The Ohio Investment Adviser and Investment Adviser

The Ohio Investment Adviser and

Investment Adviser Representative

Handbook 4.0

REVISED JANUARY 2022

Ohio Department of Commerce, Division of Securities

Licensing Section

Handbook 4.0 replaces Handbook 3.0 dated March 2020

For the most recent version, visit

https://com.ohio.gov/wps/portal/gov/com/divisions-and-

programs/securities

Ohio Investment Adviser Handbook

Revised Handbook January 2022

The securities industry is a moving and changing industry. To keep up with new investor

protection challenges, it is imperative that the Division of Securities make amendments

and changes to policy and laws as it pertains to investment advisers. Therefore, as part

of the Division’s continuing outreach and education efforts, the Division is revising the

2020 Handbook. Please refer to Appendix L for specific topics that have changed and a

page locator for those changes. And as always, please feel free to contact our office with

any questions.

The Ohio Department of Commerce

The mission of the Ohio Department of Commerce is to safeguard Ohio’s citizens and

visitors and their property and resources, while ensuring reliable marketplaces conducive

to business growth and prosperity.

The Ohio Division of Securities

The Division of Securities, within the Ohio Department of Commerce, administers and

enforces the Ohio Securities Act. The Division licenses broker-dealers, securities

salespersons, investment advisers, and investment adviser representatives. The Division

also registers securities offered for sale to Ohioans. When Ohio Securities law is violated,

the Division can pursue administrative actions, civil injunctive actions, and criminal

referrals.

Mission: Promoting capital formation while protecting Ohio investors from fraudulent

securities and investment schemes through the sale of properly registered securities by

licensed professionals.

Disclaimer: This compilation of material and information was prepared by the Ohio

Division of Securities to provide general information and assistance regarding the

Division’s oversight of investment advisers and investment adviser representatives in

Ohio. This information is not legal advice and is not a substitute for a thorough review of

the relevant statutory provisions set out in Chapter 1707 of the Ohio Revised Code and

related administrative rules set out in Chapter 1301:6-3 of the Ohio Administrative Code.

Ohio Investment Adviser Handbook

Part 1 Table of Contents

Part 2 Introduction .................................................................................................................. 6

Part 3 Licensing – Applications, Renewals, Termination ........................................................ 7

Investment Adviser Licensing ______________________________________________ 7

Are You an Investment Adviser under Ohio Law? _____________________________ 7

How to Form an Investment Adviser Firm in Ohio _____________________________ 8

Investment Adviser Branch Offices ________________________________________ 9

How to Form an Investment Adviser Firm as a Sole Proprietor __________________ 9

The “Good Business Repute” Standard for IAs ______________________________ 11

Application Review Process – Approval or Denial ____________________________ 11

Investment Adviser Representative Licensing ________________________________ 12

Are You an Investment Adviser Representative under Ohio law? ________________ 12

How do I Apply to be an IAR in Ohio? _____________________________________ 13

Fingerprinting Requirement _____________________________________________ 13

Minimum Competency – Series Examinations ______________________________ 14

Minimum Competency – Professional Designations __________________________ 15

IAR Dual Registration _________________________________________________ 15

The “Good Business Repute” Standard for IARs ____________________________ 16

Application Review Process – Approval and Denial __________________________ 16

Renewal and Expiration of a License _______________________________________ 17

How to Terminate a License – Discontinuing Business ________________________ 17

Part 4 Compliance Obligations ..............................................................................................17

Books and Records _____________________________________________________ 17

Financial Records ____________________________________________________ 18

Trading Records _____________________________________________________ 18

Correspondence _____________________________________________________ 19

Advertising Records __________________________________________________ 19

Client Records _______________________________________________________ 20

Suitability/Know Your Client Records _____________________________________ 21

Fiduciary Duty Records ________________________________________________ 21

Trusted Contact ______________________________________________________ 22

Disclosure Records ___________________________________________________ 22

Compliance Policies and Procedures _____________________________________ 23

Ohio Investment Adviser Handbook

Miscellaneous Records ________________________________________________ 23

Retention Period of Books and Records ___________________________________ 24

Electronic Storage ____________________________________________________ 24

Books and Records Should be Current ____________________________________ 24

Financial Records Required to be Kept Quarterly ______________________________ 25

The Brochure Rule – Form ADV (Parts 1 and 2) ______________________________ 25

Form ADV Part 1 _____________________________________________________ 25

Regulatory Assets Under Management (RAUM) _____________________________ 25

Assets Under Advisement ______________________________________________ 26

Third Party Relationships ______________________________________________ 26

Form ADV Parts 2A and 2B _____________________________________________ 27

Material Changes ____________________________________________________ 28

Wrap Fee Program Disclosures _________________________________________ 28

Advertising ___________________________________________________________ 30

Performance Advertising _________________________________________________ 30

Investment Advisory Contracts and Compensation ____________________________ 32

Supervision and Compliance Manual _______________________________________ 33

Compliance Manual ____________________________________________________ 33

Custody ______________________________________________________________ 38

Fees ________________________________________________________________ 40

Wrap Fee Program _____________________________________________________ 41

Fiduciary Standard _____________________________________________________ 42

Mandatory Reporting of Senior Financial Exploitation with Transaction Holds ________ 44

Solicitors and Referral Fees ______________________________________________ 46

Best Execution and Soft Dollars ___________________________________________ 47

Aggregation of Client Orders (Batch Orders) _________________________________ 48

Principal Transactions; Agency Cross Transactions; Cross Trades ____________ 48

Other Disclosure Requirements ________________________________________ 49

Overview of the Anti-Fraud and Conduct Standards ____________________________ 49

Part 5 The Division’s Onsite Examination Program ...............................................................50

Onsite Exams Generally _________________________________________________ 50

Common Deficiencies ___________________________________________________ 52

Part 6 Appendices .................................................................................................................54

Appendix A: Frequently Asked Questions ____________________________________ 54

Appendix B: Common Definitions __________________________________________ 57

Ohio Investment Adviser Handbook

Appendix C: Investment Adviser Flowchart __________________________________ 60

Appendix D: Investment Adviser Representative Flowchart ______________________ 64

Appendix E: Pre-Licensing Exam __________________________________________ 67

Appendix F: Determining Regulatory Assets Under Management _________________ 69

Appendix G: Trusted Contact Template _____________________________________ 73

Appendix H: Standing Letters of Authority (SLOAs) ____________________________ 74

Appendix I: Annual Compliance Checklist ___________________________________ 76

Appendix J: NASAA’s State IA Cybersecurity Checklist and Guidance _____________ 78

Appendix K: NASAA’s Confidential Data Inventory Checklist _____________________ 92

Appendix L: Summary of Handbook Changes Since 2020 _______________________ 94

[* * * * *]

Ohio Investment Adviser Handbook

Part 2 Introduction

The Ohio Securities Act (the “Act”), set forth in Chapter 1707 of the Ohio Revised Code

(the “ORC”), provides for oversight of investment advisers (“IAs”) and investment adviser

representatives operating in Ohio. This oversight is administered and enforced by the

Division of Securities (the “Division”) pursuant to the Act and the associated rules set forth

in Chapter 1301:6-3 of the Ohio Administrative Code (the “OAC”). Subject to certain

limited exceptions, all investment advisers operating in Ohio must be either licensed by

the Division or in compliance with certain notice filing requirements. Further, subject to

certain limited exceptions, all investment adviser representatives with a place of business

in Ohio must be licensed by the Division. Filings and fees for investment adviser notice

filings or licensure must be submitted electronically through the Investment Adviser

Registration Depository (“IARD”), a nationwide database and filing system maintained by

the Financial Industry Regulatory Authority (“FINRA”) that is available at iard.com. Filings

and fees for investment adviser representative licensure must be submitted electronically

through the Central Registration Depository (“CRD”), the companion FINRA database to

IARD.

Pursuant to the federal National Securities Markets Improvement Act of 1996, as

amended, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,

only certain investment advisers are eligible to be registered with the federal Securities

and Exchange Commission (the “SEC”). Generally, there are 11 categories of investment

adviser that are permitted to register with the SEC. The most frequently relied upon

category is for investment advisers with assets under management of $100 million or

more. Subject to certain limited exceptions, investment advisers registered with the SEC

that are operating in Ohio must comply with the Act’s notice filing requirements.

Investment advisers operating in Ohio that are not registered with the SEC must be

licensed by the Division, subject to four limited exceptions.

Similarly, all investment adviser representatives with a place of business in Ohio must be

licensed by the Division, subject to five limited exceptions. The general rule requiring

licensure for investment adviser representatives applies regardless of whether the

investment adviser representative is affiliated with an SEC-registered investment adviser

or a state-licensed investment adviser.

The starting points for consideration of Ohio investment adviser and investment adviser

representative requirements are the definitional sections. “Investment adviser” is defined

in ORC § 1707.01(X). “Investment adviser representative” is defined in

ORC § 1707.01(CC). These definitions track the definitions of these terms contained in

federal law.

If a person meets the definition of investment adviser or investment adviser representative

under Ohio law, the person then must look to the Act’s licensing and notice filing

Ohio Investment Adviser Handbook

requirements. ORC § 1707.141 and ORC § 1707.151 set out the licensing and notice

filing requirements for investment advisers, while ORC § 1707.161 sets out the licensing

requirements for investment adviser representatives.

Finally, investment advisers and investment adviser representatives are subject to certain

anti-fraud and conduct standards. These standards are contained primarily in

ORC § 1707.44(M) and OAC 1301:6-3-15.1 and 1301:6-3-44.

Violations of the Act can result in criminal penalties. ORC § 1707.99 provides that the

penalties for certain violations range from fifth degree to first degree felonies. Violations

can also lead to civil liability. Consequently, the Division urges investment advisers and

investment adviser representatives to take their compliance responsibilities seriously.

To review the full text of references in this Handbook to the ORC or the OAC, please see

the Ohio Revised Code online at codes.ohio.gov/orc, and the Ohio Administrative Code

online at codes.ohio.gov/oac.

Part 3 Licensing – Applications, Renewals, Termination

Investment Adviser Licensing

Are You an Investment Adviser under Ohio Law?

“Investment Adviser” Definition

The Ohio definition of “investment adviser” is set forth in ORC § 1707.01(X) and parallels

the federal definition (see § 202(a)(11) of the Investment Advisers Act of 1940).

In general, an investment adviser is a person who: (1) for compensation; (2) engages in

the business of; (3) advising others as to the value of securities or the advisability of

investing in securities.

The Investment Adviser Flowchart set forth in Appendix C and accompanying notes

provides a step-by-step guide through the elements of, and exclusions from, the definition

of “investment adviser” under Ohio law.

Three Elements

The three elements are broadly construed. The “compensation” element is satisfied by

the receipt of any economic benefit by the person providing advice. The “engaged in the

business” element is satisfied if any one of the following occurs: (1) the person holds

himself or herself out as an investment adviser or as one who provides investment advice;

(2) the person receives compensation that represents a clearly definable charge for

providing advice about securities; or (3) the person, on anything other than rare, isolated

Ohio Investment Adviser Handbook

and non-periodic instances, provides specific investment advice. Finally, as to the third

element, the advice must “pertain to securities.” However, in order to satisfy the “pertain

to securities” element, the advice need not be about specific securities, but rather only

about securities generally as a possible avenue for investment.

Keep in mind that it is not necessary that a person's activities consist solely of investment

advisory services to qualify as an investment adviser. Rather the test is whether any part

of the person's activities meet the three elements of “for compensation,” “engaged in the

business,” and “regarding securities.” For example, a recommendation to sell securities

holdings in order to purchase a particular insurance product may satisfy the definition of

an investment adviser where the insurance sale results in a commission payment.

Exclusions From the Definition of “Investment Adviser”

Ohio Revised Code § 1707.01(X)(2) excludes several classes of persons from the Ohio

definition of investment adviser. These exclusions track the exclusions from the federal

definition of investment adviser. (See §§ 202(a)(11)(A)-(F) of the Investment Advisers Act

of 1940). Whether an exclusion is available depends on all the relevant facts and

circumstances.

How to Form an Investment Adviser Firm in Ohio

If you determine that you meet the definition of an Investment Adviser under Ohio law

and that you are required to be licensed, you need to take steps to become licensed.

• Determine the legal status of your firm. The most common structures are

Corporation, Sole Proprietorship (see the section of this Handbook titled

“Establishing an Investment Adviser Firm as a Sole Proprietor”), Limited

Partnerships, Partnership, and Limited Liability Company. To determine the best

structure for your firm, you should consult with an attorney or accounting

professional for guidance.

• Register your firm with the Ohio Secretary of State’s office and obtain an

Employer Identification Number (EIN) for your firm, if applicable. Helpful sites to

visit are sos.state.oh.us and irs.gov.

• Establish that your firm has a representative that meets minimum

competency requirements and determine if the representative is required to submit

fingerprints. Investment Adviser Representative licensing requirements are

discussed in more detail in the section of this Handbook titled “Investment Adviser

Representative Licensing.”

