2. A summary of material changes that are required by Part 2 of Form ADV, but are not contained in the brochure or supplement; and .
(2) (c) Written information concerning a client's net worth, annual income and other financial information, investment objectives and experience and such other information necessary and relied upon by the investment adviser to determine the suitability of any investment recommendation or investment advice to the client. The written information shall be updated on a regular basis when the investment adviser receives information from the client that results in material changes to the client's annual income, net worth, investment objectives or other changes to information affecting the investment adviser's ability to make suitable recommendations for the client as required under s. DFI-Sec 5.06 (4). (3) Every registered investment adviser shall preserve for a period of not less than 5 years, the first 2 years in an easily accessible place, all records required under subs. (1) and (2) except that records respecting an account required under sub. (1) (i), (j) and (k) shall be preserved by the investment adviser for a period of not less than 5 years from the end of the first fiscal year during which the last entry was made on such record and records required under sub. (1) (a) shall be preserved by the investment adviser for a period of not less than 3 years after withdrawal or expiration of its registration in this state. The record may be retained by computer electronically if a printed copy of the record can be prepared immediately upon request. In the event a record has been preserved for 2 years as required in this subsection, a microfilm copy may be substituted for the remainder of the required period. (5) The records required in sub. (4) shall be preserved at the branch office for a period of not less than 3 years, the first 2 years in an easily accessible place. Upon closing of the branch office, the records shall be transferred to the home office for the duration of the required retention period. The record may be retained by computer electronically if a printed copy of the record can be prepared immediately upon request. If a record has been preserved for the first year of the 3-year period required in this subsection, a microfilm copy may be substituted for the remainder of the required retention period. SECTION 102. DFI-Sec 5.035 (title) is amended to read:
DFI-Sec 5.035 (title) Investment advisors advisers with custody.
_Hlk183773222SECTION 103. DFI-Sec 5.035 (1) (intro.), (a), (b), and (c) are renumbered DFI-Sec (4e) (intro.), (a), (b), and (c) and, DFI-Sec (4e) (intro.) and (c), as renumbered, are amended to read: DFI-Sec 5.035 (4e) (intro.) Except as provided in sub. (2) (a) to (e), and subject to the definitions in sub. (4) sub. (1e), it shall be is a prohibited business practice for an investment adviser registered, or required to be registered, to have custody of client funds or securities unless the investment adviser complies with all of the following: (c) When an investment adviser opens an account with a qualified custodian on a client's behalf, either under the client's name or under the investment adviser's name as agent, the investment adviser shall notify notifies the client in writing of the qualified custodian's name, address, and the manner in which the funds or securities are maintained, promptly when the account is opened and following any changes to this information.
SECTION 104. DFI-Sec 5.035 (1) (d), (e), (f), and (g) are renumbered DFI-Sec 5.035 (1m) (a), (b), (c), and (d) and DFI-Sec 5.035 (1m) (a) 2. (intro.), a., and b., and 3., (b), (c) (intro.), 2., and 4., and (d) (intro.), 1., 2. (intro.), and 4., as renumbered, are amended to read:
DFI-Sec 5.035 (1m) (a) 2. (intro.) If client funds or securities are held by the adviser, all of the following apply:
a. The investment adviser shall send an account statement, at least quarterly, to each client for whom the investment adviser has custody of funds or securities, identifying the amount of funds and of each security of which the investment adviser has custody at the end of the period and setting forth all transactions during that period; and .
b. The investment adviser shall engage an independent certified public accountant to verify all client funds and securities by actual examination at least once during each calendar year at a time chosen by the accountant without prior notice or announcement to the adviser and that is irregular from year to year. The accountant shall file a copy of the special examination report with the division within 30 days after the completion of the examination, stating that it has examined the funds and securities and describing the nature and extent of the examination; and .
3. If the investment adviser is a general partner of a limited partnership, is a managing member of a limited liability company, or holds a comparable position for another type of pooled investment vehicle, the account statements required under par. (d) (a) 1. or 2. a., shall be sent to each limited partner, member or other beneficial owner or their independent representative. (b) If a client does not receive account statements and notices directly from the adviser or custodian, the investment adviser shall obtain from the client a written designation of an independent representative to receive, on the client's behalf, notices and account statements as required under pars. (c) and (d) subs. (1m) (a) and (4e) (c). (c) (intro.) An adviser who has custody as defined in sub. (4) (a) (1e) (a) as a result of having fees directly deducted from client accounts, as described in sub. (4) (a) 2. (1e) (a) 2., shall comply with all of the following: 2. (intro.) Except as provided in subd. 4., each time a fee is directly deducted from a client account, the adviser shall concurrently do both of all the following: a. Send the qualified custodian notice of the amount of the fee to be deducted from the client's account; and .
b. Send the client an invoice itemizing the fee. Itemization includes the formula used to calculate the fee, the amount of assets under management the fee is based on, and the time period covered by the fee, except that the division may authorize other methods of client notification.
