hb 0731

CHAPTER 260

HB 731-FN - FINAL VERSION

AN ACT relative to securities laws, making a change to Article 9 of the Uniform Commercial Code, and relative to standards for records filed with a registry of deeds.

SPONSORS: Rep. Gilmore, Straf 11; Rep. Fields, Hills 18; Rep. Teschner, Graf 5

I. Makes a variety of changes to the securities laws administered by the secretary of state.

II. Makes a change to Article 9 of the Uniform Commercial Code in HB 745-FN of the 2001 legislative session.

III. States that if a majority of the registers of deeds adopt uniform guidelines as to document quality, the guidelines shall be effective for all 10 registries of deeds.

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

AN ACT relative to securities laws, making a change to Article 9 of the Uniform Commercial Code, and relative to standards for records filed with a registry of deeds.

Be it Enacted by the Senate and House of Representatives in General Court convened:

260:1 Securities; Definition of Agent. Amend RSA 421-B:2, II (e) to read as follows:

(e) Effecting other transactions, if such individual is an officer or director of the issuer, no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state, and upon application, such individual is specifically authorized by name in an order issued by the secretary of state. [A Form U-4 as prepared by the National Association of Securities Dealers and the Securities and Exchange Commission shall be filed and authorization obtained from the secretary of state before any offers are made. ]

260:2 Securities; Definition of "Federal Covered Adviser". Amend RSA 421-B:2, V-d to read as follows:

V-d. "Federal covered adviser" means a person who is [~~(i)~~] registered under section 203 of the Investment Advisers Act of 1940[~~; or (ii) is excluded from the definition of "investment adviser" under section 202(a)(11) of the Investment Advisers Act of 1940~~].

260:3 Securities; Advisory Activities; Regulating Conduct of Investment Adviser Agents; Requiring Disclosure of Certain Material Facts; and Permitting Automatic Deduction of Investment Adviser Fees From Client Accounts in Certain Circumstances. Amend RSA 421-B:4 to read as follows:

I. It is unlawful for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale whether through the issuance of analyses or reports or otherwise:

(b) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the other person.

II. It is unlawful for any investment adviser or investment adviser agent to enter into, extend, or renew any investment advisory contract the terms of which are in contravention of such rules as the secretary of state may adopt as necessary or appropriate in the public interest or for the protection of investors.

III. It is unlawful for any investment adviser or investment adviser agent to take or have custody of any securities or funds of any client in contravention of such rules as the secretary of state may adopt as necessary or appropriate in the public interest or for the protection of investors.

IV. It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of paragraph I for any investment adviser or investment adviser agent who has custody or possession of any funds or securities in which any client has any beneficial interest, to do any act or take any action, directly or indirectly, with respect to any such funds or securities, unless:

(a) All such securities of each such client are segregated, marked to identify the particular client who has the beneficial interest therein, and held in safekeeping in some place reasonably free from risk of destruction or other loss; and

(b) All such funds of such clients are deposited in one or more bank accounts which contain only clients' funds, such account or accounts are maintained in the name of the investment adviser as agent or trustee for such clients, and the investment adviser maintains a separate record for each such account which shows the name and address of the bank where such account is maintained, the dates and amounts of deposits in and withdrawals from such account, and the exact amount of each client's beneficial interest in such account; and

(c) Such investment adviser, immediately after accepting custody or possession of such funds or securities from any client, notifies such client in writing of the place and manner in which such funds and securities will be maintained, and thereafter, if and when there is any change in the place or manner in which such funds or securities are being maintained, gives each such client written notice thereof; and

(d) Such investment adviser sends to each client, not less frequently than once every 3 months, an itemized statement showing the funds and securities in the custody or possession of the investment adviser at the end of such period, and all debits, credits, and transactions in such client's account during such period; and

(e)(1) All such funds and securities of clients are verified by actual examination at least once during each calendar year by an independent public accountant at a time that shall be chosen by such accountant without prior notice to the investment adviser. A certificate of such accountant stating that an examination of such funds and securities has been made, and describing the nature and extent of the examination, shall be attached to a completed Form ADV-E (17 C.F.R. 279.8) and transmitted to the secretary of state promptly after each examination.

(2) Subparagraph IV(e)(1) shall not apply to an investment adviser also registered as a broker-dealer under section 15 of the Securities Exchange Act of 1934 if (i) such broker-dealer is subject to and in compliance with Rule 15c3-1 (Reg. 240.15c3-1, 25,126) under the Securities Exchange Act of 1934, or (ii) such broker-dealer is a member of an exchange whose members are exempt from Rule 15c3-1 (Reg. 240.15c3-1, 25,126) under the provisions of paragraph (b)(2) thereof, and such broker-dealer is in compliance with all rules and settled practices of such exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.