• Establish an IARD account, through FINRA’s IARD at:

iard.com/accessIARD.asp. This is where a firm applies for licensure and funds the

Ohio Investment Adviser Handbook

payments for licensing and future renewals. IARD Gateway Call center

representatives can be reached at (240) 386-4848.

• Applications for licensure must be submitted electronically using the IARD

system. Items to be filed on IARD include Form ADV Parts 1A and 1B, Parts 2A

and 2B, and wrap fee brochure, if applicable. These documents make up your

firm’s application. Form ADV in its entirety as well as the Instructions and Glossary

are available at: sec.gov/about/forms/formadv.pdf.

• Pay the applicable licensing fees for your firm and all IARs as prescribed in

ORC § 1707.17(B).

• Create your firm’s Compliance and Cybersecurity Manuals, policies and

procedures, business continuity plan and investment advisory agreement. These

requirements are discussed in more detail in the section of this Handbook titled

“Compliance Manual.”

• Install your initial recordkeeping procedures, including your accounting

records that you will use for creating the required financial statements. These

requirements are discussed in more detail in the section of this Handbook titled

“Books and Records.”

Once you have filed your initial application material on the IARD, the Division requires a

Pre-Licensing Examination. The exam will require that certain documents be provided.

See Appendix E.

Investment Adviser Branch Offices

If you operate a branch office(s) other than your primary office, you need to register the

branch office with the Division. Each investment adviser must file a Form BR through

IARD to report a “place of business” other than their principal place of business. “Place

of business” is defined in OAC 1301:6-3-01(G) to include two categories of locations. First

is an office at which an investment adviser or investment adviser representative regularly

provides investment advisory services, solicits, meets with, or otherwise communicates

with clients. Second is any other location that is held out to the general public as a location

at which an investment adviser or investment adviser representative provides investment

advisory services, solicits, meets with or otherwise communicates with clients. There is

no filing fee for filing Form BR.

How to Form an Investment Adviser Firm as a Sole

Proprietor

Ohio Revised Code § 1707.151(B) provides that each natural person applicant for an

investment adviser license (i.e., as a sole proprietor) must demonstrate their competence

Ohio Investment Adviser Handbook

to engage in the advisory business. A sole proprietor investment adviser is a natural

person who has not created a legal entity to engage in that business. Sole proprietor

investment advisers should keep in mind that, as with firms, they are subject to anti-fraud

and business conduct standards.

In addition, because sole proprietor investment advisers are distinguished from sole

shareholders of corporate investment advisers, sole proprietor investment advisers need

not file a Form U-4 with the Division and need not be licensed as an investment adviser

representative (unless the person also acts as an investment adviser representative for

another investment adviser). However, in addition to submitting Form ADV and a filing

fee through the IARD system, a sole proprietor must also submit a standard impression

sheet for fingerprints provided by the Division if one is not currently on file with the

Division. See the section of this Handbook titled “Fingerprinting Requirement” for more

information.

A sole proprietor investment adviser must also demonstrate “good business repute” (as

discussed in this Handbook under “The Good Business Repute Standard for IAs”) and

minimum competency. Under OAC 1301:6-3-15.1(C), the minimum competency standard

for sole proprietors may be satisfied by:

• Having been licensed as an investment adviser or investment adviser

representative by the division within the two years immediately preceding the

date of the application;

• Achieving a passing score on one of the following exams, or their successor

exams, within two years of the date of filing the application:

o The uniform investment adviser law exam (series 65); or

o The securities industry essentials exam (SIE), the general securities

representative exam (series 7), and the uniform state law exam (series

66);

• By earning and being in good standing with the organization that issued any

of the following credentials:

• Certified Financial Planner awarded by the Certified Financial

Planner Board of Standards, Inc.;

• Chartered Financial Analyst;

• Chartered Financial Consultant;

• Chartered Investment Counselor; or

• Certified Public Accountant with a Personal Financial Specialist

designation.

Important Note: An applicant under this rule will be considered to have met the

examination requirement(s) of this rule if the applicant was licensed or registered as an

Ohio Investment Adviser Handbook

investment adviser representative in another United States jurisdiction within the two

years immediately preceding the filing of an application with the division. Also, an

applicant will be considered to have passed the securities industry essentials exam (SIE)

if they currently maintain a non-expired “SIE Credit” issued by the financial industry

regulatory authority. See OAC 1301:6-3-15.1(C)(4) and (5).

An applicant who is not affiliated with a FINRA-registered securities dealer may register

for the Series 65 or Series 66 by submitting to FINRA a completed Form U-10, Uniform

Examination Request for Non-FINRA Candidates. These examinations are administered

by the North American Securities Administrators Association (NASAA). For information

about registration, scheduling, and study guides, visit their website for more information:

nasaa.org.

The “Good Business Repute” Standard for IAs

In addition to the application requirements described above, ORC § 1707.151(E) requires

the Division to make an affirmative finding that an applicant is of “good business repute”

before granting a license. To determine if you meet the “good business repute” standard,

the Division considers the factors set forth in OAC 1301:6-3-19(D), which generally

include whether the applicant has:

• Engaged in fraudulent conduct or been found liable for conduct constituting

incompetence in financial activities;

• Been subject to administrative, civil or other disciplinary action by a regulatory

agency, or failed to fully satisfy any judgment or award;

• Been found guilty of a felony, or of any misdemeanor involving theft, deception,

or moral turpitude; or

• Engaged in any conduct that would reflect on the applicant's reputation for

honesty, integrity, and competence in business and personal dealings.

Application Review Process – Approval or Denial

Failure to answer all questions on the appropriate forms, and failure to provide all required

information will delay the Division’s review of an application. By rule, the Division may

terminate an application with unresolved deficiencies that remains pending for more than

180 days. See OAC 1301:6-3-15.1(L).

Pursuant to ORC § 1707.151(B), the Division may investigate any license applicant and

may require any additional information as it deems necessary in consideration of the

application.

Ohio Investment Adviser Handbook

If the Division determines that an applicant lacks good business repute, the Division will

issue to the applicant a notice of intent to deny the application. The applicant must, within

30 days, either withdraw the application or, pursuant to ORC Chapter 119, request an

administrative hearing. Failure to withdraw the application or request a hearing within 30

days will result in the issuance by the Division of a final order to deny the application.

Investment Adviser Representative Licensing

Are You an Investment Adviser Representative under Ohio

law?

The Ohio definition of “investment adviser representative” is set forth in

ORC § 1707.01(CC) and parallels the federal definition (See SEC Rule 203A-3(a)). The

Investment Adviser Representative Flowchart set forth in Appendix D and accompanying

notes provide a step-by-step guide through the elements of this definition.

In general, an investment adviser representative is an individual who gives advice on

behalf of an investment adviser to a certain minimum number of natural person clients

through regular meetings or communications.

• Supervised Person: Specifically, in order to be an investment adviser

representative, the person first must be a “supervised person” as

defined in ORC § 1707.01(DD) and generally means officers, directors and

employees of an investment adviser as well as others who provide advice

on behalf of the investment adviser firm.

• More than five Clients: The supervised person must have more than five

clients who are natural persons other than “excepted persons,” and more

than 10% of the clients must be natural persons other than “excepted

persons.” “Excepted person” is defined in ORC § 1707.01(EE) and

generally means certain wealthy and high net worth individuals.

• Client meetings: The supervised person must on a regular basis solicit,

meet with, or otherwise communicate with clients of the investment adviser.

All three of these elements must be met for a person to qualify as an investment

adviser representative. However, even if a person meets all three of these elements,

ORC § 1707.01(CC)(1)(b) provides that the person is excluded from the definition of

investment adviser representative if the natural person provides advisory services only

by means of written materials or oral statements that do not purport to meet the objectives

or needs of specific individuals or accounts.

Ohio Investment Adviser Handbook

How do I Apply to be an IAR in Ohio?

Ohio Revised Code § 1707.161(D)(1) states that an application for an investment adviser

representative license shall consist of the information, materials, and forms specified in

rules adopted by the Division. OAC 1301:6-3-16.1(A) specifies that an application shall

consist of:

• A completed Form U-4 for each individual for whom the applicant

seeks to act as an investment adviser representative;

• The fingerprinting requirement; and

• The license fee prescribed in ORC § 1707.17(B).

Annual Cost

table

Ohio

Fee

IARD

User

Fee Totals

Investment

Adviser Firm

$100.00 $0.0 $100.00

Investment

Adviser

Representative

$35.00 $15.00 $50.00

Fingerprinting Requirement

(OAC 1301:6-3-16.1(A)(1)(c))

All investment adviser representatives are required to be fingerprinted when applying for

a license. The Division will only waive this requirement if the applicant has a current

approved status by a regulatory authority at the time application for licensure is made with

the division and the applicant has submitted fingerprint impressions to FINRA or CRD in

connection with the approved status.

For Ohio residents, the Division only accepts electronic fingerprints taken via

WebCheck. Below is a website you can use to find a WebCheck location near you:

Ohio Investment Adviser Handbook

Ohio Attorney General WebCheck Community Listing

The Division cannot accept fingerprint results directly from the applicant or their

employing firm. Please bring the Division’s address to the facility for the results to be sent

directly to the Division:

Ohio Department of Commerce

Division of Securities

77 South High Street, 22

Floor

Columbus Ohio 43215

For non-Ohio residents needing fingerprints, please contact the Division at (614) 644-

6292, and a Division-specific fingerprint impression card will be forwarded to you.

Minimum Competency – Series Examinations

(OAC 1301:6-3-16.1(B))

As a condition of licensing, every applicant for licensing as an investment adviser

representative shall furnish evidence to the division that they have satisfied one of the

criteria listed in paragraphs (B)(1) to (B)(3) of this rule:

(1) Been licensed as an investment adviser representative by the division within the

two years immediately preceding the date of the application; or

(2) Achieved a passing score on the following exams, or their successor exams,

within two years of the date of filing an application:

(a) The uniform investment adviser law exam (series 65); or

(b) The securities industry essentials exam (SIE), the general securities

representative exam (series 7), and the uniform combined state law exam (series

66);

A WebCheck facility will request the “reason for printing.” Please have the

WebCheck personnel choose “other” and fill in “IAR Registration, pursuant to

OAC 1301:6-3-16.1.” The impressions will be forwarded directly to the Attorney

Generals’ Bureau of Criminal Investigation (“BCI

”) and then be sent to the

Division.

It may be necessary to notify the WebCheck personnel that the

fingerprint results must be sent directly to the Division, not to the adviser/firm to

then route them to the Division. The Division can only accept results if they come

directly from BCI.

Ohio Investment Adviser Handbook

An applicant under this rule will be considered to have met the examination requirement

above if the applicant was licensed or registered as an investment adviser representative

in another United States jurisdiction within the two years immediately preceding the filing

of an application with the Division. Further, an applicant will be considered to have passed

the securities industry essentials exam (SIE) referenced in this rule if they currently

maintain a non-expired “SIE Credit” issued by FINRA.

An applicant who is not affiliated with a FINRA-registered securities dealer may register

for the Series 65 or Series 66 by submitting to FINRA a completed Form U-10, Uniform

Examination Request for Non-FINRA Candidates. These examinations are administered

by NASAA (North American Securities Administrators Association). For information about

registration, scheduling, and study guides, visit their website for more information:

nasaa.org.

Minimum Competency – Professional Designations

(OAC 1301:6-3-16.1(B)(3))

As an alternative to the Series Examinations, an applicant can qualify for licensure with

the Division by providing verification that they are in good standing with the organization

that issues credentials for one of the following designations:

• Certified Financial Planner;

• Chartered Financial Analyst;

• Chartered Investment Counselor;

• Chartered Financial Consultant; and

• Certified Public Accountant with a Personal Financial Specialist designation.

IAR Dual Registration

Ohio Revised Code § 1707.161(B)(1) permits an investment adviser representative to be

licensed with up to two (2) investment adviser firms, regardless of whether the two firms

are affiliated.

If the investment adviser representative is licensed with two (2) unaffiliated investment

adviser firms, then they shall do so only after the occurrence of both of the following;

• Being properly licensed, or properly excepted from licensure, as an investment

adviser representative for each of the two investment advisers; and

• Notifying both investment advisers of the dual affiliation via filing of Form U-4 on

the IARD/CRD system and retaining evidence of that notification in his or her

records.

Ohio Investment Adviser Handbook

The “Good Business Repute” Standard for IARs

In addition to the application and minimum competency requirements described above,

ORC § 1707.161(E) requires the Division to make an affirmative finding that an applicant

is of “good business repute” before granting a license.

Determining the existence of good business repute. The Division is guided by the

factors set forth in OAC 1301:6-3-19(D), which generally include whether the applicant

has:

• Engaged in fraudulent conduct or been found liable for conduct constituting

incompetence in financial activities;

• Been subject to administrative, civil or other disciplinary action by a regulatory

agency, or failed to fully satisfy any judgment or award;

• Been found guilty of a felony, or of any misdemeanor involving theft, deception

or moral turpitude; or

• Engaged in any conduct that would reflect on the applicant's reputation for

honesty, integrity and competence in business and personal dealings.