4. An investment adviser having custody as described in sub. (4) (a) 2. (1e) (a) 2. and who complies with the safekeeping requirements in pars. (a) through (f) subs. (1m) (a) to (d) and (4e) (a) to (c), is not required to meet the financial requirements for custodial advisers prescribed in s. DFI-Sec 5.02 (2). (d) (intro.) An investment adviser, including an adviser acting as a trustee, who has custody as described in sub. (4) (a) 3. (1e) (a) 3. and who does not meet the exception provided under sub. (2) (c) shall comply with each of the following: 1. The investment adviser shall hire an independent party as defined in sub. (4) (b) (1e) (b) to review all fees, expenses and capital withdrawals from the pooled accounts. 2. The investment adviser shall send all invoices or receipts to the independent party, detailing the amount of the fee, expenses, or capital withdrawal, and the method of calculation so that the independent party can do both all of the following:
4. An investment adviser having custody as described in sub. (4) (a) 3. (1e) (a) 3. and who complies with the safekeeping requirements in pars. (a) through (e) subs. (4e) (a) to (c) and (1m) (a) and (b) and, together with the requirements in par. (g) this paragraph, will not be required to meet the financial requirements for custodial advisers prescribed in s. DFI-Sec 5.02 (2). _Hlk183528813SECTION 105. DFI-Sec 5.035 (2) (a), (b) 1. (intro.), (c), (d), (e) (intro.) and 2. a., and (f) is amended to read: DFI-Sec 5.035 (2) (a) With respect to shares of an open-end investment company as defined in section 5 (a) (1) of the investment company act Investment Company Act of 1940, an investment adviser may use the investment company’s transfer agent in lieu of a qualified custodian for purposes of complying with sub. (1) subs. (1m) and (4e). (b) 1. (intro.) An investment adviser is not required to comply with sub. (1) subs. (1m) and (4e) with respect to securities that meet all of the following requirements: (c) An investment adviser is not required to comply with par. (d) sub. (1m) (a) with respect to the account of a limited partnership, limited liability company, or another type of pooled investment vehicle that is subject to audit at least annually and distributes annually its audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners, members, or other beneficial owners, within 120 days of the end of its fiscal year. The investment adviser shall notify the division on Form ADV that the investment adviser intends to comply with the audit safeguards described above. (d) An investment adviser is not required to comply with sub. (1) subs. (1m) and (4e) with respect to the account of an investment company registered under the investment company act Investment Company Act of 1940. _Hlk197359300(e) (intro.) An investment adviser is not required to comply with the safekeeping requirements of sub. (1) subs. (1m) and (4e) or the net worth requirements of s. DFI-Sec 5.02 (2) if the investment adviser has custody solely because the investment adviser is the trustee for a beneficial trust, if all of the following conditions are met for each trust: _Hlk1973582262. a. The investment adviser provides a written statement to each beneficial owner of the account setting forth a description of the requirements of sub. (1) subs. (1m) and (4e) and the reasons why the investment adviser will not be complying with those requirements. (f) Any adviser who intends to have custody of client funds or securities but is not able to utilize a qualified custodian as defined in sub. (4) (c) (1e) (d) shall first obtain approval from the division and shall comply with all of the applicable safekeeping provisions under sub. (1) subs. (1m) and (4e), including taking responsibility for those requirements that are designated to be performed by a qualified custodian. SECTION 106. DFI-Sec 5.035 (3) (a) (intro.) is renumbered DFI-Sec 5.035 (3) (intro.).
SECTION 107. DFI-Sec 5.035 (3) (a) 1. (intro.) is renumbered DFI-Sec 5.035 (3) (a).
SECTION 108. DFI-Sec 5.035 (3) (a) 2. is renumbered DFI-Sec 5.035 (3) (b) and DFI-Sec 5.035 (3) (b) (intro.) and 1., as renumbered, are amended to read:
DFI-SECTION 5.035 (3) (b) (intro.) If an investment adviser obtains possession of securities that are acquired from an issuer in a transaction or series of transactions not involving any public offering that qualify for the exception from custody under sub. (2) (b), the adviser shall keep all the following records: 1. A record showing the issuer or current transfer agent's name, address, telephone number and other applicable contact information pertaining to the party responsible for recording client interests in the securities; and.