(f)(1) Direct deduction (automatic payment) of investment adviser fees from a client account to the investment adviser does not constitute custody of client funds if:

(A) The client provides written authorization permitting the adviser's fees to be paid directly from the client's account held by an independent custodian.

(B) The adviser sends to the client and the custodian at the same time, a bill showing the amount of the fee, the value of the client's assets on which the fee was based, and the specific manner in which the adviser's fee was calculated.

(C) The custodian agrees to send to the client a statement, at least quarterly, indicating all amounts disbursed from the account including the amount of advisory fees paid directly to the advisers.

(2) Absent any of the conditions in subparagraphs(f)(1)(A)-(C), the adviser is deemed to have custody of client funds.

IV-a. It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of paragraph I for any investment adviser licensed or required to be licensed to fail to disclose to any client or prospective client all material facts with respect to:

(a) A financial condition of the adviser that is reasonably likely to impair the ability of the adviser to meet contractual commitments to clients, if the adviser has discretionary authority (express or implied) or custody over such client's funds or securities, or requires prepayment of advisory fees of more than $500 from such client, 6 months or more in advance; or

(b) A legal or disciplinary event that is material to an evaluation of the advisers integrity or ability to meet contractual commitments to clients.

V. A person who is an investment adviser or investment adviser agent is a fiduciary and has a duty to act primarily for the benefit of the person's clients. While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser and the clients and the circumstances of each case, an investment adviser or investment adviser agent shall not engage in unethical business practices which constitute violations of paragraph I, including the following:

(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 by the investment adviser or investment adviser agent.

(b) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within 10 business days after the date of the first transaction placed pursuant to oral 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.

(c) Introducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives, and character of the account in light of the fact that an adviser in such situations can directly benefit from the number of securities transactions effected in a client's account. This subparagraph appropriately forbids an excessive number of transaction orders to be induced by an investment adviser or investment adviser agent for a client's account.

(d) Placing an order to purchase or sell a security for the account of a client without the authority to do so.

(e) 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.

(f) Borrowing money or securities from a client unless a client is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds.

(g) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.

(h) Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser, investment adviser agent, or any employee of the investment adviser, or misrepresenting the nature of the advisory services being offered or fees to be charged for such services, or omitting to state a material fact necessary to make the statements made regarding 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 investment adviser or investment adviser agent without disclosing that fact. This prohibition does not apply to a situation where the investment adviser or investment adviser agent uses published research reports or statistical analysis to render advice or where an adviser orders such a report in the normal course of providing service.

(k) Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the investment adviser, investment adviser agent, or any of its employees which could reasonably be 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 or such services; and

(2) Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.

(l) Guaranteeing a client that a specific result will be achieved, such as gain or no loss, with advice which will be rendered.

(m) Publishing, circulating, or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940.

(n) Disclosing the identity, affairs, or investments of any client unless required by law to do so, or unless consented to in writing by the client.

(o) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser or investment adviser agent has custody or possession of such securities or funds when the adviser's action is subject to and does not comply with the requirements of Reg. 206(4)-2 under the Investment Advisers Act of 1940.

(p) Entering into, extending, or renewing any investment adviser contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or non-performance, whether the contract grants discretionary power to the investment adviser or investment adviser agent, [~~and~~] that no assignment of such contract shall be made by the investment adviser without the written consent of the other party to the contract, or that:

(1) Provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client except that this subparagraph shall not:

(A) Be construed to prohibit 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; or

(B) Apply to an investment advisory contract with a person (except a trust, governmental plan, collective trust fund, or separate account), provided that the contract relates to the investment of assets in excess of $1,000,000, if the contract provides for compensation based on the asset value of the company or fund under management averaged over a specified period and increasing and decreasing proportionately with the investment performance of the company or fund over a specified period in relation to the investment record of an appropriate index of securities prices or such other measure of investment performance as the secretary of state by rule may specify.

(2) The provisions of subparagraph (1) shall not be deemed to prohibit an investment adviser from entering into, performing, renewing or extending an investment advisory contract that provides for compensation to the investment adviser on the basis of a share of the capital gains upon, or the capital appreciation of, the funds, or any portion of the funds, of a client, provided that the client entering into the contract subject to this section is a qualified client defined as:

(A) A natural person who or a company that immediately after entering into the contract has as least $750,000 under the management of the investment adviser.

