Publications iconKansas Administrative Regulations

Agency 81

Office of the Securities Commissioner

Article 14.—Investment Advisers and Investment Adviser Representatives

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81-14-10. Operational requirements for investment advisers; supervisory procedures; brochure delivery. (a) Supervision of investment adviser representatives and employees.
(1) Annual review. Each investment adviser shall conduct a review, at least annually, of the businesses in which the adviser engages, which shall be reasonably designed to assist in detecting and preventing violations of and achieving compliance with the act, these regulations, and other applicable laws and regulations.
(2) Supervisory procedures. Each investment adviser shall establish and maintain supervisory procedures that shall be reasonably designed to assist in detecting and preventing violations of and achieving compliance with the act, these regulations, and other applicable laws, regulations, and rules of self-regulatory organizations. In determining whether the supervisory procedures are reasonably designed, factors including the following may be considered by the administrator:
(A) The firm's size;
(B) the organizational structure;
(C) the scope of business activities;
(D) the number and location of the offices;
(E) the nature and complexity of products and services offered;
(F) the volume of business done;
(G) the number of investment adviser representatives assigned to a location;
(H) the specification of the office as a non-branch location; and
(I) the disciplinary history of the registered investment adviser representatives.
(3) Supervision of non-branch offices. The procedures established and the reviews conducted shall provide sufficient supervision at remote offices to ensure compliance with applicable securities laws and regulations. Based on the factors specified in paragraph (a)(2), certain non-branch offices may require more frequent reviews or more stringent supervision.
(4) Failure to supervise. If an investment adviser fails to comply with this subsection, the investment adviser shall be deemed to have "failed to reasonably supervise" its investment adviser representatives under K.S.A. 17-12a412(d)(9), and amendments thereto.
(b) Brochure delivery requirements.
(1) Definitions. For purposes of this subsection, the following definitions shall apply:
(A) "Current brochure" and "current brochure supplement" mean the most recent versions of the brochure or brochure supplements, including all sticker amendments.
(B) "Entering into," in reference to an investment advisory contract, shall not include an extension or renewal unless the extension or renewal involves a material change to the contract.
(C) "Sponsor" of a wrap fee program means an investment adviser that is compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting or providing advice to clients regarding the selection of other investment advisers in the program.
(D) "Wrap fee program" means an advisory program under which one or more specified fees, not based directly upon transactions in a client's account, are charged for investment advisory services and the execution of client transactions. The investment advisory services may include portfolio management or advice concerning the selection of other investment advisers.
(2) General requirements. Unless otherwise provided in this subsection, each investment adviser registered or required to be registered under the act shall provide to each client and prospective client a firm brochure and one or more supplements as required by this subsection. The brochure and supplements shall contain all information required by part 2 of form ADV and any other relevant information that the administrator may require.
(3) Offer and delivery requirements.
(A) Each investment adviser shall deliver a current firm brochure to each client or prospective client. Each investment adviser shall also deliver current brochure supplements for each investment adviser representative who will provide advisory services to the client. For purposes of this subsection, an investment adviser representative shall be deemed to provide advisory services to a client if the investment adviser representative does any of the following:
(i) Regularly communicates investment advice to the client;
(ii) formulates investment advice for assets of the client;
(iii) makes discretionary investment decisions for assets of the client; or
(iv) sells investment advisory services or solicits, offers, or negotiates for the sale of investment advisory services.
(B) The documents required in paragraph (b)(3)(A) shall be delivered to the client at least 48 hours before entering into any investment advisory contract with the client or prospective client, or at the time of entering into a contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.
(C) An investment adviser shall, at least once a year and without charge, deliver or offer in writing to deliver to each of its clients the current brochure and any current brochure supplements required by this subsection. If a client accepts the written offer, the investment adviser shall send the current brochure and supplements to that client within seven days after the investment adviser is notified of the acceptance.
(4) Delivery to limited partners. If the investment adviser is the general partner of a limited partnership, the manager of a limited liability company, or the trustee of a trust, then for purposes of this subsection the investment adviser shall treat each of the partnership's limited partners, the company's members, or the trust's beneficial owners as a client. For purposes of this subsection, a limited liability partnership or limited liability limited partnership shall be deemed to be a limited partnership.
(5) Wrap fee program brochures.
(A) If the investment adviser is a sponsor of a wrap fee program, then the brochure required to be delivered to a client or prospective client of the wrap fee program shall be a wrap fee brochure containing all information required by form ADV. Any additional information in a wrap fee brochure shall be limited to information applicable to wrap fee programs that the investment adviser sponsors.
(B) The investment adviser shall not be required to offer or deliver a wrap fee brochure to the client or prospective client of the wrap fee program if another sponsor of the wrap fee program offers or delivers a wrap fee program brochure containing all the information that the investment adviser's wrap fee program brochure is required to contain.
(C) A wrap fee brochure shall not take the place of any brochure supplements that the investment adviser is required to deliver under paragraph (b)(3)(A).
(6) Delivery of updates and amendments. The investment adviser shall amend its brochure and any brochure supplements and deliver the amendments to clients promptly if information contained in the brochure or brochure supplements becomes materially inaccurate. The investment adviser shall follow the updating and delivery instructions for part 2 of form ADV. An amendment shall be considered to be delivered promptly if the amendment is delivered within 30 days of the event that requires the filing of the amendment.
(7) Multiple brochures. If an investment adviser renders substantially different types of investment advisory services to different clients, the investment adviser may provide them with different brochures, if each client receives all applicable information about services and fees. The brochure delivered to a client may omit any information required by part 2 of form ADV if this information is applicable only to a type of investment advisory service or fee that is not rendered or charged, or proposed to be rendered or charged, to that client or prospective client.
(8) Other disclosure obligations. Nothing in this subsection shall relieve any investment adviser from any obligation to disclose any information to its advisory clients or prospective advisory clients pursuant to any state or federal law. (Authorized by K.S.A. 2005 Supp. 17-12a411(g) and 17-12a605(a); implementing K.S.A. 2005 Supp. 17-12a411(g) and 17-12a412(d)(9), as amended by L. 2006, Ch. 47, § 6; effective Aug. 18, 2006.)
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