Register September 2010 No. 657
Chapter DFI-Sec 5
REGISTRATION AND NOTICE FILING PROCEDURES FOR INVESTMENT ADVISERS, FEDERAL COVERED INVESTMENT ADVISERS, AND INVESTMENT ADVISER REPRESENTATIVES
DFI-Sec 5.01 Registration procedure.
DFI-Sec 5.02 Net worth requirement.
DFI-Sec 5.03 Investment advisers' records.
DFI-Sec 5.035 Investment advisors with custody.
DFI-Sec 5.04 Reporting requirements.
DFI-Sec 5.05 Practice and advisory contract rules.
DFI-Sec 5.06 Prohibited conduct.
DFI-Sec 5.07 Registration and notice filing period.
DFI-Sec 5.08 Withdrawal of registration.
DFI-Sec 5.09 Denial, suspension, revocation and censure.
DFI-Sec 5.10 Electronic filing.
DFI-Sec 5.11 Federal covered investment adviser notice filing procedure.
DFI-Sec 5.12 Transition filing.
DFI-Sec 5.13 Registration exemptions.
Ch. DFI-Sec 5 History
History: Chapter SEC 5 was renumbered chapter DFI-Sec 5 under s. 13.93 (2m) (b) 1., Stats., and corrections made under s. 13.93 (2m) (b) 6. and 7., Stats.,
Register, December, 1996, No. 492.
DFI-Sec 5.01(1)
(1) Applications for initial and renewal registration of investment adviser and investment adviser representatives, as well as amendments, reports, notices, related filings and fees, shall be filed with:
DFI-Sec 5.01(1)(b)
(b) The investment adviser registration depository on forms established for the investment adviser registration depository.
DFI-Sec 5.01(2)(a)(a) A registration application for purposes of s.
551.406, Stats., consists of all information required by the form prescribed under
sub. (1), any additional information required by the division and all required fees. Any documents or fees required to be filed with the division that are not permitted to be filed with or cannot be accepted by the investment adviser registration depository or the central registration depository shall be filed directly with the division.
DFI-Sec 5.01(2)(b)
(b) An application for initial registration as an investment adviser under this paragraph shall be deemed filed under s.
551.406 (1), Stats., on the date the application is transferred from “NO STATUS" to “PENDING" on the records of the investment adviser registration depository. An application for renewal of a registration as an investment adviser under this paragraph shall be deemed filed under s.
551.406 (4), Stats., when the fee on deposit with the investment adviser registration depository has been allocated to the division.
DFI-Sec 5.01(2)(c)
(c) An “application" for initial registration or for renewal of a registration as an investment adviser representative for an investment adviser registered under this chapter or a federal covered investment adviser notice filed under this chapter consists of the payment of Wisconsin investment adviser representative registration or renewal fees to the central registration depository. An application for initial registration as an investment adviser representative under this paragraph shall be deemed “filed" under s.
551.406 (1), Stats., on the date when the application is designated ready for approval on the records of the central registration depository. An application for renewal of a registration as an agent under this paragraph shall be deemed “filed" under s.
551.406 (1), Stats., when the fee on deposit with the central registration depository has been allocated to the division.
DFI-Sec 5.01(2)(e)
(e) An electronic signature affixed to any filing made in compliance with the requirements of the investment adviser registration depository or the central registration depository shall constitute irrefutable evidence of legal signature by any individual whose name is typed on the filing.
DFI-Sec 5.01(2)(f)1.1. Pursuant to s.
551.406 (3) (b), Stats., the effective date of a registration application is deferred until noon on the 45th day after the filing of any amendment completing the application, unless the application otherwise becomes effective under s.
551.406 (3) (a), Stats.
DFI-Sec 5.01(2)(f)2.
2. For purposes of s.
551.406 (3) (b), Stats., a written request for additional information is not limited to the applicant or the applicant's employing investment adviser, but may include other requests of third-party sources relevant to the application.
DFI-Sec 5.01(2)(f)3.
3. Before action on an application, the division may designate an employee to make an examination of the books, records and affairs of the applicant at the applicant's expense.
DFI-Sec 5.01(3)(a)(a) Unless waived under
sub. (4), each applicant for an initial registration as an investment adviser or as an investment adviser representative shall take and pass within the two year period immediately preceding the “FILING DATE" of the
application reflected on the records of the central registration depository, the post-1999 version of the examination specified in
subd. 1., or the post-1999 version of the Series 66 examination specified in
subd. 2.