(B) A natural person who or a company that the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract, either:

(i) Has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $1,500,000 at the time the contract is entered into; or

(ii) Is a qualified purchaser as defined in section 2(a)(51)(A) of the Investment Company Act of 1940 (14 U.S.C. 802-a(a)(51)(A)) at the time the contract is entered into:

(C) A natural person who immediately prior to entering into the contract is:

(i) An executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser; or

(ii) An employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser) who, in connection with his or her regular functions or duties, participates in the investment activities of such investment adviser, provided that such employee has been performing such functions and duties for or on behalf of the investment adviser, or substantially similar functions or duties for or on behalf of another company for at least 12 months.

(3) The secretary of state, by rule, upon his or her own motion, or by order upon application, may conditionally or unconditionally exempt any person or transaction, or any class or classes of persons or transactions, from subparagraph (1), if and to the extent that the exemption relates to an investment advisory contract with any person that the secretary of state determines does not need the protections of subparagraph (1), on the basis of such factors as financial sophistication, net worth, knowledge of and experience in financial matters, amount of assets under management, relationship with a licensed investment adviser, and such other factors as the secretary of state determines are consistent with this paragraph.

(q) Failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information in violation of section 204A of the Investment Advisers Act of 1940.

(r) Entering into, extending, or renewing any advisory contract which would violate section 205 of the Investment Advisers Act of 1940 and the rules promulgated thereunder. This provision shall apply to all [advisers registered or required to be registered under the Investment Advisers Act of 1940, notwithstanding whether such adviser would be exempt from federal registration pursuant to section 203(b) of the Investment Advisers Act of 1940] investment advisers and investment adviser agents licensed or required to be licensed under this chapter.

(s) Indicating, in an advisory contract, any condition, stipulation, or provisions binding any person to waive compliance with any provision of this chapter or of the Investment Advisers Act of 1940 or any other practice that would violate section 215 of the Investment Advisers Act of 1940.

(t) Engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative in contravention of section 206(4) of the Investment Advisers Act of 1940, notwithstanding the fact that such investment adviser is not registered or required to be registered under section 203 of the Investment Advisers Act of 1940.

(u) Engaging in conduct or any act, indirectly or through or by any other person, which would be unlawful for such person to do directly under the provisions of this chapter or any rule adopted under it.

The conduct set forth above is not inclusive. Engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices, shall be deemed an unethical business practice. The federal statutory and regulatory provisions referenced in this paragraph shall apply to investment advisers and investment adviser agents, regardless of whether the federal provision limits its application to advisers subject to federal registration.

260:4 Licensing Requirements; Retroactive License. Amend RSA 421-B:6, I-II to read as follows:

I. It is unlawful for any person to transact business in this state as a broker-dealer, issuer-dealer, investment adviser, or agent unless such person is licensed under this chapter. Except with respect to advisers whose only clients are those described in RSA 421-B:2, IX(f), it is unlawful for any federal covered adviser to conduct advisory business in this state unless such person complies with the provisions of RSA 421-B:7, [~~I-a~~] I-b. An investment adviser representative is required to be licensed as an agent under this section, in addition to any agent license held as a representative of any broker-dealer.

II. It is unlawful for any broker-dealer, issuer-dealer, and investment adviser to employ an agent unless the agent is licensed, or for a federal covered adviser to employ, supervise, or associate with an investment adviser representative having a place of business located in this state, unless such investment adviser representative is licensed as an agent under this chapter, or is exempt from the licensing requirements. Under this chapter, an agent's license is only in effect when such agent is associated with a particular broker-dealer, investment adviser, federal covered adviser, issuer-dealer, or a particular issuer. No agent shall at any time represent more than one broker-dealer or issuer-dealer, except that where broker-dealers or issuer-dealers affiliated by direct common control are licensed under this chapter, an agent may represent any such broker-dealer or issuer-dealer. When an agent begins or terminates those activities [~~which~~] that make the person an agent, the broker-dealer, issuer-dealer, federal covered adviser, and investment adviser shall promptly notify the secretary of state. When an investment adviser representative begins or terminates employment with a federal covered adviser, the investment adviser representative shall promptly notify the secretary of state.

260:5 New Paragraph; Securities; Licensing Requirements. Amend RSA 421-B:6 by inserting after paragraph III the following new paragraph:

III-a. A federal covered adviser who has paid a notice filing fee in this state for a particular calendar year and subsequently during that year becomes a state regulated investment adviser licensed in this state, shall not be assessed an additional fee (initial license fee) as it makes the transition to a licensed investment adviser in that year. A state regulated investment adviser who has paid a license fee in this state for a particular calendar year and subsequently during that year becomes a federal covered adviser, shall not be assessed an additional fee (notice filing fee) for the transition to a federal covered adviser in that year.