If the Division determines that an applicant lacks good business repute, the Division will

issue to the applicant a notice of intent to deny the application. The applicant must,

within 30 days, either withdraw the application or, pursuant to ORC Chapter 119, request

an administrative hearing. Failure to withdraw or request a hearing within 30 days will

result in the issuance by the Division of a final order to deny the application.

Application Review Process – Approval and Denial

Failure to answer all questions on the appropriate forms, and failure to provide all required

information will delay the Division’s review of an application. By rule, the Division may

terminate an application with unresolved deficiencies that remains pending for more than

180 days. See OAC 1301:6-3-16.1(G).

Pursuant to ORC § 1707.161(D), the Division may investigate any applicant and may

require any additional information as it deems necessary in consideration of the

application.

If the Division determines that an applicant lacks good business repute, the Division will

issue to the applicant a notice of intent to deny the application. The applicant must, within

30 days, either withdraw the application or, pursuant to ORC Chapter 119, request an

administrative hearing. Failure to withdraw the application or request a hearing within 30

days will result in the issuance by the Division of a final order to deny the application.

Ohio Investment Adviser Handbook

Renewal and Expiration of a License

All investment adviser and investment adviser representative licenses expire on

December 31st each year unless they are renewed through the Web IARD/CRD.

A Preliminary renewal statement is made available to each firm online in Web IARD/CRD

in mid-November each year. The firm’s renewal account must be funded for the entire

preliminary renewal statement amount, regardless of whether there are additions or

deletions in the number of investment adviser representatives, in order for the firm and

their investment adviser representatives to be renewed. Failure to fund the renewal

account with the entire amount of the preliminary renewal account statement will result in

the firm and its investment adviser representatives being terminated. The renewal

account must be funded prior to Web IARD/CRD shutdown in mid to late December.

There are no exceptions in Ohio. You must renew through Web IARD/CRD. Ohio cannot

accept payment directly to the Division.

All licenses not renewed by the deadline will terminate as a matter of law – there are no

grace periods. Investment advisers and investment adviser representatives that “fail to

renew” must re-apply with the Division.

How to Terminate a License – Discontinuing Business

(OAC 1301:6-3-15.1(J))

A notice of withdrawal from licensure shall be filed with the Division via the IARD on Form

ADV-W in accordance with its instructions. The IA should include on Form ADV-W the

address where the books and records will be maintained during such period. Investment

adviser representatives licensed with the terminating firm should have a Form U5 filed on

their behalf.

An investment adviser ceasing to conduct or discontinue business shall arrange for and

be responsible for the preservation of the records in compliance with the OAC for a period

of five years after the firm ceases doing business.

Part 4 Compliance Obligations

Books and Records

(OAC 1301:6-3-15.1(E))

The following books and records must be maintained in true and accurate form by

investment advisers headquartered in Ohio and licensed with the Division.

Ohio Investment Adviser Handbook

Financial Records

(OAC 1301:6-3-15.1(E)(1)(a), (b), and (d)–(f))

• Cash receipts and disbursement journals and other records of original entry

forming the basis for entries in any ledger,

• General and auxiliary ledgers reflecting assets, liabilities, reserves, capital, income

and expense accounts,

• All bank statements and bank reconciliations of the adviser,

• All bills or statements (paid or unpaid) relating to the business of the investment

adviser as such,

• All trial balances, quarterly financial statements (which includes balance sheets

and income or profit and loss statements), and internal audit working papers

relating to the investment adviser’s business.

Trading Records

(OAC 1301:6-3-15.1(E)(1)(c) and (h), (E)(2)-(3))

• A memorandum for each order made for the purchase or sale of securities,

including terms, conditions and instructions received from the client, and any

modification or cancellation of the order. The memorandum must identify the

affiliated person who recommended the transaction, the person who placed the

order, the account involved, the date of entry, and the bank, broker or dealer that

executed the order. Orders entered pursuant to discretionary power are to be so

designated.

• A list or record of all accounts in which the adviser has discretionary power as to

funds, securities or transactions.

• For advisers that have custody or possession of client funds or securities, records

must include (a) a journal of purchases, sales, receipts and deliveries of securities,

showing certificate numbers and all other debits and credits to the accounts; (b) a

separate ledger account for each client showing purchases, sales, receipts and

deliveries, showing the date and price for each transaction and all debits and

credits; (c) copies of confirmations of all transactions effected by or for clients’

accounts; (d) a record for each security in which any client has a position, showing

the name of each client having an interest in the security, the amount or interest of

each client, and the location of each such security; and (e) the required

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accountant’s certificate verifying client funds and securities in the adviser’s

possession.

• For advisers who render investment advisory or management services to clients,

records with respect to the portfolio being supervised or managed (to the extent

reasonably available or obtainable) must include accurate and current records

showing separately for each client the securities purchased and sold; the date,

amount, and price of each transaction; and for each security in which any client

has a current position, information from which the adviser can promptly furnish the

name of each client and its current amount or interest in the security. Client records

may be maintained using a code instead of the client’s name so long as when

requested the name and other identifying information is promptly provided to the

Division.

Correspondence

(OAC 1301:6-3-15.1(E)(1)(g))

Originals of all written communications received, and copies of all written communications

sent by the investment adviser:

• relating to recommendations or advice given (or proposed to be given);

• relating to receipt, disbursement or delivery of funds or securities; or

• relating to the placing or execution of any order to purchase or sell securities.

Written communications shall include all writings in any form, including but not limited to,

text messages, direct messaging, emails, and email attachments.

The adviser does not need to keep the names and addresses of persons to whom a

publication was sent when it was distributed to more than two persons but must keep with

the copy of the publication a memorandum describing any list to whom the publication

was sent and the source of the list. The adviser does not need to keep unsolicited market

letters or similar communications of general public distribution not prepared by or for the

adviser.

Advertising Records

(OAC 1301:6-3-15.1(E)(1)(k) and (p))

• A copy of any notice, circular, advertisement (as defined in OAC 1301:6-3-

44(A)(2)), newspaper article, investment letter, bulletin or other communication,

including but not limited to, electronic, digital, and internet communications or

postings to internet sites, that the investment adviser circulates or distributes,

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directly or indirectly, to two or more persons (other than people connected with

the investment adviser). If the communication recommends the purchase or

sale of a specific security without giving the reasons for the recommendation,

the adviser must keep a memorandum indicating the reasons, and

• All accounts, books, internal working papers, and other records or documents

that support the performance or rate of return calculations for managed

accounts or securities recommendations that are advertised or circulated to ten

or more persons (other than persons connected with the investment adviser).

With respect to performance of managed accounts, it is sufficient to retain the

account statements and related worksheets.

Client Records

(OAC 1301:6-3-15.1(E)(1)(h)-(j), (q)-(r), and (t))

• A list or other records of all accounts in which the investment adviser is vested

with any discretionary power with respect to the funds, securities, or

transactions of any client;

• Originals or copies of all powers of attorney or similar documents from clients

granting the adviser discretionary authority;

• Originals or copies of all written agreements with clients or agreements

otherwise relating to the adviser’s business;

• All current and former client lists, including all contact information in the

adviser’s possession for purposes of communicating with the client, including

address, telephone number, and email address, if applicable;

• All advisory contracts entered into by the adviser or its investment adviser

representatives;

• Originals or copies of all written agreements with clients or agreements

otherwise relating to the adviser’s business; and

• Written information about each investment advisory client and each security

that forms the basis for making any recommendation or providing investment

advice to such client.

As a fiduciary, an adviser must make a reasonable inquiry into the investment objectives,

risk tolerance, liquidity needs, time horizon, and other relevant information necessary to

make recommendations that are in the client’s best interest. All investment advisers must

review their recommendations no less than every three years. This review shall be

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conducted more frequently if the client’s circumstances are expected to change or

otherwise indicate a need for more frequent reassessment.

Suitability/Know Your Client Records

(OAC 1301:6-3-15.1(E)(1)(t))

The adviser is required to retain written information about each investment advisory client

and each security that forms the basis for making any recommendation or providing any

investment advice to such client. This information should include all details obtained to

determine a client’s investment objectives, financial needs and any other relevant

information. The information obtained should at the least include income, net worth,

investment objectives, investment experience, the time horizon, liquidity needs and risk

tolerance for each client. This information should be dated and maintained in a manner

for easy access if requested.

In addition, it is recommended that this information be updated at least every three years.

Advisers should review and assess suitability information when there are major changes

in the client’s life (e.g., retirement, job changes, divorce, etc.). The updated information

should be dated and maintained in a manner that is easily accessible and able to be

provided in an orderly manner to examiners or other regulatory agents if requested.

Investment Advisers should also maintain all records documenting the research they

conduct to assess whether a recommended or selected security is suitable for their clients

(also known as, due diligence). This can be written, or maintained in electronic format,

but must comply with all aspects of the record retention rules.

These specific requirements, including how often these records will be updated, should

be made part of the adviser’s compliance manual.

This information is not only required by Ohio’s rules but is deemed a part of the adviser’s

fiduciary duty.

Fiduciary Duty Records

(OAC 1301:6-3-44(E)(1)(f))

Advisers have a fiduciary duty to act in the best interests of clients and to disclose

actual or potential conflicts of interest. Some specific obligations resulting from this

fiduciary duty are:

• A duty to employ reasonable care to avoid misleading clients;

• A duty to have a reasonable independent basis for investment advice;

• A duty to ensure that investment advice is suitable;

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• A duty to obtain best execution of client transactions; and

• Borrowing money or securities from a client.

Trusted Contact

The Division strongly encourages that advisers obtain clients’ Trusted Contact

Authorizations as a best practice. This should be separate (although may be similar) to

any Trusted Contact Authorizations executed between the client and third parties (e.g.,

your custodian). A client’s Trusted Contact Authorization may be used if the adviser has

questions or concerns about the client’s health (capacity and well-being) or welfare

(financial exploitation), or if the adviser is unable to contact the client. The adviser would

then be legally permitted to speak with the person(s) listed about the client. The Trusted

Contact Authorization should be signed by the client and updated as needed. While there

is no prescribed format for a Trusted Contact Authorization, advisers may wish to refer to

FINRA’s template while customizing their own. See Appendix G for a sample Trusted

Contact Template.

Disclosure Records

(OAC 1301:6-3-15.1(E)(1)(n))

• A copy of the written disclosure statement, Form ADV Part 2A, 2B, Appendix

1, (and each amendment or revision) made available and a record of the dates

that they were given or offered to each client or prospective client who

subsequently became a client, and

• All written disclosure documents delivered to clients by third-party solicitors

and all written acknowledgments of receipt of such documents received back

from clients.

(OAC 1301:6-3-15.1(H))

The investment adviser must deliver upon the investment adviser’s engagement by a

client, and on an annual basis thereafter, a privacy policy to each client that is reasonably

designed to aid in the client’s understanding of how the investment adviser collects and

shares, to the extent permitted by state and federal law, non-public personal information.

The investment adviser must promptly update and deliver to each client an amended

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Compliance Policies and Procedures

(OAC 1301:6-3-15.1(E)(1)(w) - (x); and 1301:6-3-44(H))

Advisers are required to maintain compliance policies and procedures, and records of

their annual review of those compliance policies and procedures. Please note that

advisers should maintain copies of the various “versions” of their manual for five years

from the end of the fiscal year that the version was used.

It is advisable to set up routine compliance procedures, including the update of your

compliance manual to stay on top of your requirements. The Division will advise you of

important requirements, including rule/requirement changes, when they occur.

Miscellaneous Records

(OAC 1301:6-3-15.1(E)(1)(l), (s), and (u)-(v))

• A record of every securities transaction (other than in US government

securities) over which the adviser or any of its advisory representative has,

influence or control and in which the adviser or advisory representative has, or

by reason of the transaction acquires, any direct or indirect beneficial

ownership. The record must state the title and amount of securities involved,

the date and nature of the transaction, the price, and the name of the broker,

dealer or bank through whom the transaction was effected.

• A file containing a copy of all written communications received or sent regarding

any complaint, arbitration, civil litigation, unsatisfied judgment, or lien involving

the investment adviser or any investment adviser representative that alleges a

violation of state or federal law, or the rules or codes of ethics of any association

of investment advisers, investment adviser representatives, securities

salespersons or dealers, any professional association granted disciplinary

authority or regulatory authority by any state or federal law, or by a recognized

securities exchange.

• Written physical security and cybersecurity policies and procedures reasonably

designed to ensure the confidentiality, integrity, and availability of physical and

electronic records and information. The policies and procedures must be

tailored to the investment adviser’s business model, considering the size of the

firm, the type(s) of services provided, and the number of locations of the

investment adviser.

• Every investment adviser shall establish, implement, and maintain written

procedures relating to a business continuity and succession plan. The plan

shall be based upon the investment adviser’s business model, including the

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size of the firm, type(s) of services provided, and the number of locations of the

investment adviser.

