Section 45.55.023. Unethical business practices of state investment advisers, investment adviser representatives, and federal covered advisers.

   (a) A person who is a state investment adviser, investment adviser representative, or federal covered adviser is a fiduciary and has a duty to act primarily for the benefit of the client. The provisions of this section apply to federal covered advisers only to the extent that the conduct alleged is fraudulent or deceptive under AS 45.55.010(a) or 45.55.020(a), or to the extent otherwise provided by P.L. 104-290, 101 Stat. 3416-3440 (National Securities Markets Improvement Act of 1996). While the extent and nature of the duty to act primarily for the benefit of the client varies according to the nature of the relationship between an investment adviser and its clients and the circumstances of each case, a state investment adviser, an investment adviser representative, or a federal covered adviser may not engage in dishonest or unethical practices or conduct in the investment advisory business under AS 45.55.060(a)(7), including
        (1) recommending to a client to whom investment supervisory, management, or consulting services are provided the purchase, sale, or exchange of a security without reasonable grounds to believe that the transaction or recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and other information known by the state investment adviser, investment adviser representative, or federal covered adviser;
        (2) exercising discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within 10 business days after the date of the first transaction placed under oral discretionary authority unless the discretionary power relates solely to the price at which or the time when an order involving a definite amount of a specified security will be executed, or both;
        (3) in a client's account inducing trading that is excessive in size or frequency in view of the financial resources, investment objectives, and character of the account if the state investment adviser, investment adviser representative, or federal covered adviser can directly benefit from the number of securities transactions effected in a client's account;
        (4) placing an order to purchase or sell a security for the account of a client without authority to do so;
        (5) placing an order to purchase or sell a security for the account of a client upon the instruction of a third party without first having obtained a written third-party trading authorization from the client;
        (6) borrowing money or securities from a client unless the client is a financial institution engaged in the business of loaning money or the client is an affiliate of the state investment adviser or federal covered adviser borrowing the money or securities;
        (7) loaning money to a client unless the state investment adviser or federal covered adviser loaning the money is a financial institution engaged in the business of loaning money or the client is an affiliate of the state investment adviser or federal covered adviser;
        (8) misrepresenting to an advisory client or prospective advisory client the qualifications of the state investment adviser, an employee of the state investment adviser, the investment adviser representative, the federal covered adviser, or an employee of the federal covered adviser; misrepresenting the nature of the advisory services being offered or fees to be charged for a service; or omitting to state a material fact necessary to make the statements made regarding qualifications, services, or fees not misleading in light of the circumstances under which the statements are made;
        (9) providing a report or recommendation to an advisory client prepared by someone other than the state investment adviser, the investment adviser representative, or the federal covered adviser without disclosing that the report or recommendation was prepared by someone else, except that this prohibition does not apply to a situation where the state investment adviser, investment adviser representative, or federal covered adviser uses published research reports or statistical analyses to render advice or where a state investment adviser, an investment adviser representative, or a federal covered adviser orders the research reports or statistical analyses in the normal course of providing service;
        (10) charging a client an unreasonable advisory fee;
        (11) failing to disclose to a client in writing before any advice is rendered a material conflict of interest relating to the state investment adviser, federal covered adviser, an employee of the state investment adviser or federal covered adviser, or the investment adviser representative that could reasonably be expected to impair the rendering of unbiased and objective advice, including
             (A) compensation arrangements connected with advisory services to a client if the arrangements are in addition to compensation from the client for those services; and
             (B) charging a client an advisory fee for rendering advice when a commission for executing securities transactions according to that advice will be received by the adviser or the employees or investment adviser representatives of the adviser;
        (12) guaranteeing a client that a specific investment result will be achieved with the advice given;
