
While proposed Rule 3.15 would require investment advisers to maintain the same
records they are required to maintain under the NASAA Model Amendments and federal law,
the proposed Rule imposes a longer retention schedule -- 6 years rather than 5 years. The
Institute strongly recommends that the Division amend the rule to address this. As noted in
the Institutes comment letter, because of the nature of advisory records, practically speaking,
the rule would have the effect of requiring advisers to maintain all of their records, without
regard to the state of origin, for the six years required by Vermont.
A copy of the Divisions proposed rules and the Institutes comment letter are attached.
Tamara K. Cain
Assistant Counsel
Attachments