48 Neb. Admin. Code, ch. 11, § 002

Current through September 17, 2024

Section 48-11-002 - REQUIREMENT

Notwithstanding the provisions of Section 8-1102(3)(a), an investment adviser may enter into, perform, renew or extend an investment advisory contract that provides for compensation to the investment adviser on the basis of a share of the capital gains upon, or the capital appreciation of, the funds, or any portion of the funds, of a client, if:

002.01 The investment adviser is not registered and is not required to be registered pursuant to Section 8-1103(2) of the Act; or

002.02 The following conditions are met:

002.02A The client entering into the contract is a "qualified client", as defined by Rule 205-3 under the Investment Advisers Act of 1940 ( 17 C.F.R. § 275.205-3 ); and

002.02B To the extent not otherwise disclosed on Uniform Application for Investment Adviser Registration, Form ADV Part 2, the investment adviser must disclose in writing to the client all material information concerning the proposed advisory arrangement, including the following:

002.02B1 That the fee arrangement may create an incentive for the investment adviser to make investments that are riskier or more speculative than would be the case in the absence of a performance fee;

002.02B2 Where relevant, that the investment adviser may receive increased compensation with regard to unrealized appreciation as well as realized gains in the client's account;

002.02B3 The periods which will be used to measure investment performance throughout the contract and their significance in the computation of the fee;

002.02B4 The nature of any index which will be used as a comparative measure of investment performance, the significance of the index, and the reason the investment adviser believes that the index is appropriate; and

002.02B5 Where the investment adviser's compensation is based in part on the unrealized appreciation of securities for which market quotations are not readily available within the meaning of Rule 2a-4(a)(1) under the Investment Company Act of 1940, 17 C.F.R. 270.2 a- 4(a)(1), how the securities will be valued and the extent to which the valuation will be independently determined.

48 Neb. Admin. Code, ch. 11, § 002

Amended effective 6/5/2017.