Arizona Administrative Code Title 14, C



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Arizona Administrative Code Title 14, Ch. 6

Corporation Commission – Investment Management


TITLE 14. PUBLIC SERVICE CORPORATIONS; CORPORATIONS AND ASSOCIATIONS; SECURITIES REGULATION

CHAPTER 6. CORPORATION COMMISSION
INVESTMENT MANAGEMENT


Editor’s Note: The Editor’s Note below is no longer applicable because all of the rules in this Chapter were reviewed by the Attorney General or the Governor’s Regulatory Review Council. The Chapter is printed on white paper (Supp. 01-2).

Editor’s Note: The Corporation Commission has determined that rules in this Chapter are exempt from the Attorney General certification provisions of the Arizona Administrative Procedure Act (A.R.S. § 41-1044) by a court order (State ex rel. Corbin v. Arizona Corporation Commission, 174 Ariz. 216, 848 p.2d 301 (App. 1992)). This exemption means that the rule was not approved by the Attorney General. Because this Chapter was filed under a rulemaking exemption, as determined by the Corporation Commission, other than a statutory exemption, the Chapter is printed on green paper.

(Authority: Article XV, §§ 4,6, and 13, Constitution of Arizona, and A.R.S. § 44-3131)

ARTICLE 1. GENERAL PROVISIONS RELATING TO THE ARIZONA INVESTMENT MANAGEMENT ACT

Article 1, consisting of Sections R14-6-101 thru R14-6-104, adopted effective July 19, 1996 (Supp. 96-3).

Section

R14-6-101. Definitions

R14-6-102. Scope of Provisions

R14-6-103. Severability

R14-6-104. Enforcement of the Arizona Investment Management Act

R14-6-105. Processing of Applications for Investment Adviser and Investment Adviser Representative Licensure

R14-6-106. General Dissemination of Information on the Internet

ARTICLE 2. DUTIES OF INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES

Article 2, consisting of Sections R14-6-201 thru R14-6-209, adopted effective July 19, 1996 (Supp. 96-3).

Section

R14-6-201. Books and Records of Investment Advisors

R14-6-202. Supervision

R14-6-203. Dishonest and Unethical Practices

R14-6-204. Required Written Examinations

R14-6-205. Information to be Furnished to Clients (“Brochure Rule”)

R14-6-206. Custody of Client Funds or Securities by Investment Advisers

R14-6-207. Suitability of Investment Advisory Services

R14-6-208. Advertisements by Investment Advisors or Investment Advisor Representatives

R14-6-209. Financial and Disciplinary Information that Investment Advisors Shall Disclose to Clients

R14-6-210. Licensure of Investment Adviser Representatives

R14-6-211. Solicitation

R14-6-212. Application, Notice Filing, and Renewal Requirements

ARTICLE 1. GENERAL PROVISIONS RELATING TO THE ARIZONA INVESTMENT MANAGEMENT ACT

R14-6-101. Definitions

A. The definitions set forth in A.R.S. §§ 44-1801 and 44-3101 shall apply to the rules promulgated under A.R.S. Title 44, Chapter 13.

B. The following definitions shall apply to all rules promulgated under A.R.S. Title 44, Chapter 13, unless the context otherwise requires:

1. “Advertisement” means, except as set forth in subsections (B)(1)(d) and (e), any notice, circular, letter, or other written, oral, or electronically generated communication addressed to or reasonably designed by the investment adviser or investment adviser representative to be accessed by more than one person, or any notice or other announcement in any publication or by radio or television, that directly or indirectly offers:

a. Any analysis, report, or publication that either concerns securities, or is to be used in making any determination as to when to buy or sell any security or which security to buy or sell; or

b. Any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or

c. Any other investment advisory service with regard to securities.

d. A communication over a computer online service including but not limited to an electronic bulletin board shall not be deemed to be an advertisement when an investment adviser or an investment adviser representative is either:

i. Engaged in a discussion regarding securities and does not receive compensation from any person for the discussion; or

ii. Responds to unsolicited inquiries regarding the provision of investment advisory services.

e. A communication by one or more investment advisers or investment adviser representatives shall not be deemed to be an advertisement when the communication is addressed solely to or is reasonably designed to be accessed solely by other investment advisers or investment adviser representatives.

2. “Certified public accountant” or “CPA” means an accountant who has been registered or licensed to practice public accounting and is permitted to use the title “certified public accountant” and to use the initials “CPA” after the accountant’s name.

3. “Custody” means holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them. Custody includes:

a. Possession of client funds or securities (but not of checks drawn by clients and made payable to third parties), unless received inadvertently and returned to the sender promptly, but in any case within three business days of receiving them;

b. Any arrangement (including a general power of attorney) under which the investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the investment adviser’s instruction to the custodian; and

c. Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives the investment adviser or the investment adviser representative legal ownership of or access to client funds or securities.