Retention Period of Books and Records

(OAC 1301:6-3-15.1(E)(5))

All books and records required to be made shall be maintained and preserved in an easily

accessible place for a period of not less than five years from the end of the fiscal year

during which the last entry was made on the record. The first two years must be

maintained in an appropriate office of the investment adviser.

Electronic Storage

(OAC 1301:6-3-15.1(E)(7))

The records required to be maintained and preserved may be maintained and preserved

electronically, however the investment adviser must arrange and index the records in a

way that permits easy location, access and retrieval of the record and must be able to

promptly provide legible true and complete copies when requested by the Division. The

Division permits advisers to maintain records exclusively with third parties (e.g., cloud

storage); however, it is the ultimate responsibility of the investment adviser to comply with

all aspects of the record retention rules.

Books and Records Should be Current

Each Investment Adviser licensed with the Division shall make and keep, true, accurate

and current books and records relating to its advisory business. Records must be created

at the time of or in proximity to the entry, action, or occurrence.

As part of the requirement to keep books and records current, all changes to the ADV

must be made promptly. As a reminder:

• Solicitors should always be provided with the most updated version of an

adviser’s Form ADV.

• All referenced links to Form ADV (i.e., on a website or within a publication)

should be to the most updated version.

All links and information provided on an adviser’s website and other social media must

be kept current and all links must be tested for accuracy.

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Financial Records Required to be Kept Quarterly

(OAC 1301:6-3-15.1(E)(1))

Investment advisers are required to make and keep accurate and current financial

records. All financial records must be prepared on a quarterly basis. Please refer to the

section of this Handbook titled “Books and Records” for the specific types of records. If

an IA is a sole proprietor, it is recommended that financial records for the

investment adviser be kept separate from the sole proprietor’s personal records. It

is also recommended that financial software be used or that the investment adviser

employ an accountant.

The Brochure Rule – Form ADV (Parts 1 and 2)

(OAC 1301:6-3-15.1(G))

Form ADV Part 1

Part 1 of Form ADV is required to be reviewed and updated within 90 days AFTER the

end of your fiscal year. In addition to your annual updating amendment, you must amend

your Form ADV Part 1, including corresponding sections of Schedules A, B, C, and D, by

filing additional amendments promptly (within 30 calendar days of learning of the

circumstances giving rise to the amendment or update) if:

• Information you provided in response to Items 1, 3, 9 (except 9.A.(2), 9.B.(2),

9.E., and 9.F.), or 11 of Part 1A or Items 1, 2.A. through 2.F., or 2.I. of Part 1B

becomes inaccurate in any way; or

• Information you provided in response to Items 4, 8, or 10 of Part 1A or Item

2.G. of Part 1B becomes materially inaccurate.

• Form ADV Part 1, Item 5(D) and 5(K) were amended in October 2017, and

require additional information to be disclosed.

Regulatory Assets Under Management (RAUM)

Understanding and accurately calculating your firm’s regulatory assets under

management (RAUM) is crucial to making accurate and complete disclosure. As

explained by the instructions to Form ADV Part 1A, Item 5, RAUM includes only the

“securities portfolios” for which you provide “continuous and regular supervisory or

management services” as of the date of Form ADV.

An account is deemed a “securities portfolio” if at least 50% of the total value of the

account is attributable to securities, cash, or cash equivalents (e.g., bank deposits,

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certificates of deposit, bankers' acceptances, and similar bank instruments). Assets such

as real estate, fixed indexed annuities, or operating businesses do not meet the definition

of “securities portfolios.” In Re New Line Capital, SEC Proceeding File No. 3-16371

(2015).

You provide “continuous and regular” supervisory or management services to a portfolio

if either (i) you have discretionary authority over and provide ongoing services with

respect to the account, or (ii) you do not have discretionary authority, but you have

ongoing responsibility to make recommendations based on the needs of the client and, if

the client accepts such recommendations, you are responsible for effecting the purchase

or sale. A common example of this scenario is when an adviser reviews a participant’s

401(k) allocations. Only that portion of a securities portfolio that is regularly and

continuously managed should be included. For example, where securities assets are

allocated at the opening of an account, receive only once-quarterly rebalancing, such

assets should not be included among RAUM. In re Retirehub, Inc., SEC Admin Proc, 3-

14666 (2011).

RAUM should be disclosed based on the current market value of the assets determined

within 90 days of filing Form ADV.

Other factors may affect whether your clients’ accounts should be included in your firm’s

RAUM, such as the form of your compensation and the terms of your advisory contract.

You are strongly encouraged to review the entire instructions to Form ADV Part 1A, Item

5, regarding calculating and proper reporting of RAUM.

See Appendix F for an RAUM calculation decision tree.

Assets Under Advisement

Assets under Advisement (AUA) is a non-regulatory term that refers to assets on which

your firm provides advice or consultation but which your firm either does not have

discretionary authority or does not arrange or effectuate the transaction. AUA is distinct

from RAUM and should neither be disclosed as part of RAUM nor used as the basis to

charge an Assets Under Management fee. AUA are permitted to be disclosed, however,

on Form ADV Part 2A as a separate asset figure. If you disclose AUA, then you may be

asked to provide a basis for computing the AUA and a description of the assets

comprising it. Some advisers opt to include AUA to provide prospective clients a more

complete picture of the firm’s responsibilities.

Third Party Relationships

The Division is aware that securities professionals refer clients to other firms for asset

management services. These relationships are sometimes described as solicitor

relationships, subadvisor relationships, third-party money manager relationships, or co-

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adviser relationships. Because most of these terms are not defined in the Ohio Securities

Act, we will provide general explanations below. Keep in mind, however, that the terms

“solicitor” and “investment adviser” are defined in the Ohio Securities Act, so regardless

of the terminology used, the Division will look to the licensing and compliance obligations

of your role, as described in your contracts and your regulatory disclosures, to determine

the legal nature of the role.

A solicitor (as defined in by the Act) relationship exists when one refers clients to another

and no longer has any authority in managing or making ongoing decisions on the client

assets, while a referral fee is paid. A co-advisor is generally one who has the authority

and responsibilities to the client, which could mean filling out paperwork, determining

suitability, choosing a model, changing a model, or asset allocation. Co-advisers might or

might not have discretion over the accounts.

Form ADV Parts 2A and 2B

(a/k/a “brochure” or “disclosure document” and “brochure supplement”)

Every investment adviser is required to deliver to each client and prospective client a written

disclosure document, describing the investment adviser's business practices, education,

and business background.

Unless otherwise provided in the OAC, an investment adviser shall follow all current

Instructions to Form ADV issued by the SEC regarding the completion, filing, delivery,

and updating of Form ADV Part 2A (Brochure statement) and Form ADV Part 2B

(Brochure Supplement). A general summary is as follows:

• Provide your Brochure: You must provide a Brochure to each client before or

at the time you enter into an advisory agreement. Evidence of providing the

Brochure is required. This evidence can be in the form of a signed receipt, or

language can be made as part of the client contract.

• Update your Brochure each year you should review your entire brochure and

make necessary changes. The date of the brochure, and the amount of client

assets under management should be updated at this time. In addition, Item 2,

Material Changes, should also be updated by clearly indicating that you are

including only material changes since the last annual update of your brochure.

You must then provide the date of the last annual update of your brochure. If

there are no material changes since your last update, you should state that

there are no material changes. Please note that you must maintain each update

in your files.

• File your Brochure, once it is updated, through the IARD annually within 90

days of the end of your fiscal year. However, if information in your brochure

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becomes materially inaccurate, you must update it promptly. According to OAC

1301:6-3-01, the word “promptly” requires licensees to amend or update any

filings within 30 calendar days of learning of facts or circumstances giving rise

to an amendment or update.

• Annual Delivery: Each year you must either deliver within 120 days of your

fiscal year-end your Brochure to each client, that either includes or is

accompanied by a summary of material changes (Item 2), OR you must provide

a summary of material changes and offer your clients the Brochure if they are

interested. If you do not have any material changes: You do not have to

deliver or offer the Brochure to your clients annually.

• Interim Delivery: If any information in response to Item 9 of Part 2A

(disciplinary information) changes, you are required to deliver an interim

amended Brochure Statement to clients. An interim amendment can be in the

form of a document describing the material facts relating to the amended

disciplinary event.

Material Changes

Depending on the facts and circumstances, examples of material changes may include,

but are not limited to:

• Change of address/location or contact information (e.g., phone number or

email address),

• New Owners of Investment Adviser entity,

• Significant change in services offered,

• New potential conflict of interest,

• A new fee schedule,

• Changes in disciplinary history,

• Changes in the custodian or broker used, and/or

• Changes in licensing status with the SEC or state(s).

Wrap Fee Program Disclosures

For advisers offering a wrap fee program, they shall follow all current instructions to Form

ADV issued by the SEC with regards to the completion, filing, delivery, and updating of

Form ADV Part 2A, Appendix 1.

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• Preparing a Wrap Fee Program Brochure: If you sponsor a wrap fee

program, you must prepare a Wrap Fee Program Brochure. If you sponsor

more than one wrap fee program, you may prepare a single Wrap Fee Program

Brochure describing all the programs or you may prepare separate brochures

for each program. If you provide advisory services outside of a wrap fee

program, you must prepare a separate brochure for those advisory services. If

a wrap fee program that you sponsor has multiple sponsors, and another

sponsor creates and delivers to your wrap fee program clients a brochure that

includes all the required information, you do not have to create or deliver a

separate Wrap Fee Program Brochure.

• Provide your Wrap Fee Program Brochure: You must provide a Wrap Fee

Program Brochure to each client of the wrap fee program before or at the time

the client enters into a wrap fee program contract. Evidence of providing such

is required. This evidence can be in the form of a signed receipt, or language

can be made as part of the client contract.

• Update your Wrap Fee Program Brochure each year at the time you file your

annual updating amendment on the IARD system and otherwise promptly

whenever any information in the Wrap Fee Program Brochure becomes

materially inaccurate.

• File your Wrap Fee Program Brochure through the IARD annually within 90

days of the end of your fiscal year. However, if information in your Wrap Fee

Program Brochure becomes materially inaccurate, you must update it promptly.

According to OAC 1301:6-3-01, the word “promptly” requires licensees to

amend or update any filings within 30 calendar days of learning of facts or

circumstances giving rise to an amendment or update.

• Annual Delivery: Each year you must either deliver within 120 days of your

fiscal year-end your wrap-fee program brochure to each client, that either

includes or is accompanied by a summary of material changes (Item 2), OR

you must provide a summary of material changes and offer your Wrap Fee

Program Brochure.

• Interim Delivery: If any information in response to Item 9 of Part 2A

(disciplinary information) changes, you are required to provide an interim

update of your Wrap Fee Program Brochure to your wrap fee clients. *NOTE:

Technically, an IA with both Wrap Fee and non-Wrap Fee clients will have to

deliver updated Brochures to each type of client.

Ohio Investment Adviser Handbook

Advertising

(OAC 1301:6-3-44(A))

Investment advisers and their investment adviser representatives are prohibited from

using any advertisement that contains any untrue statement of a material fact or that is

otherwise misleading. The rule broadly defines “advertisement” to include any notice,

circular, letter or other written communication addressed to more than one person, or any

notice, circular, letter or other written communication or any communication by electronic

means including but not limited to email, the Internet, any social media sites, or other

digital media, which are disseminated to more than one person, or any notice or other

announcement in any publication or by radio or television.

In addition, an advertisement may not:

• Use or refer to testimonials (which include any statement of a client's

experience or endorsement),

• Refer to past, specific recommendations made by the adviser that were

profitable, unless the advertisement sets out a list of all recommendations

made by the adviser within the preceding period of not less than one year, and

complies with other, specified conditions,

• Represent that any graph, chart, formula, or other device can, in and of itself,

be used to determine which securities to buy or sell, or when to buy or sell such

securities, or can assist persons in making those decisions, unless the

advertisement prominently discloses the limitations thereof and the difficulties

regarding its use, or

• Represent that any report, analysis, or other service will be provided without

charge unless the report, analysis or other service will be provided without any

obligation whatsoever.

Performance Advertising

(OAC 1301:6-3-44(A)(1)(b))

Consistent with the position taken by the SEC, the Division takes the position that an

adviser may advertise its past performance (both actual performance and hypothetical or

model results), only if the advertisement meets certain conditions and restrictions. An

advertisement using performance data must disclose all material facts necessary to avoid

any unwarranted inference.

Among other things, an adviser may not advertise its performance data if the adviser:

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• Fails to disclose the effect of material market or economic conditions on the

results portrayed (e.g., an advertisement stating that the accounts of the

adviser’s clients appreciated in value 25% without disclosing that the market

generally appreciated 40% during the same period).

• Includes model or actual results that do not reflect the deduction of advisory

fees, brokerage or other commissions, and any other expenses that a client

paid or would have paid.

• Fails to disclose whether and to what extent the results portrayed reflect the

reinvestment of dividends and other earnings.

• Suggests or makes claims about the potential for profit without also disclosing

the possibility of loss.

