6 Del. Admin. Code § 200-G-709

Current through Register Vol. 28, No. 5, November 1, 2024

Section 200-G-709 - Dishonest or Unethical Practices

(a) A person who is an investment adviser, a federal covered adviser, or an investment adviser representative is a fiduciary and has a duty to act primarily for the benefit of the client. While the extent and nature of this duty varies according to the nature of the relationship with the client and the circumstances of each case, no investment adviser, federal covered adviser or representative shall engage in any dishonest or unethical business practice. The provisions of this section apply to federal covered advisers only to the extent permitted by the National Securities Markets Improvement Act of 1996 ( Pub. L. No. 104-290 ). For purposes of Section 73-304(a)(7) of the Act, the term "dishonest or unethical practices" by an investment adviser, a federal covered adviser, or an investment adviser representative shall include but not be limited to the following:

(2) Exercising any 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 ten business days after the date of the first transaction placed pursuant to 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 specific security that shall be executed, or both.

(3) Inducing trading in a client's account that is excessive in size or frequency in view of the client's financial resources and investment objectives and the character of the account.

(4) With respect to an investment adviser or a federal covered adviser, failing to reasonably supervise such investment adviser's representatives or employees. Reasonable supervision shall include, but not be limited to:

(A) maintaining and enforcing written procedures that will enable the investment adviser to supervise properly the activities of each registered investment adviser representative and that are reasonably designed to assure such representative's compliance with the Act;

(B) maintaining and preserving appropriate records for carrying out such investment adviser's supervisory procedures, including but not limited to records required to maintained pursuant to Rule 706;

(C) periodically reviewing the activities of each office, which shall include an examination of customer accounts to detect and prevent irregularities or abuses;

(D) taking steps to ascertain the good character, business repute, qualifications and experience of any person prior to making such a certification in the application of such person for registration under the Act;

(E) maintaining a copy of the written supervisory procedures in each office or instantaneously accessible to agents or employees in such office, such as through the internet.

(5) Placing an order to purchase or sell a security for the account of a client without authority to do so.

(6) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third party trading authorization from the client.

(7) Borrowing money or securities from a client, unless the client is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds.

(8) Extending arranging for, or participating in arranging for credit to a customer in violation of the provisions of Regulation T promulgated by the Federal Reserve Board, 12 C.F.R. §§220.1 - 220.131.

(9) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser or any employee of the investment adviser, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting to state a material fact necessary to make the statements made regarding qualifications, services, or fees, in light of the circumstances under which they are made, not misleading.

(10) Providing a report or recommendation prepared by someone other than the adviser to any advisory client without disclosing the fact; provided, however, that this prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.

(11) Charging a client an advisory fee that is unreasonable in light of the type of services to be provided, the experience and expertise of the adviser, the sophistication and bargaining power of the client, and whether the adviser has disclosed that lower fees for comparable services may be available from other sources.

(12) Failing to disclose to clients, in writing, before any advice is rendered, any material conflict of interest relating to the adviser or any of its employees which could reasonably be expected to impair the rendering of unbiased and objective advice, including:

(A) Compensation arrangements connected with advisory services which are in addition to compensation from such clients for such services; and

(B) Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.

(13) Guaranteeing a client that a specific result will be achieved (gain or no loss) with advice to be rendered.

(14) Publishing, circulating, or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940.

(15) Disclosing the identity, affairs, or investments of any client, unless required by law to do so, or unless consented to by the client.

(16) Violating Rule 206(4)-2 under the Investment Advisers Act of 1940, irrespective of whether such investment adviser is registered under the Investment Advisers Act of 1940.

(17) Entering into, extending, or renewing any investment advisory contract, unless such contract is in writing and discloses, in substance, the information required by Part II of Form ADV, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or non-performance, whether the contract grants discretionary power to the adviser, and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract. The information required by Part II of form ADV may be disclosed in a document advisory contract, so long as it is disclosed at the time the contract is entered into, extended or renewed.

(18) Failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information in violation of Section 204A of the Investment Advisers Act of 1940.

(19) Entering into, extending, or renewing any advisory contract which would violate Section 205 of the Investment Advisers Act of 1940. This provision shall apply to all advisers registered or required to be registered under the Act.

(20) Including in an advisory contract any condition, stipulation, or provision binding any person to waive compliance with any applicable provision of the Act, any rule promulgated thereunder, the Investment Advisers Act of 1940, or any rule promulgated thereunder, or engaging in any other practice that would violate Section 215 of the Investment Advisers Act of 1940.

(21) Engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative in contravention of Section 206(4) of the Investment Advisers Act of 1940, notwithstanding the fact that such investment adviser is not registered or required to be registered under Section 203 of the Investment Advisers Act of 1940.

(22) Engaging in any conduct, indirectly or through or by any other person, which would be unlawful for such person to do directly under the provisions of the Act or any Rule thereunder.

(23) Aiding or abetting any of the conduct listed above.

(b) The conduct set forth in subparagraph (a) of this Rule is not exclusive. Engaging in other conduct such as forgery, embezzlement, theft, exploitation, non-disclosure, incomplete disclosure or misstatement of material facts, manipulative or deceptive practices, or aiding or abetting any unethical practice, shall be deemed an unethical business practice and shall also be grounds for denial, suspension or revocation of registration. The federal statutory and regulatory provisions referenced herein shall apply to all investment advisers, federal covered advisers and investment adviser representatives only to the extent permitted by the National Securities Markets Improvement Act of 1996 ( Pub. L. No. 104-290 ).

6 Del. Admin. Code § 200-G-709

1 DE Reg. 1978 (6/1/98)
15 DE Reg. 529 (10/01/11)
18 DE Reg. 394 (11/01/14)
18 DE Reg. 575 (1/1/2015) (Final)