SEC staff no-action letter, Ms. Corinne E. Wood (Herbert-Simon Co.)
Pub. Avail. April 17, 1986
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
March 18, 1986
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
Ms. Corinne E. Wood
Pan American Life Center
601 Poydras St.
New Orleans LA 70130
Dear Ms. Wood:
This responds to your letter dated January 17, 1986, in which you ask whether it is the responsibility of Herbert-Simon Company ("Herbert-Simon"), as a registered investment adviser, or its "independent associates," given their particular relationship with Herbert-Simon and in their individual capacities as registered investment advisers, "to notify the SEC" in the event one of the independent associates ends its relationship with Herbert-Simon.
As you are aware, a person who meets the definition of investment adviser under Section 202(a)(11) the Investment Adviser Act of 1940 ("Act") must register under the Act (hereinafter referred to as "Registrant") unless, of course, the person is otherwise excluded from that definition or exempted from registration. However, a person who is controlled by a Registrant would be a "person associated with an investment adviser" within the meaning of Section 202(a)(17) of the Act and would have no obligation to register independently an investment adviser (hereinafter referred to as "Associated Person").1 An Associated Person would be considered under the control of a Registrant if it performs investment advisory services on behalf of, and under the supervision or oversight of, the Registrant.2 An employee of a Registrant, for instance, is included as an Associated Person by definition. Moreover, we have interpreted the term employee, and thus, an Associated Person, to include those independent contractors whose activities are controlled by the Registrant.3
In regard to Form ADV, the Registrant must include information in response to Items 11, 12, and 17 of Part I concerning its Associated Persons. If any change occurs which no longer accurately reflects the information contained in those Items, then the Registrant, not the Associated Person, must file an amendment correcting the inaccuracy.4 Therefore, Herbert-Simon must determine whether its independent associates the Associated Persons of Herbert-Simon. If any of them are, and if as a result of the departure of any of them the inforamtion contained in Items 11, 12 or 17 of Herbert-Simon's Form ADV becomes inaccurate, Herbert-Simon must amend it Form ADV.5
Finally, it appears from your letter that the independent associates may be giving investment advice concurrently in their capacities as Associated Persons of Herbert-Simon and as independently registered investment advisers. This situation may raise an issue under Section 206(4) of the Act,6 particularly if the advisory activities performed by the independent associates on behalf of Herbert-Simon are not clearly delineated from the advisory activities performed on behalf of themselves. The capacity in which any independent associate is acting when he provides advice to a client must be clearly disclosed to avoid any misperception by the client as to who is providing the advisory services.7
For example, no problem would arise if an independent associate provides investment advice solely within the scope of his employment with Herbert-Simon (as an Associated Person), and if disclosure of this fact is made in Herbert-Simon's Form ADV and to the client. If, on the other hand, an independent associate provides investment advice a portion of which is outside the scope of his employment with Herbert-Simon,8 and if disclosure as to the capacity in which he is acting is not made to the client, we believe a problem under Section 206(4) would arise. Therefore, we recommend that Herbert-Simon and its Associated Persons immediately take any and all steps necessary to insure that all documents given to clients and filings with the Commission accurately disclosure the nature of any arrangements between the parties.
I trust this is responsive to your inquiry and if you should have any additional questions, please do not hesitate to contact me.
Very truly yours,
A. Thomas Smith III, Attorney
1 See The Burney Company (pub. avail. Feb. 7, 1977) and George A. Grossman (pub. avail. Jan. 22, 1976).
3 See Investment Advisers Act Rel. No. 1000 (Dec. 3, 1985), a question and answer release relating to Form ADV. See also Robert S. Strevell (pub. avail. Apr. 29, 1985), and Institute of Certified Financial Planners (pub. avail. Jan. 21, 1986).
4 Rule 204-1 (17 CRF 275.204-1).
5 Rule 204-1 requires that an amendment be filed promptly for any change in Item 11, and within 90 days of the end of the fiscal year for any change in Items 12 or 17.
6 Section 206(4) prohibits an investment adviser "to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative." See also TBA Financial Corporation (pub. avail. Dec. 7, 1983).
8 Under these circumstances, the independent associate would be required to register an an investment advisor under the Act for those advisory activities performed outside of the control of Herbert-Simon. See Robert S. Strevell, supra; Institute of Certified Financial Planners, supra.
INQUIRY-1: HERBERT-SIMON COMPANY
PAN AMERICAN LIFE CENTER,
601 POYDRAS ST.
NEW ORLEANS, LA 70130
January 17, 1986
Mr. Tom Lemke, Chief Counsel
Division of Investment Management
Securities & Exchange Commission
Washington, D.C. 20549
RE: Registration as an Investment Advisor
Dear Mr. Lemke:
I spoke with Mary Podesta earlier this month regarding the following subject. She suggested that I write to you, explain the situation, and request a "No Action Letter".
Our firm, Herbert-Simon Company, is registered with the SEC and Louisiana Commissioner of Securities as an investment advisor. The financial planners in our firm are not employees of the company; they are independent associates who earn fees and commissions, but do not receive a salary. No associates are listed in Herbert-Simon's Form ADV.
Herbert-Simon assists each associate in filing his or her own Form ADV individually. On the Form, they each state that they are independent associates of Herbert-Simon Company.
If an associate leaves Herbert-Simon, is it the responsibility of Herbert-Simon to notify the SEC that this person is no longer affiliated with the company, or does this responsibility lie solely with the associate?
Please explain what SEC rules are regarding this situation. If you need further information, please call me at (504) 581-2563.
Thank you for you help.
Corinne E. Wood
Vice President, Investments