• Compares model or actual results to an index without disclosing all material

facts relevant to the comparison (e.g., an advertisement that compares model

results to an index without disclosing that the volatility of the index is materially

different from that of the model portfolio).

• Fails to disclose any material conditions, objectives, or investment strategies

used to obtain the results portrayed (e.g., the model portfolio contains equity

stocks that are managed with a view towards capital appreciation).

• Fails to prominently disclose the limitations inherent in model results,

particularly the fact that such results do not represent actual trading and that

they may not reflect the impact that material economic and market factors might

have had on the adviser’s decision-making if the adviser was in fact managing

clients’ money.

• Fails to disclose, if applicable, that the conditions, objectives, or investment

strategies of the model portfolio changed materially during the period of time

portrayed in the advertisement and, if so, the effect of any such change on the

results portrayed.

• Fails to disclose, if applicable, that any of the securities contained in, or the

investment strategies followed with respect to, the model portfolio do not relate,

or only partially relate, to the type of advisory services currently offered by the

adviser (e.g., the model includes some types of securities that the adviser no

longer recommends for its clients).

• Fails to disclose, if applicable, that the adviser’s clients had investment results

materially different from the results portrayed in the model.

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• Fails to prominently disclose, if applicable, that the results portrayed relate only

to a select group of the adviser’s clients, the basis on which the selection was

made, and the effect of this practice on the results portrayed, if material.

An adviser must create and retain all documents necessary to substantiate any

performance information contained in advertisements or communications.

Investment Advisory Contracts and Compensation

(OAC 1301:6-3-15.1(I))

• All advisory contracts shall be in writing and signed and dated by the client and

the adviser.

• The contract should clearly state that the contract may not be assigned without

the client’s consent. OAC 1301:6-3-15.1(A)(2) defines “assignment” generally

to include any direct or indirect transfer of an investment advisory contract by

the investment adviser to another adviser, entity, or firm. A transaction that

does not result in a change of actual control or management of the investment

adviser (e.g., a reorganization for purposes of changing an adviser’s state of

incorporation), would not be deemed to be an assignment for these purposes.

• OAC 1301:6-3-15.1(I)(1)(c) provides that if an investment adviser is organized

as a partnership, the advisory contract must provide that the adviser will notify

the client of a change in its partnership makeup.

• OAC 1301:6-3-15.1(I)(1)(d) prohibits the use of mandatory arbitration of

disputes. For advisory contracts that had a mandatory arbitration clause and

were entered into before the rule became effective (prior to September 30,

2021), the adviser must create a new agreement without the arbitration clause.

The new agreement must be signed by the adviser and client. Alternatively, the

adviser can amend the original agreement voiding the mandatory arbitration

clause. The amendment must also be signed by the adviser and client.

Advisory contracts should describe the specific services that the adviser is to provide to

the client. Descriptions such as “investment advisory services” do not provide adequate

detail.

If client fees are pre-paid, the contract should contain a provision for the pro rata refund

of fees if the contract is terminated.

If the adviser has trading authority but does not have discretionary authority, it is

recommended that the adviser contract include language that the adviser cannot trade

without prior approval of the customer.

Ohio Investment Adviser Handbook

Ohio Administrative Code 1301:6-3-44(E)(1)(e) makes it unlawful for any investment

adviser to use any condition, stipulation, or provision binding upon any person to waive

compliance within any provision of Chapter 1707 of the ORC or any rule promulgated

thereunder. This includes the use of hedge clauses, or disclaimers absolving the IA from

responsibility or accuracy of the information obtained, which would lead a client to believe

that any rights have been waived.

Supervision and Compliance Manual

(OAC 1301:6-3-15.1 (D))

Every investment adviser licensed by the Division shall reasonably supervise its

investment adviser representatives and other persons employed or associated with the

investment adviser.

Part of the supervision obligation requires the investment adviser to adopt and implement

written policies and procedures reasonably designed to prevent violations by the adviser

and its supervised person of the Ohio Securities Act and the administrative rules

promulgated by the Division. These written policies and procedures are often referred to

as the adviser’s “compliance manual.”

Compliance considerations must be relevant to the operations of the adviser, and not

simply an “off the shelf” version adopted without modifications tailored to the activities of

the adviser.

In connection with adopting and implementing the written compliance program, an adviser

must designate a person, who is a supervised person, as the “Chief Compliance Officer”

(“CCO”) responsible for administering the program.

The CCO should establish procedures for those they supervise to:

• prevent violations from occurring;

• detect violations that have occurred; and

• promptly correct any violations that have occurred.

Compliance Manual

The IA is required to review, no less frequently than annually, the adequacy of the

policies and procedures and their effectiveness. In addition, you are required to

document, in writing, evidence of the annual review, sign and confirm receipt of the policy

by employees.

Ohio Investment Adviser Handbook

Advisers licensed with the Division have an obligation to establish, maintain, and enforce

written policies and procedures reasonably designed to prevent and detect any violation

by its investment adviser representatives or other persons, employed by or associated

with, the investment adviser. The Division cannot provide a standard template for a

compliance manual. The following is a sample list of the most common fiduciary and

regulatory obligations of an adviser that should be addressed in the firm’s written

compliance program, where applicable:

• Correspondence/Communications

o Establish policies regarding if/when internal approvals will be required prior

to use of any client correspondence or communications

o Document how client correspondence and communications will be retained

o Correspondence/communications includes all written and recordable

formats (letters, emails, text messages, video messages, etc.)

• Conflicts of interest

• Identify potential risks and make all reasonably practical efforts to avoid or

eliminate conflicts of interest that can be reasonably avoided

o Establish policies addressing how the adviser will disclose and mitigate

conflicts of interest

• Registration and Licensing

o Keep Form ADV Current – should be reviewed and updated no less than

annually

o IARD Entitlement and personnel responsible for all IARD duties

o IA Licensing – Maintain compliance with licensing requirements in Ohio and

other states, when necessary

o IAR Licensing – Who is required to be licensed as an Investment Adviser

Representative

• Books and Records

o What are the firm’s required records?

o Who maintains the records, how, and where (including off-site storage)?

o How are records secured from unauthorized alteration or use?

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o What is the schedule for retention and destruction of records?

o How does the firm maintain and preserving electronic records and

safeguarding them from loss

• Disclosure

o Brochure Rule, Form ADV – how it’s offered originally and annually

o Form U4 Disclosures

o Client Referral Arrangements

o The accuracy of disclosures made to investors, clients, and regulators,

including account statements and advertisements

• Trading Practices

o Best Execution

o Policies on when the adviser can trade in stocks recommended to clients

o Guidelines on whether IARs need to trade with a certain broker-dealer

o Soft Dollar Arrangements

o Batch Trading (Aggregation of Orders)

o Proprietary trading of the adviser and personal trading activities of

supervised persons

o Trade Errors

• Privacy Policy

o The sharing of client information with others

o Office personnel having access to files/computer

o Establish safeguards for confidential personal information

o Delivery of the adviser’s privacy policy to each client upon engagement, and

on an annual basis thereafter, with records evidencing such delivery

• Portfolio management processes

o The allocation of investment opportunities among clients

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o The consistency of portfolios with clients’ investment objectives

o Disclosures by the adviser, and applicable regulatory restrictions

• Mandatory Reporting requirements – Senior Exploitation Legislation

o ORC § 5101.63, the Adult Protection Services law was amended to better

protect seniors by requiring all investment advisers, financial planners,

dealers, salespersons, and investment adviser representatives licensed

under Chapter 1707 of the ORC who have “reasonable cause to believe”

that an adult is being abused, neglected, or exploited to immediately report

the suspicion to their county office of job and family services (See

educational booklet for more information at

odjfs.state.oh.us/forms/num/JFS08095/pdf).

o Policies and Procedures of your firm shall incorporate this requirement and

must include a detailed process for how your firm will document compliance.

• Marketing/Advertising

o Required internal approval prior to use

o Use of social media, website, blogs, posts (etc.)

o The use of solicitors

o Record retention

• Fees

o Processes to value client holdings

o Disclosure

o Refunds

• Business Continuity and Disaster Recovery Plans

o Recovery of Books and Records

o Alternate means of communications with customers, employees, service

providers (including third-party custodians), and regulators

o Office relocation due to unavailability of office

o Death or incapacity of principal(s)

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• Custody

o Prior authorization before deducting fees

o Safekeeping requirements

o Account statements to clients

o Audit requirement

o Standing Letters of Authorization

• Proxy voting policy

• Complaints

o How are they handled (procedures for reporting and addressing)?

o How are related records maintained?

• Computer and Cybersecurity

o Anti-virus – installation, updates

o Preservation of the records from loss, alteration, destruction (use of back-

ups)

o Encryption

o Secure Emails

o Dissemination of client information

o Inventory of hardware

o Passwords

o Procedures for lost or stolen data/information

o Customer Access via web portals

• Cybersecurity and best practices

o Ohio Data Protection Act, encouraging businesses to voluntarily adopt

cybersecurity practices to protect consumer data; see

codes.ohio.gov/orc/1354

Ohio Investment Adviser Handbook

o Cybersecurity Checklist and Confidential Data Inventory Checklist for IAs

(See Appendix J and Appendix K)

• Insider Trading

o Prevention of the misuse of material, nonpublic information

Custody

Unless an investment adviser licensed or required to be licensed by the Division, and its

investment adviser representatives, follow the Division's rule regarding custody of client

funds and securities, such custody will be deemed a fraudulent, deceptive, or

manipulative practice in violation of the statutory anti-fraud provision.

An adviser has custody if it holds client funds or securities directly or indirectly or has

authority to obtain possession of such assets. See OAC 1301:6-3-44(B).

For example, an adviser has custody any time it physically holds client stock certificates,

bonds or cash – even if temporarily. It should be noted that inadvertent receipt will not

result in custody provided the check or securities are returned to the client within three

business days. In addition, checks written to third parties and forwarded on to that third

party will not result in custody.

A second example of custody is when an adviser is authorized to sign checks on a client’s

behalf to withdraw funds or securities from a client’s account or to dispose of client funds

or securities for any purpose other than authorized trading, such as a standing letter of

authority (SLOA). Please see Appendix H for SLOA-related guidance. To illustrate this

more clearly, custody occurs where advisers are authorized to deduct advisory fees or

other expenses directly from a client’s account, or, where the adviser has a general power

of attorney.

Custody is triggered any time an adviser acts in a capacity that gives the adviser legal

ownership of, or access to, client funds or securities. Illustrations of this include a general

partner of a limited partnership; a managing member of a limited liability company; a

comparable position for another type of pooled investment vehicle; or, a trustee of a trust.

The custody rule requires that all advisers maintain client funds and securities with only

four types of qualified custodians, including:

• United States banks

• broker-dealers registered with, and regulated by the SEC

• futures commission merchants registered under the Commodity Exchange Act

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• foreign financial institutions that customarily hold financial assets for their

customers provide they hold them in segregated accounts

The client’s funds and securities must be either placed in a separate account for each

client under the client’s name or placed in an account that contains only the adviser’s

clients’ funds and securities under the adviser’s name as agent or trustee for the clients.

An adviser that opens an account with a qualified custodian on the client’s behalf, whether

in the name of the client or in the name of the adviser, as agent, must notify the client in

writing and provide the name and address of the qualified custodian; the manner in which

the client funds or securities are being held; and must promptly notify the client upon

the change of this information.

Clients must also receive quarterly account statements directly from the qualified

custodian that identify the amount of funds and each security held in the adviser’s custody

at the end of the period and all transactions that took place in the account occurring during

the period. The adviser must have a reasonable basis for believing that the qualified

custodian is delivering proper quarterly account statements to its clients. To form this

reasonable basis for believing, the adviser is required to receive duplicate copies of the

account statements from the qualified custodian of what was delivered to the adviser’s

clients. The adviser cannot receive the quarterly account statements and then forward

copies on to its clients. Failure to comply with these quarterly account statement

delivery requirements will result in the adviser being required to have annual

surprise audits conducted by an independent public accountant, at the adviser’s

cost.

Limited partnerships, limited liability companies, other pooled investment vehicles, and

trusts must have clients’ funds and securities maintained with a qualified custodian. The

qualified custodian must deliver quarterly account statements regarding transactions and

holdings in the limited partnerships, limited liability companies, other pooled investment

vehicles, and trusts, not just transactions or holdings relating to the individual

investors/limited partners.

The qualified custodian must deliver the quarterly account statements directly to the

limited partners, members, or beneficial owners. Account statement delivery is not

required if the limited partnership, limited liability company, or pooled investment vehicle

is audited annually by an independent public accountant; the audited financials are

prepared in accordance with GAAP accounting; and the audited financials are distributed

to each limited partner or pooled investment vehicle member within 120 days of the limited

partnership’s or pooled investment vehicle’s fiscal year end.

Ohio Investment Adviser Handbook

Fees

The Division takes the position that investment advisers and investment adviser

representatives must disclose to clients all material information regarding compensation.

