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§ 260.238. Investment Advisers: Fair, Equitable and Ethical Principles.


Barclays Official California Code of Regulations Currentness
Title 10. Investment
Chapter 3. Commissioner of Business Oversight, Division of Corporations
Subchapter 2. Corporate Securities
Article 10. Licensing and Regulation of Investment Advisers (Refs & Annos)
10 CCR § 260.238
§ 260.238. Investment Advisers: Fair, Equitable and Ethical Principles.
The following activities do not promote “fair, equitable or ethical principles,” as that phrase is used in Section 25238 of the Code:
(a) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known or acquired by the adviser after reasonable examination of such of the client's records as may be provided to the adviser.
(b) Placing an order to purchase or sell a security for the account of a client without authority to do so.
(c) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party trading authorization from the client.
(d) Exercising any discretionary power, including any power of attorney, in placing an order for the purchase or sale of securities without first obtaining written discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.
(e) Inducing trading in a client's account that is excessive in size and frequency in view of the financial resources, investment objectives and character of the account.
(f) Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the adviser, or a financial institution engaged in the business of loaning funds or securities.
(g) Loaning money to a client unless the adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the adviser.
(h) Misrepresenting to any advisory client, or any prospective advisory client, the qualifications of the adviser, its representatives or any employees, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting to state a material fact necessary to make the statements made regarding the qualifications, services or fees, in light of the circumstances under which they are made, not misleading.
(i) Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing the fact. This prohibition does not apply, however, to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.
(j) Charging a client an advisory fee that is unreasonable in light of the type of services to be provided, the experience and expertise of the adviser, the sophistication and bargaining power of the client, and whether the adviser has disclosed that lower fees for comparable services may be available from other sources.
(k) Failing to disclose to a client in writing before entering into or renewing an advisory agreement with that client any material conflict of interest relating to the adviser, its representatives or any of its employees, which could be reasonably expected to impair the rendering of unbiased and objective advice including:
(1) Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; and
(2) Charging a client an advisory fee for rendering advice without disclosing that a commission for executing securities transactions pursuant to such advice will be received by the adviser, its representatives or its employees, or that such advisory fee is being reduced by the amount of the commission earned by the adviser, its representatives or employees for the sale of securities to the client.
(l) Guaranteeing a client that a specific result will be achieved (e.g., a gain or no loss) as a result of the advice which will be rendered.
(m) Disclosing the identity, affairs, or investments of any client to any third party unless required by law to do so, or unless consented to by the client.
(n) Entering into, extending or renewing any investment advisory contract, other than a contract for impersonal advisory services, unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee or the formula for computing the fee the amount or the manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the adviser or its representatives.
(o) Making any untrue statement of a material fact or omitting a statement of material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading in the solicitation of advisory clients.
Note: Authority cited: Sections 25238 and 25610, Corporations Code. Reference: Section 25238, Corporations Code.
1. New section filed 5-12-92; operative 6-11-92 (Register 92, No. 20).
2. Editorial correction of printing error in subsection (n) (Register 94, No. 2).
This database is current through 1/1/21 Register 2021, No. 1
10 CCR § 260.238, 10 CA ADC § 260.238
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