260:6 Securities; Licensing Requirements. Amend RSA 421-B:6, V to read as follows:

V.(a) Prior to opening or closing a branch office in this state, a broker-dealer or investment adviser shall send written notification directly to the secretary of state of the location of the branch office, telephone number, name of the individual supervising the office, the date of the opening or closing, and any other pertinent information required by the secretary of state.

(b) It is prohibited for any branch office or agent of a broker-dealer or investment adviser to conduct a securities or investment advisory business in this state under any name other than that of the broker-dealer or investment adviser with which the branch office is associated or agent is licensed. If more than one business enterprise is conducted from a branch office location, disclosures shall clearly and equally set forth what business activity is conducted by each organization and each licensed agent's relationship to each organization.

(c) Each branch office within this state shall be supervised by an on-site manager who shall have qualified as a principal by passing either the Series 8 (now 9 and 10) examination(s) or a principal's examination applicable to the licensee's business conducted at that location. Administration of examinations shall be conducted by the National Association of Securities Dealers.

260:7 Securities; Licensing Procedure. Amend RSA 421-B:7, I- I-a to read as follows:

I. A broker-dealer, issuer-dealer, agent, or investment adviser may obtain an initial or renewal license by filing with the secretary of state or his or her designee an application together with the fees required by RSA 421-B:31 and a consent to service of process pursuant to RSA 421-B:30, VII, and paying any reasonable costs charged by the designee for processing such filings. The application shall be on a form prescribed by the secretary of state and shall contain whatever information the secretary of state requires concerning such matters as, but not limited to, the applicant's form and place of organization; the applicant's proposed method of doing business; the qualifications and business history of the applicant; in the case of a broker-dealer, issuer-dealer, or investment adviser, the qualifications and business history of any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer, issuer-dealer, or investment adviser; and, in the case of an investment adviser, Form ADV, specimens of investment adviser contracts, and the qualifications and business history of any employee; any injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony; and the applicant's financial condition and history. The secretary of state may by rule or order require an applicant for initial license to publish an announcement of the application in one or more specified newspapers published in this state. If no denial order is in effect and no proceeding is pending under RSA 421-B:10, licensing becomes effective at noon of the thirtieth day after an application is filed. The secretary of state may by rule or order specify an earlier effective date, and he may by order defer the effective date until noon of the thirtieth day after filing of any amendment.

I-a. Unless otherwise provided, all investment adviser and investment adviser representative applications, renewals, amendments, reports, notices, related filings and fees required to be filed with the secretary of state pursuant to this chapter and rules adopted thereunder, shall be filed electronically with and transmitted to Investment Adviser Registration Depository (hereinafter referred to as the IARD). The following additional conditions relate to such electronic filings:

(a) When a signature or signatures are required by the particular instructions of any filing to be made through IARD, a duly authorized officer of the applicant and/or the applicant himself or herself, as required, shall affix his or her electronic signature to the filing by typing his or her name in the appropriate fields and submitting the filing to IARD. Submission of a filing in this manner shall constitute irrefutable evidence of legal signature by any individuals whose names are typed on the filing.

(b) Solely for purposes of a filing made through IARD, a document is considered filed with the secretary of state when all fees are received and the filing is accepted by IARD on behalf of the state.

(c) Any documents or fees required to be filed with the secretary of state that are not permitted to be filed with or cannot be accepted by IARD shall be filed directly with the secretary of state. The application shall not be complete until all documents and fees required by this chapter and rules adopted thereunder have been submitted through the IARD, where possible, or submitted to and received directly by the secretary of state.

(d) There shall be 2 "hardship exemptions" from the requirements to make electronic filings as required by this section:

(A) Investment advisers licensed or required to be licensed under this chapter who experience unanticipated technical difficulties that prevent submission of an electronic filing to IARD may request a temporary hardship exemption from the requirements to file electronically.

(B) To request a temporary hardship exemption, the investment adviser shall:

(i) File Form ADV-H (17 CFR 279.3) in paper format with the administrator where the investment adviser's principal place of business is located, no later than one business day after the filing that is the subject of the Form ADV-H was due; and

(ii) Submit the filing that is the subject of the Form ADV-H in electronic format to IARD no later than 7 business days after the filing was due.