        (13) publishing, circulating, or distributing an advertisement that does not comply with 17 C.F.R. 275.206(4)-1 adopted under 15 U.S.C. 80b-1-80b-21 (Investment Advisers Act of 1940), as that regulation exists on or after October 1, 1999;
        (14) disclosing the identity, affairs, or investments of a client unless required by law or unless consented to by the client;
        (15) taking action, directly or indirectly, with respect to securities or funds in which a client has a beneficial interest if the state investment adviser, federal covered adviser, or investment adviser representative has custody or possession of the securities or funds and the adviser's action does not comply with the requirements of 17 C.F.R. 275.206(4)-2 adopted under 15 U.S.C. 80b-1-80b-2 (Investment Advisers Act of 1940), as that regulation exists on or after October 1, 1999;
        (16) entering into, extending, or renewing an investment advisory contract unless the contract is in writing and discloses in substance
             (A) the services to be provided;
             (B) the term of the contract;
             (C) the advisory fee, the formula for computing the fee, whether the fee is negotiable, and the amount of the prepaid fee to be returned in the event of contract termination or nonperformance;
             (D) whether the contract grants discretionary power to the adviser; and
             (E) that an assignment of the contract may not be made by a state investment adviser without the consent of the other party to the contract; in this subparagraph, "assignment" includes a direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor, but, if the adviser is a partnership, an assignment of an investment advisory contract is not considered to result from the death or withdrawal of a minority of the partners of the adviser having only a minority interest in the business of the adviser, or from the admission to the adviser of one or more partners who, after admission, will be only a minority of the partners and will have only a minority interest in the business;
        (17) failing, in violation of 15 U.S.C. 80b-4a (Investment Advisers Act of 1940), to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information;
        (18) entering into, extending, or renewing an advisory contract that would violate 15 U.S.C. 80b-5 (Investment Advisers Act of 1940); this paragraph applies to all state investment advisers registered or required to be registered under this chapter and to all investment adviser representatives registered or required to be registered under this chapter, notwithstanding whether the adviser or representative would be exempt from federal registration under 15 U.S.C. 80b-3 (Investment Advisers Act of 1940);
        (19) including in an advisory contract a condition, stipulation, or provision binding a person to waive compliance with a provision of this chapter or 15 U.S.C. 80b- 1-80b-21 (Investment Advisers Act of 1940), or engaging in a practice that would violate 15 U.S.C. 80b-15 (Investment Advisers Act of 1940);
        (20) engaging in an act, a practice, or a course of business that is fraudulent, deceptive, or manipulative in contravention of 15 U.S.C. 80b-6(4) (Investment Advisers Act of 1940) and the rules adopted under that act, notwithstanding the fact that the state investment adviser may not be registered or required to be registered under 15 U.S.C. 80b-3 (Investment Advisers Act of 1940);
        (21) engaging in conduct or an act, either indirectly or through or by another person, that would be unlawful for the person to do directly under this chapter or a regulation adopted under this chapter;
        (22) acting as principal for the person's own account, knowingly selling a security to or purchasing a security from a client, acting as broker for a person other than the client, or knowingly effecting a sale or purchase of a security for the account of the client without disclosing to the client in writing before the completion of the transaction the capacity in which the person is acting and without obtaining the written consent of the client to the transaction; the prohibitions in this paragraph do not apply to a transaction with a customer of a broker-dealer if the broker-dealer is not acting as a state investment adviser or federal covered adviser in relation to the transaction.
   (b) The conduct listed in (a) of this section is not the exclusive conduct prohibited by (a) of this section. Engaging in other similar conduct, including nondisclosure, incomplete disclosure, or a deceptive practice, is considered unethical practice or conduct under AS 45.55.060(a)(7). The federal statutory and regulatory provisions referred to in this section apply to a state investment adviser and a registered investment adviser representative of either a state investment adviser or a federal covered adviser, regardless of whether the federal provisions limit their application to state investment advisers or federal covered advisors subject to federal registration. With respect to a federal covered adviser, the provisions of this section apply only to the extent permitted under P.L. 104-290, 101 Stat. 3416-3440 (National Securities Markets Improvement Act of 1996) and only when the conduct proscribed involves fraud or deceit within the meaning of AS 45.55.010(a) and 45.55.020(a).

Notes

Recent Bills that will modify this

HB 194 AK SECURITIES ACT; PENALTIES; CRT. RULES
SB 35 2015 REVISOR'S BILL
SB 108 AK SECURITIES ACT; PENALTIES; CRT. RULES

References

3 AAC 08.950

History

(Sec. 9 ch 76 SLA 1999; am Sec. 51 ch 22 SLA 2015)