This includes accurate fee schedules, when fees will be charged, and whether fees will

be automatically deducted from clients’ accounts or paid directly.

• Unreasonable or Unearned Fees

Ohio Administrative Code 1301:6-3-44(E)(1)(f)(vi) prohibits advisers from charging a

client an unreasonable advisory fee. The Division may consider whether advisory fees

are unreasonable in relation to: (1) the complexity and nature of the services provided;

(2) the fees charged by other investment advisers or investment adviser representatives

for similar services in the geographic area; and (3) the likelihood that the services

provided by the investment adviser or investment adviser representative will result in

returns in excess of the fees charged.

• Excessive Fees

The SEC and the Division have determined that an AUM fee greater than 2% will be

considered excessive.

If the adviser is permitted to charge the excessive fee, the adviser

must disclose to clients all material information regarding compensation. Specifically, the

adviser must disclose to clients and prospective clients whenever:

• Such fees are higher than the industry standard;

• The same or similar services may be (or are) available from a different adviser at

a lower cost; and

• If applicable, clients could obtain the same or similar services directly without the

adviser’s assistance and cost.

If you have a question on whether your excessive fee will be deemed appropriate, you

may contact the division’s Licensing Section. Alternatively, detailed information will be

obtained during the examination of your firm and determined whether fees are considered

excessive. If they are, refunds could be required.

The SEC staff has indicated that it will consider an advisory fee greater than 2% of the total assets under

management as excessive and would violate section 206 unless the disclosure is made that the fee is

higher than that normally charged in the industry. See Equitable Communications Co., SEC Staff No-Action

Letter (Feb. 26, 1975); Consultant Publications, Inc., SEC Staff No-Action Letter (Jan. 29, 1975); Financial

Counseling Corporation, SEC Staff No-Action Letter (Dec. 7, 1974); John G. Kinnard & Co., Inc., SEC Staff

No-Action Letter (Nov. 30, 1973).

Ohio Investment Adviser Handbook

• Minimum Fees

If minimum fees are charged, the adviser has a fiduciary obligation to ensure that fees

for small accounts are not abusive. Fixing a minimum fee for a small account may be

unreasonable.

• Refunding Fees for Terminated Accounts

If fees are paid in advance the investment adviser should also disclose its refund policy.

A non-refundable feature goes against an investment adviser’s fiduciary responsibility.

Any advisory contract which does not provide in substance for a pro rata refund of a

prepaid advisory fee would violate the antifraud provisions of § 206 of the Advisory Act.

• Performance Fees

(OAC 1301:6-3-15.1(I))

Investment advisers licensed or required to be licensed under the Act, are prohibited from

receiving any type of advisory fee calculated as a percentage of capital gains or

appreciation in the client's account. This prohibition extends to contingent fee

arrangements, including contracts that provide for the fee to be waived or reduced if

certain performance levels are not met. However, this prohibition does not apply to

contracts with clients who have at least $1.1 million under the management of the adviser,

or if the client has a net worth of more than $2.2 million. Either of these tests must be met

at the time of entering into the advisory contract. Please note, the SEC indexes the values

for being considered a qualified client every five year with the last update becoming

effective in August 2021.

Wrap Fee Program

Definition

In a wrap fee program, a client pays a single fee (usually measured as a percentage of

assets under management) for a group of services that are bundled, or “wrapped”

together. Typically, the services include investment advice, brokerage, custody and other

administrative functions. Ohio law defines a wrap fee program as an arrangement in

which a client is charged a specified fee or fees, not based directly on transactions in the

client’s account, for investment advisory services and execution of transactions.

Sponsor

A wrap fee program is offered by a program “sponsor,” which may be broker-dealer, an

investment adviser, bank, or other financial institution. A wrap fee sponsor typically is

subject to regulation as an investment adviser. Normally a client enters into a contract

directly with the sponsor, and a sponsor has specific disclosure obligations.

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Portfolio Manager

After contracting with the sponsor, the typical wrap fee program permits the client to

choose a portfolio manager from a list provided by the sponsor. This permits a client with

a smaller account that might not warrant separate management by an investment adviser

to obtain individualized treatment. Typically, the portfolio manager will have investment

discretion in accordance with pre-determined investment objectives. As a result, clients

with the same investment objectives receive the same investment advice and may hold

the same, or substantially the same, securities in their accounts. In light of this similarity

of management, a wrap fee program can effectively function like a mutual fund.

An investment adviser, which is licensed or required to be licensed by the Division, and

which 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, must furnish each client and

prospective client of the wrap fee program with a written disclosure statement ADV Part

2A, Appendix 1.

Wrap Fee Statement

An investment adviser that is required to furnish a wrap fee statement must furnish the

wrap fee statement to each client at the time they enter into the agreement with the

investment adviser. An investment adviser’s fiduciary duty extends to wrap fee program

recommendations. In particular, an investment adviser sponsor of a wrap fee program

should consider at least the following issues:

• Whether the portfolio manager is suitable for the client

• Whether the program is suitable for the client

• Whether the chosen strategy is suitable for the client

Fiduciary Standard

(OAC 1301:6-3-44(E)(1)(f))

Investment advisers and IARs stand in a fiduciary relationship with their clients. This duty

is a long-standing doctrine of both federal and state common law, and is reiterated in the

OAC. As fiduciaries, advisers have “an affirmative duty of utmost good faith and full and

fair disclosure of all material facts.” (See Transamerica Mortg. Adv. Inc. v. Lewis, 444

U.S. 11, 17 (1979)). In addition, an adviser is prohibited from engaging, or attempting to

engage, in any act or practice constituting a breach of fiduciary duty, including but not

limited to:

Ohio Investment Adviser Handbook

• Recommending the purchase, sale, or exchange of any security without a

reasonable basis to believe that the recommendation is suitable for and in

the best interest of the client after reasonable inquiry concerning the client's

investment objectives, financial situation and needs, and any other

information known, or in the exercise of reasonable diligence should be

known, by the investment adviser or investment adviser representative;

• Engaging in any advisory activity without making all reasonably practicable

efforts to avoid or eliminate conflicts of interest that can be reasonably

avoided;

• Engaging in any advisory activity involving conflicts that cannot reasonably

be avoided or eliminated without first:

(a) Mitigating the conflict by neutralizing any potential or actual harm or

adverse impact of the conflict to the client; and

(b) Disclosing to the client in writing, prominently and in plain language,

a description of the nature and extent of the conflict of interest, the

potential impact on and risk that the conflict of interest may pose to the

client, and how the conflict of interest has been mitigated;

• Borrowing money or securities from a client unless the client is a dealer, an

affiliate of the investment adviser, or a financial institution engaged in the

business of loaning funds;

• 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;

• Charging a client an unreasonable advisory fee;

• Accessing a client's account by using the client's own unique identifying

information, such as username and password, or

• Any other act or practice declared to be a breach of fiduciary duty in courts

of law or equity, or by any administrative tribunal, state or federal, on or after

July 22, 1929 or declared a breach of fiduciary duty by rules or regulations

adopted, and as amended, by any state agency, or by the United States

securities and exchange commission, the financial industry regulatory

Authority, or any predecessor or successor agencies.

Ohio Investment Adviser Handbook

A conflict of interest that can reasonably be avoided includes, but is not limited to:

• Compensation arrangements connected with advisory services to clients

that are in addition to compensation from such clients for such services;

• Charging a client an advisory fee for rendering advice when compensation

for effecting securities transactions or other investment products pursuant

to such advice will also be received by the investment adviser, investment

adviser representative, federal covered investment adviser, or employees

or affiliated persons thereof; and

• Serving as an officer, director, or similar capacity of any outside company

or other entity.

Regarding suitability in particular, the Adviser is required to document how the investment

advice is suitable for the client, taking into consideration the client's financial situation,

investment experience, and investment objectives.

Mandatory Reporting of Senior Financial Exploitation

with Transaction Holds

A new law went into effect September 30, 2021, impacting Ohio licensees. The “Reporting

Elder Financial Exploitation” law, ORC § 1707.49, mandates reporting to the Ohio Division

of Securities and the appropriate county office of the Ohio Department of Job and Family

Services (ODJFS) by dealers, investment advisers, and their agents who have

reasonable cause to believe that an eligible adult may be subject to past, current, or

attempted financial exploitation in connection with any transaction hold. The law

contains the following key definitions:

• “Eligible adult” is defined as: (a) a person sixty years of age or older; or (b) a

person eligible to receive protective services pursuant to ORC §§ 5101.60—

5101.71

• “Financial exploitation” is defined as:

(a) the wrongful or unauthorized taking, withholding, directing, appropriation, or

use of money, assets, or property of an eligible adult; or

(b) Any act or omission by a person, including through use of a power of attorney

or guardianship of an eligible adult, to do either of the following:

(i) Obtain control, through deception, intimidation, or undue influence,

money, assets, or property of an eligible adult and thereby deprive the

Ohio Investment Adviser Handbook

eligible adult of the ownership, use, benefit, or possession of the money,

assets, or property;

(ii) Convert money, assets, or property of an eligible adult and thereby

deprive the eligible adult of the ownership, use, benefit, or possession of

the money, assets, or property.

If an employee of a dealer or investment adviser has reasonable cause to believe that an

eligible adult who is an account holder may be subject to financial exploitation, then:

• The employee shall follow the firm’s internal policies and procedures for

reporting;

• The dealer or adviser may then place a hold on any transaction impacted by the

past, current, or attempted financial exploitation for a period of time not to exceed

fifteen business days; and

• Firms placing such transaction holds must file reports with the Ohio Division of

Securities and the county ODJFS in writing immediately in connection with the

hold.

The law allows for a possible extension of the transaction hold for another 15 days under

certain circumstances. Any person involved in making a report or placing a transaction

hold pursuant to this law is immune from any civil or administrative liability so long as they

are acting in good faith.

Reports made to a state agency under this law are confidential investigative records of

the Division and must be retained by the reporting firm for five (5) years.

The Division developed an online reporting tool for intake of reports under this law. Firms

may either file directly online or download the reporting form and send it to the Division

via a dedicated confidential email address. For Information, see

https://com.ohio.gov/wps/portal/gov/com/divisions-and-programs/securities/industry-

professionals/guides-and-resources/reporting-elder-financial-exploitation.

The Ohio Department of Job and Family Services online reporting tool is available at:

aps.jfs.ohio.gov/

Licensed firms are advised to incorporate these new reporting requirements into their

policy and procedure manuals, including a detailed process for how the firm will document

compliance.

Finally, keep in mind that the “Reporting Elder Financial Exploitation” law is

complimentary to, not a replacement of the mandatory reporting obligations for all

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licensees under the Ohio Adult Protective Services statute (ORC § 5101.63), requiring

mandated reporters to notify ODJFS of any suspected abuse, neglect, or exploitation of

vulnerable adults (effective March 20, 2019).

Solicitors and Referral Fees

(OAC 1301:6-3-44(C))

A solicitor is any person who, directly or indirectly, solicits any client for, or refers any

client to, an investment adviser or investment adviser representative. Solicitors are not

required to be licensed by the Division; and there is no “solicitor’s license”. Rather,

solicitors need to be licensed by the Division only if their activities meet the definition of

investment adviser or investment adviser representative. (See Appendix C and

Appendix D).

The OAC establishes a “safe harbor” for solicitors, provided that a person who acts solely

as a solicitor and complies with the rule regarding cash payments for client solicitations

is not deemed to be an investment adviser.

Ohio law generally prohibits investment advisers and their investment adviser

representatives from paying a cash fee to a solicitor unless all three of the following exist:

• There is a written agreement between the investment adviser or investment

adviser representative and the solicitor (a copy of which the investment adviser

must retain), detailing the referral arrangement.

• At the time of any solicitation activities, the solicitor provides the prospective client

with a copy of the investment adviser's brochure, Form ADV Part 2. The

prospective client must also receive a separate, written disclosure document that

discloses, among other things, that the solicitor is being compensated for referring

or recommending the investment adviser or investment adviser representative,

and the terms of the compensation (including any additional amounts the client will

be charged by the adviser under the referral arrangement).

• The investment adviser or investment adviser representative receives from the

client, prior to or at the time of entering into any written or oral investment advisory

agreement with the client, a signed and dated acknowledgment that the client

received the investment adviser's brochure and the solicitor's written disclosure

document.

Certain persons are prohibited from serving as a solicitor under the Ohio Securities Act.

Specifically, prior to engaging a solicitor, an investment adviser is required to verify that

the individual does not have a history of any securities or commodities violations and has

not committed various other kinds of illegal conduct. The specific types of past

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administrative, civil, and criminal findings that disqualify a person from serving as a

solicitor are listed in OAC 1301:6-3-44(C)(1)(c).

Best Execution and Soft Dollars

As a fiduciary, an adviser has an obligation to obtain “best execution” of clients’

transactions. In meeting this obligation, an adviser must execute securities transactions

for clients in such a manner that the client's total cost or proceeds in each transaction are

the most favorable under the circumstances.

