Wednesday, July 29, 2009


NASAA proposed a new model rule today pertaining to solicitors. The stated goal of the Proposed Rule is to keep intact the increased investor protection standards presently required by the states and at the same time it seeks to limit or clarify the conditions under which investment advisors, their representatives, and solicitors must operate.

This rule should be examined by investment advisors who use solicitors to help in their business as well as investors or potential investors who have been contacted by others on behalf of an investment advisor or investment firm.

The Proposed Rule defines a “Solicitor” as an individual or entity who, either directly or indirectly, receives a fee or economic benefit for referring, offering, or otherwise negotiating for the sale of investment advisory services to clients on behalf of an investment advisor.

This rule offers exemptions for a solicitor who provides impersonal services such as written marketing materials or statistical information that is not directed towards the needs of a specific client. An additional exemption exists where there is a written agreement between the investment advisor and the solicitor for the solicitor to provide services and this relationship is disclosed in writing to the client prior to the time the client signs a written investment advisory contract. The rules for solicitors do not apply to a partner, officer, director or employee of an investment advisory firm. This Proposed Rule does not relieve a person of any fiduciary duties or other obligations to which they may be subject to under any law.

NASAA is accepting comments on the Proposed Rule until Monday, August 17. A complete copy of the proposed rule can be found at this website:

This Proposed Rule follows the SEC’s announcement on July 22, 2009 that it has proposed a rule aimed to end “pay to play” practices by investment advisors who seek to manage public funds for state and local governments. The overall goal of this proposed rule is to restrict the use of campaign contributions in exchange for the opportunity to manage such funds. One of the provisions of the proposed rule specifically bans the use of solicitors to act directly or indirectly on their behalf in securing an opportunity to manage funds for state and local governments.

The full text of this Proposed Rule has not yet been released by the SEC.

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