_Hlk183529434SECTION 109. DFI-Sec 5.035 (3) (b) is renumbered DFI-Sec 5.035 (3e) and DFI-Sec 5.035 (3e) (intro.) and (a), as renumbered, are amended to read: DFI-Sec 5.035 (3e) (intro.) Each registered investment adviser whose principal office is in this state who has custody or possession of securities or funds of any client shall maintain and keep current all the following books and records in addition to those required under sub. (1) subs. (1m) and (4e): (a) A copy of all documents required in sub. (1) (f) (1m) (c) if the adviser is authorized or permitted to withdraw a client's funds or securities maintained with a custodian upon the adviser's instruction to the custodian. SECTION 110. DFI-Sec 5.035 (3) (c) is renumbered DFI-Sec 5.035 (3m) and DFI-Sec 5.035 (3m) (intro.) and (3m) (a) and (c), as renumbered, are amended to read:
DFI-Sec 5.035 (3m) If an investment adviser has custody because it advises a pooled investment vehicle, as defined in sub. (4) (a) 3. (1e) (a) 3., the adviser shall also keep all the following records: (a) True, accurate and current account statements;.
(c) If the adviser complies with sub. (1) (g) (1m) (d), the investment adviser shall make and maintain all the following records: _Hlk183530113SECTION 111. DFI-Sec 5.035 (4) (a) is renumbered DFI-Sec 5.035 (1e) (a) and DFI-Sec 5.035 (1e) (a) (intro.), 1., and 2., as renumbered, are amended to read: (1e) (a) (intro.) “Custody", for purposes of this section, means holding directly or indirectly, client funds or securities, or having any authority to obtain possession of them, or having the ability to appropriate them in the following contexts, without limitation certain contexts, including any of the following:
1. Possession of client funds or securities unless received inadvertently and returned to the sender promptly, but in any case within three business days of receiving them, except that receipt of checks drawn by clients and made payable to unrelated third parties will not meet the definition of custody if they are forwarded to the third party within 24 hours of receipt and the adviser maintains the records required under sub. (3) (a); . 2. Any arrangement, including a general power of attorney, under which an investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the investment adviser's instruction to the custodian; and .
_Hlk183530515SECTION 112. DFI-Sec 5.035 (4) (b) is renumbered DFI-Sec 5.035 (1e) (b) and DFI-Sec 5.035 (1e) (b) (intro.) and 1., as renumbered, are amended to read: (b) (intro.) “Independent party" for purposes of sub. (1) (g) (1m) (d), means a person that meets all of the following: 1. The person is engaged by the investment adviser to act as an intermediary for the payment of fees, expenses, and capital withdrawals from a pooled investment.
SECTION 113. DFI-Sec 5.035 (4) (c) is renumbered DFI-Sec 5.035 (1e) (d) and DFI-Sec 5.035 (1e) (d) (intro.) and 2., as renumbered, are amended to read:
(d) (intro.) “Qualified custodian" for purposes of sub. (1) subs. (1m) and (4e), includes a broker-dealer registered under ch. 551, Stats., or any of the following independent institutions or entities: 2. A registered futures commission merchant registered under section 4f(a) of the commodity exchange act 7 USC § 6f, holding the client assets in client accounts, but only with respect to clients' funds and security futures, or other securities incidental to transactions in contracts for the purchase or sale of a commodity for future delivery or options thereon.
SECTION 114. DFI-Sec 5.035 (4) (d) is renumbered DFI-Sec 5.035 (1e) (c) and DFI-Sec 5.035 (1e) (c) (intro.), as renumbered, is amended to read:
DFI-Sec 5.035 (1e) (c) “Independent representative" for purposes of this section means a person that satisfies the requirements in each to whom all of the following paragraphs apply:
_Hlk169178287SECTION 115. DFI-Sec 5.04 (2), (3), (5) (b), and (6) (intro.) and (a) are amended to read: DFI-Sec 5.04 (2) Each investment adviser shall file with the division a all of the following:
(a) A copy of any complaint related to its business, transactions, or operations in this state, naming the investment adviser or any of its partners, officers or investment adviser representatives as defendants in any civil or criminal proceeding, or in any administrative or disciplinary proceeding by any public or private regulatory agency, within 20 days of the date the complaint is served on the investment adviser; a.
(b) A copy of any answer or reply to the complaint filed by the investment adviser within 10 days of the date the answer or reply is filed; and a.
(c) A copy of any decision, order, or sanction made with respect to any such proceeding within 20 days of the date the decision, order or sanction is rendered.
(3) (a) (intro.) Except as provided in subs. (2) and (4), each investment adviser shall file do all of the following: (a) File with the division any notice of change of control or change of name, as well as any material change in the information included in the investment adviser's most recent application for registration, in an amendment to Form ADV filed with the division within 30 days of the date of the change.
(b) Each investment adviser shall file File a complete, updated Form ADV with the investment adviser registration depository within 90 days of the end of its fiscal year.
