17 cfr 275 206(4)-1

Securities and Exchange Commission

§ 275.206(4)–1

to each such client, at least annually,
and with or as part of any written
statement or summary of such account
from the investment adviser or such
other person, a written disclosure
statement identifying the total number
of such transactions during the period
since the date of the last such statement or summary, and the total
amount of all commissions or other remuneration received or to be received
by the investment adviser or any other
person relying on this rule in connection with such transactions during
such period;
(4) Each written disclosure statement
and confirmation required by this rule
includes a conspicuous statement that
the written consent referred to in paragraph (a)(1) of this section may be revoked at any time by written notice to
the investment adviser, or to any other
person relying on this rule, from the
advisory client; and
(5) No such transaction is effected in
which the same investment adviser or
an investment adviser and any person
controlling, controlled by or under
common control with such investment
adviser recommended the transaction
to both any seller and any purchaser.
(b) For purposes of this rule the term
agency cross transaction for an advisory
client shall mean a transaction in
which a person acts as an investment
adviser in relation to a transaction in
which such investment adviser, or any
person controlling, controlled by, or
under common control with such investment adviser, acts as broker for
both such advisory client and for another person on the other side of the
transaction.
(c) This rule shall not be construed as
relieving in any way the investment
adviser or another person relying on
this rule from acting in the best interests of the advisory client, including
fulfilling the duty with respect to the
best price and execution for the particular transaction for the advisory client; nor shall it relieve such person or
persons from any disclosure obligation
which may be imposed by subparagraphs (1) or (2) of section 206 of the

Act or by other applicable provisions of
the federal securities laws.
[42 FR 29301 June 8, 1977, as amended at 48
FR 41379, Sept. 15, 1983; 62 FR 28135, May 22,
1997]

§ 275.206(4)–1 Advertisements
vestment advisers.

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(a) It shall constitute a fraudulent,
deceptive, or manipulative act, practice, or course of business within the
meaning of section 206(4) of the Act (15
U.S.C. 80b–6(4)) for any investment adviser registered or required to be registered under section 203 of the Act (15
U.S.C. 80b–3), directly or indirectly, to
publish, circulate, or distribute any advertisement:
(1) Which refers, directly or indirectly, to any testimonial of any kind
concerning the investment adviser or
concerning any advice, anaylsis, report
or other service rendered by such investment adviser; or
(2) Which refers, directly or indirectly, to past specific recommendations of such investment adviser which
were or would have been profitable to
any person: Provided, however, That
this shall not prohibit an advertisement which sets out or offers to furnish a list of all recommendations
made by such investment adviser within the immediately preceding period of
not less than one year if such advertisement, and such list if it is furnished
separately: (i) State the name of each
such security recommended, the date
and nature of each such recommendation (e.g., whether to buy, sell or hold),
the market price at that time, the
price at which the recommendation
was to be acted upon, and the market
price of each such security as of the
most recent practicable date, and (ii)
contain the following cautionary legend on the first page thereof in print or
type as large as the largest print or
type used in the body or text thereof:
‘‘it should not be assumed that recommendations made in the future will
be profitable or will equal the performance of the securities in this list’’; or
(3) Which represents, directly or indirectly, that any graph, chart, formula
or other device being offered can in and
of itself be used to determine which securities to buy or sell, or when to buy

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§ 275.206(4)–2

17 CFR Ch. II (4–1–05 Edition)

or sell them; or which represents directly or indirectly, that any graph,
chart, formula or other device being offered will assist any person in making
his own decisions as to which securities
to buy, sell, or when to buy or sell
them, without prominently disclosing
in such advertisement the limitations
thereof and the difficulties with respect to its use; or
(4) Which contains any statement to
the effect that any report, analysis, or
other service will be furnished free or
without charge, unless such report,
analysis or other service actually is or
will be furnished entirely free and
without any condition or obligation,
directly or indirectly; or
(5) Which contains any untrue statement of a material fact, or which is
otherwise false or misleading.
(b) For the purposes of this section
the term advertisement shall include
any notice, circular, letter or other
written communication addressed to
more than one person, or any notice or
other announcement in any publication
or by radio or television, which offers
(1) any analysis, report, or publication
concerning securities, or which is to be
used in making any determination as
to when to buy or sell any security, or
which security to buy or sell, or (2) any
graph, chart, formula, or other device
to be used in making any determination as to when to buy or sell any security, or which security to buy or sell,
or (3) any other investment advisory
service with regard to securities.
(Sec. 206, 54 Stat. 852, as amended; 15 U.S.C.
80b–6)
[26 FR 10549, Nov. 9, 1961, as amended at 62
FR 28135, May 22, 1997]

§ 275.206(4)–2 Custody of funds or securities of clients by investment advisers.
(a) Safekeeping required. If you are an
investment adviser registered or required to be registered under section
203 of the Act (15 U.S.C. 80b–3), it is a
fraudulent, deceptive, or manipulative
act, practice or course of business
within the meaning of section 206(4) of
the Act (15 U.S.C. 80b–6(4)) for you to
have custody of client funds or securities unless:

(1) Qualified custodian. A qualified
custodian maintains those funds and
securities:
(i) In a separate account for each client under that client’s name; or
(ii) In accounts that contain only
your clients’ funds and securities,
under your name as agent or trustee
for the clients.
(2) Notice to clients. If you open an account with a qualified custodian on
your client’s behalf, either under the
client’s name or under your name as
agent, you notify 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.
(3) Account statements to clients.—(i)
By qualified custodian. You have a reasonable basis for believing that the
qualified custodian sends an account
statement, at least quarterly, to each
of your clients for which it maintains
funds or securities, identifying the
amount of funds and of each security in
the account at the end of the period
and setting forth all transactions in
the account during that period; or
(ii) By adviser. (A) You send a quarterly account statement to each of
your clients for whom you have custody of funds or securities, identifying
the amount of funds and of each security of which you have custody at the
end of the period and setting forth all
transactions during that period;
(B) An independent public accountant verifies all of those funds and securities by actual examination at least
once during each calendar year at a
time that is chosen by the accountant
without prior notice or announcement
to you and that is irregular from year
to year, and files a certificate on Form
ADV-E (17 CFR 279.8) with the Commission 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
(C) The independent public accountant, upon finding any material discrepancies during the course of the examination, notifies the Commission within one business day of the finding, by
means of a facsimile transmission or

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