The SEC's Division of Investment Management said it will not object if an investment adviser pays a cash fee for the solicitation of advisory clients, although a federal district court injunctive order precluded it. RBS Sec. Inc., SEC No-Action Letter, avail. 11/26/13, http://www.sec.gov/divisions/investment/noaction/2013/rbssecurities-11252013-section 206.htm.
In granting relief, the staff noted especially that the firm otherwise will conduct any such cash solicitation arrangement in compliance with Investment Advisers Act of 1940 Rule 206(4)-3. Rule 206(4)-3 prohibits an investment adviser from paying a cash fee to any solicitor subject to a court injunction related to the purchase or sale of a security. The staff especially noted counsel's representations that:
- It will conduct any cash solicitation arrangement with an investment adviser registered or required to be registered under Section 203 of the act in compliance with the terms of Rule 206(4)-3, except for the investment adviser's payment of cash solicitation fees to it;
- The judgment does not bar or suspend it from acting in any capacity under the federal securities laws;
- It will comply with the terms of the judgment; and
- For 10 years from the date the judgment was entered, it and any investment adviser with which it has a solicitation arrangement will disclose the judgment to each person whom it solicits at least 48 hours before the person enters into an advisory contract, or at the time the person enters into such a contract, provided the person may terminate the contract without penalty within five business days.
In short, the SEC has opened the door on these cash solicitations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