DFI-Sec 5.01(3)(a)2.
2. The Series 7 General Securities Representative Examination as well as the Series 66 Uniform Combined State Law Examination.
DFI-Sec 5.01(3)(b)
(b) If the investment adviser is an entity, then a supervisory or control individual shall take and pass the examination required in
par. (a).
DFI-Sec 5.01(4)
(4) The examination requirement in
sub. (3) shall be waived for any applicant who meets any of the following criteria:
DFI-Sec 5.01(4)(a)1.1. The applicant has taken and passed either the post-1999 version of the Series 65 Uniform Investment Adviser State Law Examination, or both the post-1999 version of the Series 66 Uniform Combined State Law Examination and the Series 7 General Securities Representative Examination within 2 years prior to the date the application is filed with the division; or
DFI-Sec 5.01(4)(a)2.
2. The applicant has been registered as an agent of a broker-dealer within two years prior to the date the application is filed, based on having passed the post-1999 version of the Series 66 examination and the Series 7 examination.
DFI-Sec 5.01(4)(b)
(b) The applicant has been registered as an investment adviser or registered as an investment adviser representative in any jurisdiction in the United States within 2 years prior to the date the application is filed if that jurisdiction required the examinations specified in
sub. (3) (a).
DFI-Sec 5.01(4)(c)
(c) The applicant has received an order of the division, issued under such conditions as the division may prescribe, waiving the requirement to take and pass the examination in
sub. (3).
DFI-Sec 5.01(4)(d)
(d) The applicant provides the division with proof that he or she currently holds one of the following professional designations and at the time of filing an application is current and in good standing with the granting authority:
DFI-Sec 5.01(4)(d)1.
1. Certified Financial Planner (CFP) issued by the Certified Financial Planner Board of Standards, Inc.
DFI-Sec 5.01(4)(d)2.
2. Chartered Financial Consultant (ChFC) awarded by the American College, Bryn Mawr, Pennsylvania.
DFI-Sec 5.01(4)(d)3.
3. Personal Financial Specialist (PFS) administered by the American Institute of Certified Public Accountants.
DFI-Sec 5.01(4)(d)4.
4. Chartered Financial Analyst (CFA) granted by the Association for Investment Management and Research.
DFI-Sec 5.01(4)(d)5.
5. Chartered Investment Counselor (CIC) granted by the Investment Adviser Association.
DFI-Sec 5.01(4)(e)
(e) The applicant is registered as an agent of a broker-dealer that conducts investment advisory services under its broker-dealer registration who is not required by the agent's home state to make a separate filing on the central registration depository as an investment adviser representative, but who has previously met the examination requirement in
sub. (3) or received a waiver from that requirement under
pars. (a) through
(d) and
(f) and has provided proof that the home state permits transacting business as an investment adviser representative under the agent's registration.
DFI-Sec 5.01(4)(f)1.1. The applicant was registered as an investment adviser or registered as an investment adviser representative in this state on December 31, 2008, except that the administrator may require additional examinations for any individual found to have violated any state or federal securities law.
DFI-Sec 5.01(4)(f)2.
2. The applicant was registered in this state on December 31, 2008 as an agent for a registered broker-dealer that was also approved to act as an investment adviser in this state and who also met the examination requirement in
sub. (3), except that the administrator may require additional examinations for any individual found to have violated any state or federal securities law.
DFI-Sec 5.01(5)
(5) Prior to issuance of a registration as an investment adviser, at least one employee located at the principal office of the investment adviser must be designated in the registration application on the form prescribed in
s. DFI-Sec 9.01 (1) (b) and filed with the division to act in a supervisory capacity and be registered as an investment adviser representative for the investment adviser, and must satisfy the examination requirement in
sub. (3) unless the examination is waived under
sub. (4).
DFI-Sec 5.01(6)
(6) Any application for registration which is not completed or withdrawn within 6 months from the date it is initially received may be deemed materially incomplete under s.
551.412 (4) (a), Stats., and the division may issue an order denying effectiveness to the application.
DFI-Sec 5.01(7)
(7) Every investment adviser whose principal office is located in this state shall have at least one person registered as an investment adviser representative employed on a full-time basis at its principal office.