In assessing whether this standard is met, an adviser should consider the full range and

quality of a broker's services when placing brokerage orders, including, among other

things, execution capability, commission rate, financial responsibility, responsiveness to

the adviser, and the value of any research services provided. An investment adviser must

keep in mind the fiduciary obligation of best price and best execution when considering

these factors.

When an investment adviser causes an account to pay more than the lowest available

commission to a broker-dealer in return for research products and services, these

payments are commonly referred to as “soft dollars.” Federal law contains a safe harbor

for certain soft dollar payments in § 28(e) of the Securities Exchange Act of 1934 and is

available for all investment advisers operating in Ohio. This safe harbor protects an

adviser from claims for breach of fiduciary duty based solely on the fact that the adviser

paid more than the lowest available commission rate if the adviser, in good faith,

determined that the higher commission was reasonable in relation to the value of the

brokerage and research services provided. Section 28(e)(3) provides that brokerage and

research services within the safe harbor include:

• Furnishing advice, either directly or through publications or writings, as to the value

of the securities, the advisability of investing in, purchasing, or selling securities

and the availability of securities or purchasers or sellers of securities;

• Furnishing analyses and reports concerning issuers, industries, securities,

economic factors and trends, portfolio strategy, and the performance of accounts;

• Effecting securities transactions and performing functions incidental thereto (such

as clearance, settlement, and custody) or required in connection therewith by rules

of the SEC or a self-regulatory organization of which such person is a member or

person associated with a member or in which such person is a participant.

The SEC has issued extensive guidance under § 28(e). See Securities Exchange Act

Release No. 34-23170 (April 23, 1986). The Division takes the position that this guidance,

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along with § 28(e), sets out the appropriate standards to follow regarding soft dollar

arrangements for all investment advisers operating in Ohio.

Aggregation of Client Orders (Batch Orders)

In directing orders for the purchase or sale of securities to a broker-dealer for execution,

an adviser may aggregate or “bunch” those orders into a single batch of orders, on behalf

of two or more of its accounts, so long as the bunching is done for purposes of achieving

best execution, and no client is systematically advantaged or disadvantaged by the

bunching. An investment adviser may include accounts in which it or its officers or

employees have an interest in a bunched order. Investment advisers must have

procedures in place that are designed to ensure that the trades are allocated in such a

manner that all clients are treated fairly and equitably.

Principal Transactions; Agency Cross Transactions;

Cross Trades

(ORC § 1707.44(M)(1)(c) and OAC 1301:6-3-44(G))

Ohio law prohibits an investment adviser or an investment adviser representative, acting

as principal for their own account, from knowingly selling any security to or purchasing

any security from a client (a “principal transaction”), without notifying the client in writing,

and obtaining the client's consent before the completion of the transaction. The Division

shares the view of the SEC that a transaction is “completed” upon its settlement. Thus,

consent must be obtained prior to execution or prior to settlement.

Notification and consent for principal transactions must be obtained separately for each

transaction. However, this requirement does not apply to any investment adviser

registered with the SEC, or to any transaction with a customer of a licensed dealer or

salesperson who is not acting as an investment adviser or investment adviser

representative in relation to the transaction.

For investment advisers licensed or required to be licensed by the Division and their

investment adviser representatives, OAC 1301:6-3-44(G) permits an adviser to act as

broker for both its advisory client and the party on the other side of the brokerage

transaction (an “agency cross transaction”), without obtaining the client's prior consent to

each transaction, provided that the adviser obtains a prior consent for these types of

transactions from the client, and complies with other, enumerated conditions.

The rule does not relieve advisers of their duties to obtain best execution and best price

for any transaction. A principal or agency cross transaction executed by an affiliate of an

adviser is deemed to have been executed by the adviser for purposes of

ORC § 1707.44(M)(1) and OAC 1301:6-3-44(G).

Ohio Investment Adviser Handbook

While an agency cross transaction involves an advisory client and a non-advisory client,

a “cross trade” describes the circumstance where an adviser executes a transaction

between advisory clients. The Division shares the view of the SEC that, in executing a

cross trade, if an adviser receives no compensation (other than its advisory fee), directly

or indirectly, for effecting a particular cross trade between advisory clients, the adviser

will not be “acting as a salesperson” within the meaning of ORC § 1707.44(M)(1)(c).

However, full disclosure of such cross trade is required, and the adviser must ensure that

the cross trade achieves best execution and does not disfavor any client.

Other Disclosure Requirements

(OAC 1301:6-3-44(D))

Ohio law requires investment advisers and investment adviser representatives that: (1)

have custody or discretionary authority over client funds or securities; or (2) require

prepayment six months or more in advance of more than $500 of advisory fees, to

disclose promptly to clients any financial condition of the investment adviser or investment

adviser representative(s) that is reasonably likely to impair the ability of the investment

adviser and investment adviser representative to meet contractual commitments to

clients. This disclosure requirement can be satisfied by giving disclosure at the time of

entering into a contract with a prospective client, if the contract permits the client to

terminate the contract without penalty within five business days after entering into it.

All investment advisers and investment adviser representatives are required to disclose

promptly to clients legal or disciplinary events that are material to an evaluation of the

adviser’s integrity or ability to meet their commitments to clients. The rule lists numerous

legal and disciplinary events for which there is a rebuttable presumption of materiality for

these purposes. Keep in mind that although an event may not be on the list in the rule, it

may still be material, particularly in light of an adviser’s fiduciary duty to its clients.

Overview of the Anti-Fraud and Conduct Standards

Investment advisers and investment adviser representatives are fiduciaries who have an

affirmative obligation of utmost good faith and full and fair disclosure, and who owe their

clients undivided loyalty. Further, advisers have a duty to avoid misleading their clients,

and may not engage in activity that may conflict with a client's interest without the client's

consent.

Consequently, advisers are subject to a set of conduct and anti-fraud standards. The

conduct standards include a series of business responsibilities, set out in OAC 1301:6-3-

15.1, that are based on analogous federal responsibilities. Statutory anti-fraud standards

are set out in ORC § 1707.44(M) and generally prohibit misstatements or misleading

omissions of material facts and other fraudulent acts and practices in connection with the

Ohio Investment Adviser Handbook

conduct of an advisory business. ORC § 1707.44(M) applies to all investment advisers

and investment adviser representatives operating in Ohio.

The statutory anti-fraud standards are amplified by a series of administrative rules set out

in OAC 1301:6-3-44 and based on analogous federal regulations. The administrative

rules are prophylactic in nature and are generally aimed at prohibiting activities that are

fraudulent, deceptive, or manipulative.

The following are some examples of conduct that may be deemed dishonest or unethical

practices or are otherwise contrary to an adviser’s fiduciary duty:

• Failing to disclose to their client in writing that a material conflict of interest exists

• Misrepresenting the qualifications of the adviser or IAR

• Borrowing or lending money or securities from or to a client

• Making guarantees

• Placing an order without authority to do so

• Making a recommendation without reasonable grounds to believe the

recommendation is suitable

• Providing a report or recommendation to a client prepared by someone else

without disclosing that fact

• Charging an excessive fee

• Failing to disclose a legal or disciplinary event that is material

• Disclosing the identity, affairs, or investments of any client to a third party unless

required by law or consented to by the client

Part 5 The Division’s Onsite Examination Program

Onsite Exams Generally

ORC § 1707.23(B)

The Division may conduct periodic, special, or for-cause examinations of any investment

adviser or investment adviser representative, and their books, records, documents,

accounts, and work papers as it deems material or relevant to the protection of investors

or in the public interest. While most examinations are scheduled in advance, the Division

Ohio Investment Adviser Handbook

has authority to conduct unannounced for-cause examinations of its licensees at any time

it is necessary for the protection of investors or in the public interest.

Before the Exam

As an investment adviser licensed in Ohio, you can expect an examination of your firm’s

books and records routinely once you are licensed. Generally, prior to the examination

date you will receive a call from the office notifying you that an examination is to be

scheduled. That conversation will be followed with a letter confirming the date and time

and providing you with a list of your records that should be readily available. Additional

records may be requested by the examiner during or after the exam. It is important that

you promptly notify the Division if the address is incorrect or if you cannot adhere to the

scheduled date.

The Exam

During the examination, the examiner will spend time interviewing key personnel. The

examiner will then review all or some of the documents and information you were asked

to make available. Copies of some documents may be requested by the examiner in order

for further reading or review. If records are maintained in electronic form, electronic copies

may be provided to the examiner in lieu of hard copies. However, it may be necessary

and will be requested for you to print or provide access for the examiner to view such

records. The examiner will also be available to answer questions but cannot provide legal

advice. The length of the examination varies depending on the focus of the examiner. Key

personnel must be available for the duration of the examination.

After the Exam

Once the examination is complete, the examiner may explain what you can expect,

including a deficiency letter if certain deficiencies were noted. A deficiency letter may be

sent from the Division requiring you to correct deficiencies and otherwise may make

recommendations that the Division believes are good business practices. You will receive

adequate time to reply and submit corrected documents if required. Once you have

addressed all items in the deficiency letter, you will then receive a closing letter.

Non-compliance

Failure to be prepared for or co-operate with the Division’s on-site examination program,

as well as a failure to timely and satisfactorily respond to the Division deficiency (see

common deficiencies below) may result in administrative action against the investment

adviser and investment adviser representative’s licenses, including license suspension

or revocation.

Ohio Investment Adviser Handbook

Common Deficiencies

The Division suggests getting ahead of some of the most common deficiencies found

during examinations:

a. ADV Consistency. The description of your advisory business and

services in Part 1 should match the description of your advisory business and

services in Part 2.

b. Annual ADV Part 2 “Brochure” Updates. The annual updating of the

adviser’s Form ADV is required within 90 days of the firm’s fiscal year end. You

are required to make this annual filing on the IARD system. Remember, the ADV

should reflect you actual, not anticipated, business.

c. Ensure IARD changes are Submitted. Many advisers make

amendments to their ADV on the IARD system, save the changes, but then fail to

SUBMIT the filing changes. Be sure to select the SUBMIT button once you have

completed making all amendments – or the changes will never post to the Division

or the investing public.

d. Form ADV, Part I, Item 9F. This item is commonly answered

incorrectly or is misunderstood. It is important that IA’s understand that if fees are

directly deducted from client accounts, for the purposes of this question, they are

considered to have custody limited to the direct deduction of fees from client

accounts. Please refer to the ADV Instructions found at:

sec.gov/about/forms/formadv.pdf.

e. Quarterly Financial Statements. A Balance Sheet and Income

Statement – prepared quarterly - are required. The Balance Sheet is a statement

showing the assets, liabilities, and equity of the firm (Assets = Liabilities + Equity).

The Income Statement is a statement showing the revenues, expenses, and net

income of the firm.

f. Bank Reconciliation. This is a reconciliation between the cash

balance shown on the Balance Sheet with the balance shown on the bank

statement. The reconciliation will account for outstanding checks, deposits in

transit, and other items that cause the bank balance to differ from the amounts

shown on your records.

g. Compliance Manual. The Division has no template for a compliance

manual but does expect the compliance manual to reflect all the policies and

procedures that apply to your firm’s business. The purchase of “off the shelf”

compliance manuals is acceptable so long as the manual is reviewed and

amended to reflect only the items that apply to your firm.

Ohio Investment Adviser Handbook

h. Cybersecurity. The Division expects compliance manuals to address

your firm’s policy with respect to cybersecurity. How is client information

safeguarded? How do you keep your systems secure? How is the identity of your

clients verified? How are records retained and then destroyed after the retention

period?

i. Suitability. Often this information is not gathered because the IAR

claims to personally know their clients. Records, whether that be questionnaires,

part of a software program, or notes must be maintained. On occasion this

information is claimed to have been obtained and recorded “somewhere” in the

IAR’s notes. These records should be formalized, dated, maintained and easily

accessible. Adequate records must contain specific areas that are pertinent to

adequately “know their client” (see details in the books and records section of this

manual). In addition, this information for the client often changes (e.g., income, net

worth, time horizon, etc.). The division recommends that this information be

updated at least every three years and dated.

j. Refunds. IA’s may not retain unearned fees. Any fees paid in

advance must be refunded. If you collect fees in advance, your contract must

contain a provision to refund unearned fees if the client terminates.

k. Discretion. If your firm is not granted discretion in the written contract,

you are required to obtain client approval for all trades prior to the trade being

made. Your firm must establish a means of documenting this client contact and

approval of securities actions.

l. Brochure Rule. Form ADV Part 2 requires that the IA provide a

Brochure Statement to each client or potential client before or at the time they enter

into an advisory agreement. Evidence of providing such is required and may be

accomplished by including this obligation in the advisory contract.

m. Deficiency letters. The importance of responding to Division

communications cannot be over-stressed. The Division is very receptive to

reasonable requests for extensions of time to respond. We will work with you.

Failure to respond to our requests serves only to require additional follow-up on

our part and additional effort on your part to comply. Non-compliance will lead to a

Notice of Intent to suspend or revoke of your license.

