PURPOSE: This rule permits compensation arrangements presently allowed by the United States Securities and Exchange Commission.

1. (1) Registered investment advisers may pay a cash fee to a solicitor who refers business to the investment adviser (but does not render any investment advice) as long as the solicitor is not subject to a disqualification as set out in section 409.204(a), RSMo and the cash fee is paid pursuant to a written agreement retained by both the investment adviser and the solicitor and provided to the client prior to or at the time of entering into any investment advisory contract. This written agreement shall conform to the requirements set out in 17 CFR Section 275.206(4)-3.

2. (2) Section 409.102(b)(1), RSMo prohibits performance-based compensation of investment advisers. The language in that section is virtually identical to section 205(1) of the Investment Advisers Act (17 CFR 205(1)). In 1985, in Release No. IA-996, the Securities and Exchange Commission provided a Conditional Exemption from the Compensation Prohibition of Section 205(1) for Registered Investment Advisers (Reg. Section 275.205-3), which set forth certain conditions under which investment advisers may receive performance-based compensation. The division will not pursue enforcement action against an investment adviser that receives performance-based compensation if all of the conditions set forth in the previously mentioned federal rule and the following conditions are met:

   1. (A) The investment adviser may have in no way solicited or advertised the performance-based compensation;
   2. (B) The client must have requested the performance-based fee arrangement; and
   3. (C) The advisory contract must set out the language contained in section 409.102(b)(1), RSMo (1986), must include a statement that both the client and the adviser are aware of that section and its prohibitions and must contain an agreement that, pursuant to section 409.411(f), RSMo, neither party retains any civil liability for having engaged in the payment or receipt of performance-based compensation.

AUTHORITY: sections 409.203 and 409.413(a), RSMo 1986.* Original rule filed March 27, 1989, effective June 12, 1989.

*Original authority: 409.203, RSMo 1967 and 409.413, RSMo 1967.