(C) The temporary hardship exemption will be deemed effective upon receipt by the secretary of state of the complete Form ADV-H. Multiple temporary hardship exemption requests within the same calendar year may be disallowed by the secretary of state.

(A) A continuing hardship exemption shall be granted only if the investment adviser is able to demonstrate that the electronic filing requirements of this rule are prohibitively burdensome.

(B) To apply for a continuing hardship exemption, the investment adviser shall:

(i) File Form ADV-H (17 CFR 279.3) in paper format with the secretary of state at least 20 business days before filing is due; and

(ii) If a filing is due to more than one administrator, the Form ADV-H shall be filed with the administrator where the investment adviser's principal place of business is located. The administrator who receives the application shall grant or deny the application within 10 business days after the filing of Form ADV-H.

(C) An exemption is effective upon approval by the secretary of state. The time period of the exemption may be no longer than one year after the date on which the Form ADV-H is filed. If the secretary of state approves the application, the investment adviser shall, no later than 5 business days after the exemption approval date, submit filings to IARD in paper format (along with the appropriate processing fees) for the period of time for which the exemption is granted.

(3) The decision to grant or deny a request for a hardship exemption shall be made by the administrator where the investment adviser's principal place of business is located, which decision shall be followed by the secretary of state.

(e)(1) An investment adviser shall file with IARD, in accordance with the instructions in the Form ADV, any amendments to the investment adviser's Form ADV. An amendment shall be considered to be filed promptly if the amendment is filed within 30 days of the event that requires the filing of the amendment.

(2) An investment adviser representative is under a continuing obligation to update information required by Form U-4 as changes occur. An investment adviser representative and the investment adviser shall file promptly with IARD any amendments to the representative's Form U-4.

(3) Within 90 days of the end of the investment adviser's fiscal year, an investment adviser shall file an updated Form ADV with IARD.

(f)(1) By June 30, 2001, each investment adviser licensed or required to be licensed under this chapter shall resubmit its Form ADV electronically (if it has not previously done so) with IARD unless it has been granted a hardship exemption under this section.

(2) If the amendment to Form ADV is made after June 30, 2001, or at an earlier date if an investment adviser has filed its Form ADV (17 CFR 279.1), or any amendments to Form ADV, electronically with IARD, the licensee shall file amendments to Form ADV required by this paragraph electronically with IARD, unless it has been granted a hardship exemption under this paragraph.

(g) By June 30, 2001, for each investment adviser representative licensed or required to be licensed under this chapter, Form U-4 must be resubmitted electronically if it has not previously been done with IARD, unless the investment adviser, filing on behalf of the investment adviser representative, has been granted a hardship exemption under this paragraph.

I-b. Except with respect to federal covered advisers whose only clients are those described in RSA 421-B:2, IX(f), a federal covered adviser shall file with the secretary of state or his or her designee, prior to acting as a federal covered adviser in this state, a notice, which shall consist of a copy of the most recent complete Form ADV filed with the Securities and Exchange Commission (SEC) and a Form U-2, and shall pay initial and annual fees in accordance with RSA 421-B:31. Initial fees shall be paid before business is transacted in this state, and annual fees shall be paid on or before December 31 of the current year for the ensuing year. Federal covered advisers shall submit copies to the secretary of state of all documents filed with the Securities and Exchange Commission pursuant to the securities laws within 10 business days of their submission to the Securities and Exchange Commission. Documents and fees that are accepted by IARD may be submitted through IARD. Other documents filed or deemed filed with the SEC shall be submitted directly to the secretary of state. Until IARD provides for the filing of Part 2 of Form ADV, the secretary of state shall deem filed Part 2 of Form ADV if a federal covered adviser provides, within 5 days of a request, Part 2 of Form ADV to the secretary of state. Because the secretary of state deems Part 2 of the Form ADV to be filed, a federal covered adviser is not required to submit Part 2 of Form ADV to the secretary of state unless requested.

I-c.(a) The application for withdrawal of licensure as an investment adviser pursuant to Section 204(e) of the Investment Advisers Act of 1940 shall be completed by following the instructions on Form ADV-W. (Notice of Withdrawal from Registration as Investment Adviser) (17 CFR 279.2) and filed upon Form ADV-W with IARD.

(b) The application for withdrawal of licensure as an investment adviser representative pursuant to Section 204(e) of the Investment Advisers Act of 1940 shall be completed by following the instructions on Form U-5 (Uniform Termination Notice for Securities Industry Registration) and filed upon Form U-5 with IARD.