DFI-Sec 5.01 History
History: Cr.
Register, December, 1977, No. 264, eff. 1-1-78; am. (1),
Register, December, 1979, No. 288, eff. 1-1-80; am. (1) and (6), renum. (4) (b) and (c) to be (4) (c) and (d), cr. (4) (b), r. and recr. (5),
Register, December, 1980, No. 300, eff. 1-1-81; am. (3) to (5),
Register, December, 1982, No. 324, eff. 1-1-83; am. (1) and (2), r. and recr. (3) and (4),
Register, December, 1983, No. 336, eff. 1-1-84; am. (3), renum. (4) (g) to be (4) (h), cr. (4) (g),
Register, December, 1986, No. 372, eff. 1-1-87; renum. (3) to be (3) (a) and am., renum. (4) (b) to (h) to be (4) (c) to (i), r. (4) (intro.) and (a), cr. (3) (b), (4) (a) and (b),
Register, December, 1987, No. 384, eff. 1-1-88; renum. (4) (c) to (i) to be (4) (c) 1. to 4., (4) (b) 3. and 4. and (c) 5. and; am. (3), r. and recr. (4),
Register, December, 1992, No. 444, eff. 1-1-93. am. (4) (b) 3. and 4., cr. (4) (c) (intro.),
Register, December, 1988, No. 396, eff. 1-1-89; renum. (4) (a), (c) 1. to 5. to be (4) (a) (intro.) and 2. to 6. and am. (intro.), cr. (4) (a) 1., am. (4) (b) (intro.), r. (4) (c) (intro.),
Register, December, 1990, No. 420, eff. 1-1-91; am. (3), r. and recr. (4),
Register, December, 1992, No. 444, eff. 1-1-93
; renum. (3) (a) to (3), r. (3) (b),
Register, December, 1994, No. 468, eff. 1-1-95; r. and recr. (3), am. (4) (a) and (5),
Register, December, 1995, No. 480, eff. 1-1-96; am. (1), (3) (intro.), (4) (b), (5) and (7),
Register, December, 1998, No. 516, eff. 1-1-99;
r. and recr. (3), am. (4) (a), cr. (4) (d),
Register, December, 1999, No. 528, eff. 1-1-00; emerg. am. (4) (b), cr. (4) (e), eff. 1-1-00; am. (4) (b), cr. (4) (e),
Register, May, 2000, No. 533, eff. 6-1-00; emergency r. and recr. (1) and (2), cr. (8), eff. 1-1-01;
CR 01-025: r. and recr. (1) and (2), cr. (8),
Register July 2001, No. 547 eff. 8-1-01; correction in (1) (b) made under s. 13.93 (2m) (b) 7., Stats.,
Register December 2001 No. 552;
CR 02-102: renum. (1) (a) to be (1) (a) 1. and am., renum. (1) (b) to be (1) (b) 1. and am., cr. (1) (a) 2., (1) (b) 2., am. (2) (a), (c) (d) 3. and (e),
Register December 2002 No. 564, eff. 1-1-03;
CR 08-077: am. (title), (2) (a) to (c), (4) (b), (d) (intro.), 5., (5) and (6), r. and recr. (1), (4) (a) and (e), r. (2) (d) 1. and (8), renum. (2) (d) 2. and 3. to be DFI-Sec 5.04 (3) (b) and (c), renum. (3) to be (3) (a) and am. (3) (a) (intro.), cr. (2) (f), (3) (b) and (4) (f)
Register December 2008 No. 636, eff. 1-1-09; corrections in (2) (c), (3) (a) (intro.) and (4) (e) made under s. 13.92 (4) (b) 6. and 7., Stats.,
Register December 2008 No. 636;
CR 09-056: am. (4) (a) and (b)
Register December 2009 No. 648, eff. 1-1-10;
CR 10-062: cr. (2) (f) 3., r. and recr. (4) (a) Register September 2010 No. 657, eff. 10-1-10.
DFI-Sec 5.02(1)
(1) Each investment adviser registered or required to be registered under
ch. 551, Stats., whose principal office is in this state and who accepts prepayment of fees exceeding $1,200 per client that are collected six or more months in advance, shall maintain at all times a positive net worth. The division may require that a current appraisal be submitted in order to establish the worth of any asset.