4. “Federal covered adviser” means an investment adviser registered under the Investment Advisers Act of 1940.

5. “Fixed fee basis” means an investment advisory fee that at any given time can be precisely established in a dollar amount without regard to the investment performance or value of an account and that is not based on the purchase or sale of specific securities.

6. “Form ADV” means the Uniform Application for Investment Adviser Registration, 17 CFR 279.1, as required by A.R.S. § 44-3153.

7. “IM Act” means the Arizona Investment Management Act, A.R.S. § 44-3101 et seq.

8. “Impersonal advisory services” means investment advisory services provided solely:

a. By means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts;

b. Through the issuance of statistical information containing no expression of opinion as to the investment merits of a particular security; or

c. Any combination of the foregoing services.

9. “Independent representative” means a person that:

a. Acts as agent for a client, including in the case of a pooled investment vehicle, for limited partners of a limited partnership (or members of a limited liability company, or other beneficial owners of another type of pooled investment vehicle) and by law or contract is obliged to act in the best interest of the advisory client or the limited partners (or members, or other beneficial owners);

b. Does not control, is not controlled by, and is not under common control with the investment adviser; and

c. Does not have, and has not had within the past two years, a material business relationship with the investment adviser.

10. “Internet” means all proprietary or common carrier electronic systems, or similar media.

11. “Internet communication” means the distribution of information on the Internet.

12. “Investment-related” means pertaining to securities, commodities, banking, insurance, or real estate, including but not limited to acting as or being associated with a broker-dealer, investment company, investment adviser, government securities broker or dealer, municipal securities dealer, bank, savings and loan association, entity, or person required to be registered under the Commodity Exchange Act, or a fiduciary.

13. “Involved” means acting or aiding, abetting, causing, counseling, commanding, inducing, conspiring with, or failing reasonably to supervise another in doing an act.

14. “Management person” means a person with power to exercise, directly or indirectly, a controlling influence over the management or policies of an investment adviser that is a company or to determine the general investment advice given to clients.

15. “NASAA” means the North American Securities Administrators Association, Inc., or any successor organization.

16. “NASD” means the National Association of Securities Dealers, Inc., or any successor or subsidiary organization.

17. “Qualified custodian” means:

a. A bank or a savings association that has deposits insured by the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act;

b. A broker or dealer registered under Section 15(b)(1) of the Securities Exchange Act of 1934, holding the client assets in customer accounts;

c. A futures commission merchant registered under Section 4f(a) of the Commodity Exchange Act, holding the client assets in customer accounts, but only with respect to clients’ funds and security futures, or other securities incidental to transactions in contracts for the purchase or sale of a commodity for future delivery and options thereon; and

d. A foreign financial institution that customarily holds financial assets for its customers, provided that the foreign financial institution keeps the clients’ assets in customer accounts segregated from its proprietary assets.

18. “Relative” means any relationship by blood, marriage, or adoption, not more remote than 1st cousin.

19. “Rule 204-2” means United States Securities and Exchange Commission rule 204-2, 17 CFR 275.204-2 (1998), which is incorporated by reference, does not contain any later amendments or editions, and is on file in the Office of the Secretary of State. Copies of Rule 204-2 are available from the Division and from the Superintendent of Documents, Government Printing Office, Washington, D.C. 20402.

20. “SEC” means United States Securities and Exchange Commission.

21. “Securities Act” means the Securities Act of Arizona, A.R.S. § 44-1801 et seq.

22. “Self-regulatory organization” or “SRO” means any national securities or commodities exchange, registered association, or registered clearing agency.

23. “Unincorporated organization” includes a limited liability company for purposes of the definition of “person,” as defined in A.R.S. § 44-1801.

24. “Wrap fee program” means a program under which any client is charged a specified fee or fees not based directly upon transactions in a client’s account for investment advisory services, which may include portfolio management or advice concerning the selection of other investment advisers, and execution of client transactions.

Historical Note

Adopted effective July 19, 1996, under a court-ordered exemption as determined by the Arizona Corporation Commission (Supp. 96-3). Chapter 13 reference updated to reflect current style (Supp. 98-3). Amended by final rulemaking at 7 A.A.R. 739, effective January 17, 2001 (Supp. 01-1). At the request of the Corporation Commission, the preceding entry in this Historical Note is amended: the Commission intended the rulemaking action to reflect that the Section was repealed and a new Section was made at 7 A.A.R. 739, effective January 17, 2001 (Supp. 02-4). Amended by final rulemaking at 13 A.A.R. 22, effective February 12, 2007 (Supp. 06-4).

R14-6-102. Scope of Provisions

The following Sections are adopted by the Commission under the authority granted pursuant to A.R.S. Title 44, Chapter 13. Such Sections shall be generally applicable to the administration of the IM Act. When not in conflict with these Sections, the applicable provisions of A.A.C. R14-3-101 through R14-3-113 also shall apply.

