Section 0780-04-03-.13 - CASH PAYMENTS FOR CLIENT SOLICITATIONS(1) It shall constitute an act, practice, or course of conduct which operates as a fraud or deceit upon a person, as provided under T.C.A. § 48-1-121(b)(2), for any investment adviser to pay a cash fee, directly or indirectly, to a solicitor with respect to solicitation activities unless: (a) The solicitor is not a person: 1. Subject to an order issued by the commissioner under T.C.A. § 48-1-112(a) of the Act;2. Convicted of any felony or any misdemeanor within the previous ten (10) years involving conduct described in T.C.A. § 48-1-112(a)(2)(C);3. Who has been found by the commissioner to have engaged, or has been convicted of engaging, in any of the conduct specified in T.C.A. §§ 48-1-121, 48-1-112(a)(2)(B), 48-1-112(a)(2)(J), or has materially aided in the action in violation of T.C.A. §§ 48-1-112(a)(2)(B), 48-1-112(a)(2)(J), or 48-1-121;4. Subject to an order, judgment, or decree described in T.C.A. § 48-1-112(a)(2)(D) of the Act; or5. Described in SEC Rule 206(4)-3(a)(1)(ii) (17, C.F.R. §275.206(4)-3(a)(1)(ii));(b) Such cash fee is paid pursuant to a written agreement to which the adviser is a party;(c) Such cash fee is paid to a solicitor: 1. With respect to solicitation activities for the provision of impersonal advisory services only;2. Who is: (i) A partner, officer, director, or employee of such investment adviser; or(ii) A partner, officer, director, or employee of a person which controls, is controlled by, or is under common control with such investment adviser; provided that the status of such solicitor as a partner, officer, director, or employee of such investment adviser or other person, and any affiliation between the investment adviser and such other person, is disclosed to the client at the time of the solicitation or referral; or3. Other than a solicitor specified in parts (1)(c)1. or (1)(c)2. of this Rule if all of the following conditions are met: (i) The written agreement required by subparagraph (1)(b) of this Rule: (I) Describes the solicitation activities to be engaged in by the solicitor on behalf of the investment adviser and the compensation to be received thereof;(II) Contains an undertaking by the solicitor to perform his duties under the agreement in a manner consistent with the instructions of the investment adviser and the provisions of the Act and these Rules or of the Investment Advisers Act and the rules promulgated thereunder, whichever is applicable; and(III) Requires that the solicitor, at the time of any solicitation activities for which compensation is paid or to be paid by the investment adviser, provide the client with a current copy of the investment adviser's written disclosure statement required by Rule 0780-04-03-.10 or SEC Rule 204-3 ( 17 C.F.R. §275.204-3 ) as applicable, and a separate written disclosure statement described in paragraph (2) of this Rule;(ii) The investment adviser receives from the client, prior to, or at the time of, entering into any written or oral investment advisory contract with such client, a signed and dated acknowledgment of receipt of the investment adviser's written disclosure statement and the solicitor's written disclosure document; and(iii) The investment adviser makes a bona fide effort to ascertain whether the solicitor has complied with the agreement, and has a reasonable basis for believing that the solicitor has so complied.(2) The separate written disclosure statement required to be furnished by the solicitor to the client pursuant to subpart (1)(c)3.(ii) of this Rule shall contain the following information: (a) The name of the solicitor;(b) The name of the investment adviser;(c) The nature of the relationship, including any affiliation, between the solicitor and the investment adviser;(d) A statement that the solicitor will be compensated for his solicitation services by the investment adviser;(e) The terms of such compensation arrangement, including a description of the compensation paid or to be paid to the solicitor; and(f)1. The amount, if any, the client will be charged for the cost of obtaining his account in addition to the advisory fee; and2. The differential, if any, among clients, with respect to the amount or level of advisory fees charged by the investment adviser, if such differential is attributable to the existence of any arrangement pursuant to which the investment adviser has agreed to compensate the solicitor for soliciting clients for, or referring clients to, the investment adviser.(3) Nothing in this Rule shall be deemed to relieve any person of any fiduciary or other obligation to which such person may be subject under any law.(4) For purposes of this Rule: (a) "Solicitor" means any person who, directly or indirectly, solicits any client for, or refers any client to, an investment adviser.(b) "Client" includes any prospective client.(c) "Impersonal advisory services" means investment advisory services provided solely by means of (i) written materials or oral statements which do not purport to meet the objectives or needs of the specific client, (ii) statistical information containing no expressions of opinions as to the investment merits of particular securities, or (iii) any combination of the foregoing services.(5) The investment adviser shall retain a copy of each written agreement required by subparagraph (1)(b) of this Rule as part of the records required to be kept under T.C.A. § 48-1-111(a) and paragraph (3) of Rule 0780-04-03-.02.(6) The investment adviser shall retain a copy of each acknowledgement and solicitor disclosure document referred to in subpart (1)(c)3.(ii) of this Rule as part of the records required to be kept under T.C.A. § 48-1-111(a) and paragraph (3) of Rule 0780-04-03-.02.(7) An investment adviser registered in this state whose principal place of business is located outside this state shall not be subject to the record maintenance requirements of paragraphs (5) or (6) of this Rule if such investment adviser: (a) Is registered as an investment adviser in the state in which it maintains its principal place of business;(b) Is in compliance with applicable books and records requirements of the state in which it maintains its principal place of business; and(c) The provisions of paragraphs (5) or (6) of this Rule would require the investment adviser to maintain books or records in addition to those required under the laws of the state in which the investment adviser maintains its principal place of business.(8) As used herein "principal place of business" of an investment adviser means the executive office of the investment adviser from which the officers, partners, or managers of the investment adviser direct, control, or coordinate the activities of the investment adviser.Tenn. Comp. R. & Regs. 0780-04-03-.13
Original rule filed November 6, 1997; effective January 20, 1998. Repeal and new rule filed March 16, 2015; effective 6/14/2015.Authority: T.C.A. §§ 48-1-111, 48-1-112, 48-1-115, 48-1-116, 48-1-121, Public Acts of 1997, Chapter 164, 17 C.F.R. § 275.204-3, and 17 C.F.R. § 275.206(4)-3.