260:8 New Paragraph; Securities; Licensing Procedure; Examination Requirement for Investment Adviser Licensees. Amend RSA 421-B:7 by inserting after paragraph VI the following new paragraph:

VII.(a) Each applicant for individual broker-dealer licensure or licensure as an agent of a broker-dealer shall provide the secretary of state with proof of obtaining a passing score on the Uniform Securities Agent State Law Examination (Series 63 examination) or the Uniform Combined State Law Examination (Series 66 examination).

(b) Each applicant for individual investment adviser licensure, investment adviser agent licensure, or investment adviser representative licensure shall provide the secretary of state with proof of obtaining a passing score on one of the following examination requirements:

(2) The General Securities Representative Examination (Series 7 examination) and the Uniform Combined State Law Examination (Series 66 examination).

(c)(1) Any individual who was registered or licensed as an investment adviser, investment adviser agent, or investment adviser representative in any jurisdiction in the United States on January 1, 2000 shall not be required to satisfy the examination requirements for investment adviser licensure in this state, except that the secretary of state may require additional examinations for any individual found to have violated any state or federal securities law.

(2) Any individual who has not been registered or licensed in any jurisdiction for a period of 2 years shall be required to comply with the examination requirements.

(d) The examination requirement shall not apply to an individual who upon application holds one of the following professional designations:

(1) Certified Financial Planner (CFP) awarded by the Certified Financial Planner Board of Standards, Inc.;

(2) Chartered Financial Consultant (ChFC) awarded by the American College, Bryn Mawr, Pennsylvania;

(3) Personal Financial Specialist (PFS) awarded by the American Institute of Certified Public Accountants;

(4) Chartered Financial Analyst (CFA) awarded by the Institute of Chartered Financial Analysts;

(5) Chartered Investment Counselor (CIC) awarded by the Investment Counsel Association of America, Inc.; or

(6) Such other professional designation as the secretary of state may by rule or order recognize.

260:9 Securities; Required Records. Amend RSA 421-B:8, XII(c)(14) to read as follows:

(14)(A)(i) A copy of each written statement and each amendment or revision thereof, given or sent to any client or prospective client of such investment adviser [~~and a record of the dates that each written statement, and each amendment or revision thereof, was given, or offered to be given, to any client or prospective client who subsequently becomes a client.~~];

(ii) Any summary of material changes that is required by Part 2 of Form ADV but is not contained in the written statement; and

(iii) A record of the dates that each written statement, each amendment or revision thereto, and each summary of material changes was given or offered to any client or to any prospective client who subsequently becomes a client.

(B) A memorandum describing any legal or disciplinary event listed in Item 8 of Part 2A or Item 3 of Part 2B of Form ADV and presumed to be material, if the event involved the investment adviser or any of its supervised persons and is not disclosed in the written statements described in subparagraph XII(c)(14)(A). The memorandum shall explain the investment adviser's determination that the presumption of materiality is overcome, and shall discuss the factors described in those items.

260:10 New Subparagraph; Securities; Required Records. Amend RSA 421-B:8, XII(c) by inserting after subparagraph (15) the following new subparagraph:

(16) Copies, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of each initial Form U-4 and each amendment to Disclosure Reporting Pages (DRPs U-4) must be retained by the investment adviser (filing on behalf of the investment adviser representative), and shall be made available for inspection upon regulatory request.

260:11 Securities; Written Disclosure Statement. RSA 421-B:8, XIII is repealed and reenacted to read as follows:

XIII.(a)(1) Unless otherwise provided in this section, an investment adviser licensed or required to be licensed under this chapter shall, in accordance with the provisions of this section, furnish each advisory client and prospective advisory client with a written disclosure statement which may be a copy of Part II of its Form ADV or written documents containing at least the information then so required by Part II of Form ADV, and such other information as the secretary of state may require. When Form ADV, Part 2 replaces Form ADV, Part II, each investment adviser shall furnish each advisory client and prospective advisory client with a firm brochure and one or more supplements as required by this section. The brochure and supplements shall contain all information required by Part 2 of Form ADV, (17 C.F.R. 279.1), and such other information as the secretary of state may require.

(A) The current brochure required by this section to a client or prospective client, and

(B) The current brochure supplements for each investment adviser representative who will provide advisory services to the client. For purposes of this section, an investment adviser representative shall provide advisory services to a client if the investment adviser representative will:

(iv) Solicit, offer or negotiate for the sale of or sell investment advisory services.

(3) An investment adviser shall deliver the disclosure statement required by this section to an advisory client or prospective advisory client not less than 48 hours prior to entering into any investment advisory contract with such client or prospective client, or at the time of entering into any such contract, if the advisory client has the right to terminate the contract without penalty within 5 business days after entering into the contract.