DFI-Sec 5.02(2)
(2) Except as follows, each investment adviser registered or required to be registered under
ch. 551, Stats., whose principal office is in this state who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000:
DFI-Sec 5.02(3)
(3) If an investment adviser is an individual, the person shall segregate from personal capital an amount sufficient to satisfy the net capital requirement, and the amount so segregated shall be utilized solely for the business for which the investment adviser is registered.
DFI-Sec 5.02(4)
(4) The requirements of
subs. (1) and
(2) shall not apply to any investment adviser that has its principal office in a state other than this state, provided that the investment adviser is registered in that state and is in compliance with that state's minimum net capital requirements, if any.
DFI-Sec 5.02(5)
(5) For purposes of this section, the term “net worth" means an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets any of the following:
DFI-Sec 5.02(5)(a)
(a) Prepaid expenses, deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other assets of an intangible nature.
DFI-Sec 5.02(5)(b)
(b) Home, home furnishings, automobiles and any other personal items not readily marketable, if the investment adviser is an individual.
DFI-Sec 5.02(5)(c)
(c) Advances or loans to stockholders and officers, if the investment adviser is a corporation.
DFI-Sec 5.02(5)(d)
(d) Advances or loans to partners or members, if the investment adviser is a partnership or limited liability company.
DFI-Sec 5.02(6)
(6) The division may by order exempt any investment adviser whose principal office is in this state from the provisions of this section, either unconditionally or upon specified conditions, if by reason of the special nature of its business or the particular facts and circumstances of the application, the division determines that compliance with the provisions is not necessary in the public interest or for the protection of investors.
DFI-Sec 5.02 History
History: Cr.
Register, December, 1977, No. 264, eff. 1-1-78; cr. (3),
Register, December, 1992, No. 444, eff. 1-1-93;
am. (1),
Register, December, 1995, No. 480, eff. 1-1-96; am. (1), renum. (2) and (3) to be (3) and (6) and am. (6), cr. (2), (4) and (5),
Register, December, 1998, No. 516, eff. 1-1-99; r. and recr. (1) and (2),
Register, December, 1999, No. 528, eff. 1-1-00;
CR 04-074: am. (2)
Register December 2004 No. 588, eff. 1-1-05;
CR 08-077: am. (1), (2) (intro.), (3), (4), (5) (intro.) and (d)
Register December 2008 No. 636, eff. 1-1-09.
DFI-Sec 5.03(1)(1) Every registered investment adviser whose principal office is in this state shall prepare and keep current at that office, or at a designated office located in this state, as specified in writing to, and permitted by, the division, or at an office under the direct supervision and control of the principal or designated office, the following books and records relating to its business:
DFI-Sec 5.03(1)(a)
(a) All partnership agreements, or all articles of incorporation, by-laws, minute books and stock certificate books of the investment adviser.
DFI-Sec 5.03(1)(b)
(b) A general ledger (or other records in the case of a sole proprietor) reflecting all asset, liability, income, expense, and capital accounts.
DFI-Sec 5.03(1)(c)
(c) A record showing all payments received, including date of receipt, purpose, and from whom received; and all disbursements, including date paid, purpose, and to whom made.
DFI-Sec 5.03(1)(e)
(e) All trial balances, financial statements, and internal audit working papers which may be prepared relating to the business of the investment adviser.
DFI-Sec 5.03(1)(f)
(f) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any order or instruction. The memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order; and shall show the account for which entered, the date of entry, and the bank, broker or dealer by or through whom executed. Orders entered pursuant to the exercise of discretionary power shall be so designated.
DFI-Sec 5.03(1)(g)
(g) Copies of all written communications, correspondence, confirmations, appraisals and other records relating to investment activities of clients.
DFI-Sec 5.03(1)(h)
(h) A separate file containing a copy of all complaints made or submitted by clients relating to investment activities for clients, and all investigative inquiries made by law enforcement and securities regulatory authorities to the investment adviser or its investment adviser representatives regarding their securities and investment advisory business, and containing evidence, including representative copies, of the responses made by the investment adviser and its investment adviser representatives to the complaint or investigation. In this paragraph, “complaint" means any written or oral statement of a client or any person acting on behalf of a client alleging a grievance involving the activities of persons under the control of the investment adviser in connection with providing investment advice or placing orders on behalf of clients.