Historical Note

Adopted effective July 19, 1996, under a court-ordered exemption as determined by the Arizona Corporation Commission (Supp. 96-3). Section heading and Chapter 13 reference updated to reflect current style (Supp. 98-3). Amended by final rulemaking at 7 A.A.R. 739, effective January 17, 2001 (Supp. 01-1). At the request of the Corporation Commission, the preceding entry in this Historical Note is amended: the Commission intended the rulemaking action to reflect that the Section was repealed and a new Section was made at 7 A.A.R. 739, effective January 17, 2001 (Supp. 02-4).

R14-6-103. Severability

The provisions of the Sections promulgated under A.R.S. Title 44, Chapter 13, are severable. If any provision of a Section is held to be invalid, such invalidity shall not affect other provisions that can be given effect without the invalid provision.

Historical Note

Adopted effective July 19, 1996, under a court-ordered exemption as determined by the Arizona Corporation Commission (Supp. 96-3). Chapter 13 reference updated to reflect current style (Supp. 98-3). Amended by final rulemaking at 7 A.A.R. 739, effective January 17, 2001 (Supp. 01-1). At the request of the Corporation Commission, the preceding entry in this Historical Note is amended: the Commission intended the rulemaking action to reflect that the Section was repealed and a new Section was made at 7 A.A.R. 739, effective January 17, 2001 (Supp. 02-4).

R14-6-104. Enforcement of the Arizona Investment Management Act

The provisions relating to investigations and examinations conducted pursuant to and orders issued under the IM Act are contained at A.A.C. R14-4-301 through R14-4-308.

Historical Note

Adopted effective July 19, 1996, under a court-ordered exemption as determined by the Arizona Corporation Commission (Supp. 96-3). Amended by final rulemaking at 7 A.A.R. 739, effective January 17, 2001 (Supp. 01-1). At the request of the Corporation Commission, the preceding entry in this Historical Note is amended: the Commission intended the rulemaking action to reflect that the Section was repealed and a new Section was made at 7 A.A.R. 739, effective January 17, 2001 (Supp. 02-4).

R14-6-105. Processing of Applications for Investment Adviser and Investment Adviser Representative Licensure

A. For purposes of this Section, the term “application” includes all documents, information and fees prescribed by the Commission under A.R.S. Title 44, Chapter 13, Articles 4 and 5 and the rules promulgated under those statutes.

B. Within 21 days after receipt of an application for investment adviser or investment adviser representative licensure, the Commission shall notify the applicant, in writing, that the application is either complete or deficient. If the application is deficient, the notice shall specify all deficiencies. Unless otherwise notified by the Commission, an application will be deemed complete 21 days after receipt by the Commission of information in satisfaction of all deficiencies.

C. An applicant with a deficient application shall supply the information in satisfaction of the deficiencies within the time permitted by A.R.S. § 44-3181. If the applicant fails to provide the information, the Commission may abandon the application under A.R.S. § 44-3181. An applicant whose application has been abandoned may reapply by submitting a new application.

D. Within 60 days after receipt of a complete application, the Commission shall approve the application or initiate the denial process by filing a notice of an opportunity for a hearing under A.A.C. R14-4-306. When a notice of an opportunity for a hearing is filed:

1. If the applicant does not request a hearing, the Commission shall approve, deny, or take other appropriate action regarding the application within 70 days after service of the notice.

2. If the applicant requests a hearing, the applicant shall do so within 10 days after receipt of the notice. The Commission shall approve, deny, or take other appropriate action regarding the application within 210 days after the applicant’s request is docketed with the Commission.

E. For purposes of A.R.S. § 41-1073, the Commission has established the following time-frames:

1. When the Commission approves an application under subsection (D):

a. Administrative completeness review time-frame: 42 days;

b. Substantive review time-frame: 60 days;

c. Overall time-frame: 102 days.

2. When the Commission initiates the denial process and no hearing is requested under subsection (D)(1):

a. Administrative completeness review time-frame: 42 days;

b. Substantive review time-frame: 130 days;

c. Overall time-frame: 172 days.

3. When the Commission initiates the denial process and a hearing is requested under subsection (D)(2):

a. Administrative completeness review time-frame: 42 days;

b. Substantive review time-frame: 280 days;

c. Overall time-frame: 322 days.

F. If an applicant requests, and is granted, an extension or continuance, the appropriate time-frames shall be tolled from the date of the request for the duration of the extension or continuance.

G. When the period of time prescribed in this Section is less than 11 days, intermediate Saturdays, Sundays, and legal holidays shall not be included in the computation. When the period of time prescribed for a specific time-frame is 11 days or more, intermediate Saturdays, Sundays, and legal holidays shall be included in the computation.

H. The Commission shall renew a license under this Section upon receipt by the Commission of the license fee, as required by A.R.S. § 44-3181.



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