(b) Any disclosure statement requested in writing by an advisory client pursuant to an offer required by this subdivision shall be mailed or delivered within 7 days of the receipt of the request.

(c) If the 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 section 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 section, a limited liability partnership or limited liability limited partnership is a "limited partnership."

(d) If an investment adviser renders substantially different types of investment advisory services to different advisory clients, the investment adviser may provide them with different disclosure documents or brochures, provided that each client receives all applicable information about services and fees. The brochure delivered to a client may omit any information required by Part 2A of Form ADV if such 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.

(e) The investment adviser shall amend its brochure and any brochure supplements and deliver the amendments to clients promptly when information contained in the brochure or brochure supplements becomes materially inaccurate. The instructions to Part 2 of Form ADV contain updating and delivery instructions that the investment adviser shall follow. An amendment will be considered to be delivered promptly if the amendment is delivered within 30 days of the event that requires the filing of the amendment.

(f) Nothing in this paragraph shall relieve any investment adviser from any obligation pursuant to any provision of this chapter or the rules and regulations thereunder or other federal or state law to disclose any information to its advisory clients or prospective advisory clients not specifically required by this paragraph.

(g)(1) If the investment adviser is a sponsor of a wrap fee program, then the brochure, required to be delivered by subparagraph XIII(a) to a client or prospective client of the wrap fee program, must 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.

(2) The investment adviser does not have to offer or deliver a wrap fee brochure if another sponsor of the wrap fee program offers or delivers to the client or prospective client of the wrap fee program a wrap fee program brochure containing all the information the investment adviser's wrap fee program brochure must contain.

(3) A wrap fee brochure does not take the place of any brochure supplements that the investment adviser is required to deliver under this paragraph.

(h) All investment advisers licensed or required to be licensed under this chapter must deliver to each of their clients their current brochure and all required brochure supplements within 30 days from the date of effectiveness of Part 2 of Form ADV.

(1) "Current brochure" and "current brochure supplement" mean the most recent revision of the brochure or brochure supplement, including all subsequent amendments (i.e., stickers).

(2) "Entering into" in reference to an investment advisory contract, does not include an extension or renewal without material change of any such contract which is in effect immediately prior to such extension or renewal.

(3) "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.

(4) "Wrap fee program" means an advisory program under which a specified fee or fees, not based directly upon transactions in a client's account, is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions.

260:12 Securities; Post-Licensing Provisions; Limitation on Scope of Investment Adviser Discretion. Amend RSA 421-B:8, XVI(e) to read as follows:

(e) For purposes of these rules an investment adviser shall not be deemed to be exercising discretion when it places a trade order with a broker-dealer, pursuant to a third party trading agreement if:

(1) The investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that a third party trading agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account;

(2) The investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser, and the investment adviser in fact does not exercise discretion with respect to the account; and

(3) A third party trading agreement is executed between the client and a broker-dealer which specifically limits the investment adviser's authority in the client's broker-dealer account to the placement of trade orders and deduction of investment adviser fees.

(f) Every investment adviser that has its principal place of business in a state other than this state shall maintain such minimal capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in such state and is in compliance with such state's minimal capital requirements.

260:13 Examination of Financial Affairs. Amend the introductory paragraph of RSA 421-B:9, I to read as follows:

I. For the purpose of determining the financial condition, fulfillment of its contractual obligations, and compliance with the law, whenever the secretary of state shall deem it expedient, [he] the secretary of state shall examine, either in person or by some examiner duly authorized [~~by him~~] the affairs, transactions, accounts, records, documents, and assets of each licensed broker-dealer, investment adviser, or issuer-dealer as to any matter relevant to the financial affairs or obligations of the broker-dealer, investment adviser, or issuer-dealer or any other fact relative to its business methods, management and its dealings with clients, as often and to the extent [~~he deems~~] deemed advisable. Except as otherwise provided, [he] the secretary of state shall examine each domestic broker-dealer, investment adviser, or issuer-dealer at least once every 4 years and domestic branches of [~~foreign~~] broker-dealers [~~or investment advisers~~] at least once every [4] 6 years. Examination of an alien broker-dealer, investment adviser, or issuer-dealer shall be limited to its broker-dealer, investment adviser, or issuer-dealer transactions, assets, trust deposits, and affairs in the United States except as otherwise required by the secretary of state.