_Hlk169179343(c) Each investment adviser representative and his or her employing investment adviser or federal covered investment adviser shall Along with the investment adviser representative's employing investment adviser or federal covered investment adviser, update information contained in an investment adviser representative's application by filing an amendment to Form U-4 with the central registration depository within 30 days of the date of the event that requires filing of the amendment. (5) (b) Each investment adviser shall notify the division in writing at least not later than 14 days after the closing in this state of any branch office as defined in s. DFI-Sec 1.02 (7), and the notice shall specify the effective date of the closing. (6) (intro.) Each investment adviser shall file a branch office renewal notice annually under par. (a) or (b), as applicable. using one of the following methods:
(a) Through the investment adviser registration depository for registered investment advisers; ,
_Hlk198558928SECTION 116. DFI-Sec 5.05 (1), (2) (intro.) and (b), (3), (4), (5), (7), (8), (11) (intro.), (a), (b), (c), (d) (intro.), (12) (intro.), and (13) are amended to read: DFI-Sec 5.05 (1) Each investment adviser shall establish, maintain, and enforce written supervisory procedures and a system for applying the procedures, which may reasonably be expected to prevent and detect any violations of ch. 551, Stats., and rules and orders thereunder. The procedures shall be tailored to the investment adviser's business model, taking into account the size of the firm, types of services provided, and the number of locations from which the investment adviser operates. The procedures shall include the designation and registration of a number of supervisory employees that is reasonable in relation to the number of its registered investment adviser representatives, offices, and activities in this state. The investment adviser shall also do all of the following: (a) At least annually, review the adequacy of the policies and procedures established under this section and the effectiveness of their implementation.
(b) Designate a supervisory person as the chief compliance officer responsible for administering the investment adviser's policies and procedures.
(2) (intro.) An Except as provided in sub. (3), an investment adviser shall may not enter, extend, or renew any investment advisory contract if the contract:
(b) Fails to provide, in substance, that no assignment of the contract may be made without the consent of the client; or ,
(3) Subsection The prohibition in sub. (2) (a) shall not prohibit does not apply to an investment advisory contract which provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates or taken as of a definite date. “Assignment," as used in sub. (2) (b) includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor; but, if the investment adviser is a partnership, no assignment of an investment advisory contract is considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment advisor of one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business. As used in sub. (2), “investment advisory contract" means any contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account for a person other than persons specified under s. 551.403 (2), Stats., or s. DFI-Sec 5.12 5.13. (4) An investment adviser shall may not enter any contract with a client if the contract contains any condition, stipulation, or provision binding the client to waive any rights under ch. 551, Stats., or any rule or order thereunder. Any such condition, stipulation, or provision is void. (7) Every registered investment adviser shall employ at its principal office or designated office of supervision in accordance with s. DFI-Sec 5.03 (1), at least one person designated in writing on the form prescribed in s. DFI-Sec 9.01 (1) (b) and filed with the division to act in a supervisory capacity who is registered as an investment adviser representative in this state and has satisfied the supervisory examination requirement in s. DFI-Sec 5.01 (5). If a registered investment adviser is not in compliance with the requirements of this paragraph, it has 45 days from the first date of noncompliance to meet the requirements of this paragraph. (8) (a) Unless otherwise Except as provided in this subsection, each investment adviser, or investment advisor representative, who will provide advisory services shall furnish to each client and prospective client a the current firm brochure and one or more the current version of any relevant supplements as required by this subsection. The brochure and any required supplement shall contain all information required by Part 2 of Form ADV and such other information as the division may require.
_Hlk169275196SECTION 118. DFI-Sec 5.05 (8) (e) 1. and 3., (11) (intro.), (a), (b), (c), (d) (intro.), (12) (intro.), and (13) are amended to read: DFI-Sec 5.05 (8) (e) 1. Each investment adviser that is a sponsor of a wrap fee program shall furnish to a client or prospective client in lieu of the brochure required in par. (b) (a), a wrap fee brochure containing all information required by Form ADV. All information in a wrap fee brochure shall be limited to information applicable to wrap fee programs that the investment adviser sponsors. 3. A wrap fee brochure shall not be used in place of any brochure supplement that the investment adviser is required to furnish under par. (b) 1 (a). (11) (intro.) Each investment adviser which by contract, agreement or other means provides investment advisory services on the premises of a financial institution that is not registered as an investment adviser shall do all of the following:
(a) Perform the investment advisory services within a specific area on the premises of the financial institution designated by agreement between the investment adviser and the financial institution. Nothing in this paragraph prohibits the financial institution from carrying out other activities within the designated area, provided that no promotional signs or materials shall be displayed within the designated area other than those relating to the investment advisory services; .
(b) Prominently display the identity of the registered investment adviser in the area on the premises of the financial institution designated under par. (a) ; . (c) 1. Disclose the identity of the registered investment adviser in, without limitation because of enumeration, all advertising, correspondence, business , including in at least all of the following areas:
a. Advertising.
b. Business cards, promotional .
c. Promotional materials and records relating to the investment adviser's services provided on the premises of the financial institution.