260:14 Securities; Registration Requirement and Notice of Filing of Securities; Preemption of State Securities Registration Requirements. RSA 421-B:11, I-b is repealed and reenacted to read as follows:

I-b.(a) Whenever it appears to the secretary of state that a particular security or transaction offered or sold in this state has not been preempted by federal law or regulation from the registration requirements of this section, the secretary of state may issue an order requiring any person who claims the benefit of federal preemption with respect to the security or transaction to prove that the registration requirement of this section has been preempted. The order shall be calculated to give reasonable notice of the time and place for the hearing, which shall be held within 10 days of the issuance of the order, and shall state the reasons for the entry of the order.

(b) All hearings shall be conducted in accordance with this chapter. After the hearing, the secretary of state shall enter an order making such disposition of the matter as the facts require. If the person claiming the benefit of federal preemption fails to appear at a hearing of which he has been duly notified, such person shall be deemed in default, and the proceeding may be determined against him upon consideration of the order, the allegations of which may be deemed to be true. The secretary of state may adopt rules of procedure concerning all proceedings conducted pursuant to this section.

(c) In any judicial or administrative proceeding under this chapter, the burden of proving an exemption, preemption or an exception from a definition is upon the person claiming it.

(d) Qualification for any of the notice filing provisions of RSA 421-B:11, I-a is predicated upon compliance with federal law, and associated regulations, cited in each provision, including but not limited to the timely filing of Form D with the Securities and Exchange Commission.

260:15 Securities; Financial Statements; Electronic Filing System. Amend RSA 421-B:15, II-a to read as follows:

II-a. Every corporation and partnership having securities registered in this state shall, within 120 days after the close of its fiscal year, file with the secretary of state annually a financial statement audited and certified by an independent certified public accountant. The audited statement shall be prepared in accordance with generally accepted accounting principles and such other standards as the secretary of state shall adopt by rule. Issuers of securities registered under this chapter shall also provide quarterly financial reports within 60 days of the end of each quarter to their shareholders, partners, and members. Such quarterly reports need not be independently audited. Filings may be made through the Securities and Exchange Commission's EDGAR system. The secretary of state may extend the time for filing such statement for good cause shown.

260:16 Securities; Exemptions; Filing of Offering/Disclosure Documents with the Secretary of State. Amend RSA 421-B:17, II(l) to read as follows:

(l) The issuance and delivery of any securities of one corporation to another corporation or its securities holders in exchange for the acquisition by the issuer or a subsidiary of the issuer of all or substantially all of the assets of such other corporation, or in connection with a consolidation or merger of such corporation or a share exchange between the issuer or a subsidiary of the issuer and such other corporation, provided that the secretary of state has been furnished with a general description of the transaction, with the documents to be distributed to offerees, and with such other information as he prescribes by rule not less than 10 business days prior to such issuance and delivery.

I. This chapter shall be administered by the secretary of state who may appoint a deputy, a designee, or a director who shall be a classified employee whose salary shall be comparable to that of a deputy, to administer the provisions of this chapter. The secretary of state shall, to the greatest extent practical, physically and substantively consolidate the activities and functions related to corporations, limited partnerships, and other business organizations and entities administered by the department of state with the activities and functions related to the registration of securities.

260:18 Article 9; Uniform Commercial Code; Contingent Amendment; HB 745-FN. Amend RSA 382-A:9-334(e)(2)-(4) to read as follows

(2) before the goods become fixtures, the security interest is perfected by any method permitted by this article and the fixtures are readily removable:

(B) equipment that is not primarily used or leased for use in the operation of the real property; or

(3) the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this article[~~; or~~

260:19 Contingency. If HB 745-FN of the 2001 legislative session becomes law then section 18 of this act shall take effect July 1, 2001, at 12:01 am. If HB 745-FN of the 2001 legislative session does not become law then section 18 of this act shall not take effect.

260:20 Registers of Deeds; Form of Records; Document Format Standards Required. Amend RSA 478:4-a, II to read as follows:

II. All documents shall be suitable for reproduction as determined by the register of deeds, who shall provide [~~guidelines concerning document quality~~] document standards as amended and adopted by the New Hampshire registers of deeds. The standards and any amendments thereto shall include a statement of their effective date, and shall be posted in and distributed by all registries of deeds for at least 60 days prior to such effective date.

III. RSA 421-B:21, II-b, relative to expenses of administration of securities laws.

I. Section 18 of this act shall take effect as provided in section 19 of this act.

III. The remainder of this act shall take effect upon its passage.

II. Section 20 shall take effect September 11, 2001.

III. Remainder shall take effect July 13, 2001)