Ohio Investment Adviser Handbook

Part 6 Appendices

Appendix A: Frequently Asked Questions

Q: Does the state of Ohio regulate investment clubs?

A: Since each investment club is unique, each club will need to decide if it has any

registration requirements. If the investment club is a corporation or LLC, the club

may issue shares or membership interests, up to 10 Ohio investors in a 12-month

period without having to register the securities being offered. There can be no

general solicitation or advertising, and each investor (in the investment club) must

be purchasing for investment. (See ORC § 1707.03(O)). If the investment club’s

manager were to receive compensation for their investment advice from the other

members of the group, then they may be considered an Investment Adviser and

licensure may be required. Investment Club members are encouraged to speak

with an attorney about any registration or licensing requirements. See the

Investment Adviser Flowchart in Appendix C.

Q: What do I need to do to sell variable annuity products in Ohio?

A: To sell variable annuity products in Ohio, agents must be Ohio licensed insurance

agents with a variable products qualification. Ohio’s agent licensing laws do not

make a distinction between group and individual variable products. Any applicant

applying through the Ohio Department of Insurance for variable life/variable

annuity line of authority must be registered with FINRA as a registered

representative after having passed at the one of the following examinations: Series

6, 7, 63 or 66. Individuals who sell variable products may need to be dually licensed

to sell securities products and licensed to sell insurance products. Individuals

should contact the appropriate regulator to inquire about these requirements.

Q: Does Ohio have an Exempt Reporting Advisers (ERA) licensure or notice filing?

A: No, Ohio does not. This is an SEC licensing requirement for firms that advise solely

to private funds, and Ohio does not have an equivalent licensing requirement. If a

firm files to be registered as an ERA firm with SEC, then no filing is required in

Ohio.

Q: Do I register as an investment adviser with the SEC or with the state of Ohio?

A: Investment advisers that have Regulatory Assets Under Management of less than

$100 million register with the state, unless the adviser is required to be registered

in 15 or more states (then it registers with the SEC). Investment advisers that have

Regulatory Assets Under Management of more than $110 million are required to

Ohio Investment Adviser Handbook

Q: How long does it take to get approved as an investment adviser in Ohio?

A. The Division reviews all applications and pre-licensing examination materials as

quickly as possible. Given that the process is back-and-forth between the applicant

and the Division, the amount of time an application remains pending largely

depends on how quickly the applicant can submit the required documents to the

Division and otherwise meet all licensing requirements. Applicants who are timely

and diligent in providing the required information to the Division, and are not

subject to a denial action, will find that their application may be approved a just a

few weeks.

Q: How long is an investment adviser or investment adviser representative license

valid?

A: The licenses of investment advisers and investment adviser representatives expire

on December 31 each year unless the renewal fees for the next calendar year

have been paid in advance. If the renewal fees are not paid in time and the licenses

lapse, there is no grace period and no method for reinstating the licenses. Firms

and individuals must re-apply. Further, if the investment adviser firm fails to renew

its license, all licenses of affiliated investment adviser representatives are

automatically terminated.

Q: How do I renew my investment adviser and investment adviser representative

licenses?

A: Renewal fees are paid through the IARD system and must be paid in accordance

with the IARD system deadlines. The Division undertakes many steps to remind

advisers of their renewal filing obligations. There are no renewal documents

required to be filed with the Division.

Q: How do I update information concerning the investment adviser?

A: The best way to keep the Division informed of any changes to the investment

adviser (e.g., phone number, mailing address, e-mail address) is to amend the

firm’s Form ADV through the IARD system. It is the first place the Division will look

for the most current information.

Q: My firm has started obtaining potential clients outside of Ohio. When do I need to

become licensed with other state(s)?

A: Each state has different rules regarding timing of the licensing requirement. Some

states have a “de minimus” rule which allows you to have up to five clients in their

state and not become licensed, provided you do not maintain a place of business

there. However, this is not the case in all states. You must contact the appropriate

Ohio Investment Adviser Handbook

state securities regulator to verify their state’s licensing requirements before

working with out-of-state clients.

Q: Is there a net capital requirement for investment advisers in Ohio?

A: There are no net capital or surety bond requirements for investment advisers in

Ohio.

Q: Are investment adviser representatives required to file fingerprints with the

Division?

A: Yes, please see the IAR Fingerprinting section of this Handbook.

Q: Is there a de minimus exclusion from registering as an investment adviser in Ohio?

A: Yes, the investment adviser must in the preceding twelve months, have had no

place of business in Ohio and had five or fewer clients.

Q: Does the Division allow advisers to send documents to their clients electronically?

A: Yes, so long as the adviser has previously obtained consent from the client to send

documents to them electronically, the adviser takes reasonable steps to ensure

the e-mail address on file for the client is still valid, and the adviser takes

precautions to protect the transmission of any confidential personal information

contained in the documents.

Q: How do I withdraw my license as an investment adviser or investment adviser

representative?

A: The investment adviser is required to file a Form ADV-W through the IARD system;

the investment adviser representative is required to file a Form U5 with the CRD

system.

Ohio Investment Adviser Handbook

Appendix B: Common Definitions

All definitions in the Ohio Securities Act can be found in either the ORC (available at

codes.ohio.gov/orc) or the OAC (available at codes.ohio.gov/oac). The following are

definitions that relate to commonly asked questions:

“Clients” – OAC 1301:6-3-01(H) and (I);

For purposes of determining the number of clients for meeting the de minimus exception

from licensing as an investment adviser, the following are deemed a “single client”:

• A natural person, and

• Any minor child of the natural persons;

• Any relative, spouse, or relative of the spouse of the natural person who has the

same principal residence; and

• All accounts and trusts, the only primary beneficiaries of which are the natural

person and/or the children, spouses and relatives described above.

• Legal organizations, including

• A corporation, general partnership, limited partnership, limited liability company,

trust (other than a family trust described above), or other legal organization that

receives investment advice based on its investment objectives rather than the

individual investment objectives of its owners; and

• Two or more legal organizations described above that have identical owners.

“Held Out to the Public” - SEC Release IA-1633m [1997 Transfer Binder] Fed. Sec. L.

Rep. (CCH) ¶ 85,940 (May 15, 1997)

A location is considered “held out” to the public by, for example, publishing information in

a professional directory or a telephone listing, or distributing advertisements, business

cards, stationery, or similar communications that identify the location as one at which the

investment adviser or investment adviser representative is or will be able to meet or

communicate with clients. However, an investment adviser representative who sends a

letter to certain existing clients indicating, for example, that he or she will be in their area

and available for a meeting would not have held out the location of the proposed meeting

to the general public for purposes of the definition. Similarly, an investment adviser

representative that communicates to a defined group under the terms of an advisory

contract the location at which he or she will be available would not be holding himself or

herself out to the general public. Further, in the case of a national organization that

engages an adviser to provide advisory services to its members, an adviser

Ohio Investment Adviser Handbook

representative who communicates its availability at a certain location to the members

(even though those individuals may not be clients) would not be holding himself or herself

out to the general public. The definition encompasses permanent and temporary offices

as well as other locations at which advisory services are provided, such as a hotel or

auditorium. Whether an investment adviser representative will be subject to the

qualification requirements of a state in which the hotel or auditorium is located will turn on

whether, for example, an investment adviser representative conducts advisory business

there.

“Place of Business” – OAC 1301:6-3-01(G)

Ohio law defines “place of business” to include two categories of locations. First is an

office at which an investment adviser or investment adviser representative regularly

provides investment advisory services, solicits, meets with, or otherwise communicates

with clients. Second is any other location that is held out to the general public as a location

at which an investment adviser or investment adviser representative provides investment

advisory services, solicits, meets with, or otherwise communicates with clients.

“Promptly” – OAC 1301:6-3-01(N)

Promptly is defined to mean not later than 30 calendar days after learning of the facts or

circumstances giving rise to the amendment or update.

“Regulatory Assets Under Management” – Form ADV, Part 1A, Instruction 5.b

For purposes of completing Form ADV, the amount of your firm’s Regulatory Assets

Under Management (“RAUM”) is determined by including the securities portfolios for

which you provide continuous and regular supervisory or management services as

of the date you are filing or amending your Form ADV. As to the types of securities

portfolios you must include in your calculation, in addition to traditional advisory accounts,

you must include family or proprietary accounts, pro bono accounts, accounts of non-U.S.

persons, and assets of a private fund. For additional explanation on how to calculate your

Regulatory Assets Under Management, see Form ADV, Part 1A, Instruction 5.b, and

Appendix F to this Handbook.

“Solicitor” – OAC 1301:6-3-44(C)

A solicitor is any person who, directly or indirectly, solicits any client for, or refers any

client to, an investment adviser or investment adviser representative. Solicitors per se are

not required to be licensed by the Division—there is no “solicitor’s license.” Rather,

solicitors need to be licensed by the Division only if their activities meet the definition of

investment adviser or investment adviser representative. As under federal law, Ohio law

requires a solicitor who receives cash payments to provide a written solicitation disclosure

document to clients. A true solicitor does not give investment advice.

Ohio Investment Adviser Handbook

Ohio Administrative Code 1301:6-3-01(K)(2) establishes a “safe harbor” for solicitors,

providing that a person who acts solely as a solicitor and complies with the rule regarding

cash payments for client solicitations is not deemed to be an investment adviser.

However, certain persons are legally prohibited from acting as solicitors, namely those

who have been the subject of certain federal and state securities actions.

“Supervised Person” – ORC § 1707.01(DD)

In order to be an investment adviser representative, a natural person first must be a

“supervised person.” A supervised person is a natural person who is any of the following:

• A partner, officer, or director of an investment adviser, or other person occupying

a similar status or performing similar functions with respect to an investment

adviser;

• An employee of an investment adviser; or

• A person who provides investment advisory services on behalf of the investment

adviser and is subject to the supervision and control of the investment adviser.

Ohio Investment Adviser Handbook

Appendix C: Investment Adviser Flowchart

(The accompanying notes are an integral part of this flowchart.)

YES

For “compensation”

and “as a part

of regular business,”

do you issue

or promulgate analyses or reports

concerning “securities”?

Do you provide services

for “compensation”

Are you “engaged in the business”

of advising others, either directly or

through publications or writings?

Is your advice

as to the value of “securities”

or as to advisability of investing in,

purchasing or selling “securities”?

Are you an attorney, accountant, engineer or teacher

whose performance of investment advisory services is

“solely incidental”

to the practice of the profession?

Are you the publisher of any bona fide newspaper,

news magazine or business or financial publication

of general and regular circulation

Are you a person who acts solely as an

investment adviser representative

Are you a bank holding company as defined

in the federal Bank Holding Company Act?

Are you a “bank”

, or any receiver, conservator

or other liquidating agent of a bank?

Ohio Investment Adviser Handbook

YES

Are you a securities dealer or salesperson licensed by the Division whose

performance of investment advisory services is “solely incidental”

to the

conduct of your business as a licensed dealer or salesperson, and who

does not receive “special compensation”

for the advisory services?

Does your advice, analyses or reports relate only to securities that are direct

obligations of, or obligations guaranteed by, the U.S., or by certain U.S.

sponsored corporations,

designated by the Secretary of the Treasury?

Are you excluded from the federal definition of investment

adviser pursuant to §§ 202(a)(11)(A) to (E) of the

Investment Advisers Act of 1940?

Have you received an order from the SEC pursuant to

§202(a)(11)(F) of the Investment Advisers Act of 1940?

Are you excluded from the definition of an

investment adviser pursuant to OAC 1301:6-

3-01(L)(1)?

Do you act solely as a “solicitor” and comply with the

rule regarding cash payments for client solicitations?

YOU ARE AN INVESTMENT

ADVISER UNDER OHIO LAW

YOU ARE NOT AN

INVESTMENT ADVISER

UNDER OHIO LAW

Ohio Investment Adviser Handbook

NOTES TO “ARE YOU AN INVESTMENT ADVISER UNDER OHIO LAW?”

1. “Compensation” is construed broadly and means the receipt of any economic

benefit, whether in the form of an advisory fee or some other fee, relating to the

total services rendered, commissions, or some combination of the foregoing. It is

not necessary that an adviser’s compensation be paid directly by the person

receiving investment advisory services, but only that the investment adviser

receive compensation from some source for the services. See SEC Release No.

IA-1092, § II.A.3. (October 8, 1987).

2. “As a part of regular business” and “engages in the business” both require a

“business” element and are to be construed in the same manner. The

determination to be made is whether the degree of the person’s advisory activities

constitutes being “in the business.” Whether a person giving advice about

securities for compensation would be “in the business” depends upon all relevant

facts and circumstances. In general, a person is deemed “in the business” if the

person (i) holds himself or herself out as an investment adviser or as one who

provided investment advice; or (ii) receives any separate or additional

compensation that represents a clearly definable charge for providing advice about

securities; or (iii) on anything other than rare, isolated and non-periodic instances,

provides specific investment advice. See SEC Release No. IA-1092, § II.A.2.

(October 8, 1987).

3. The advice, report or analyses need not be with respect to particular securities.

Rather, for example, advice concerning the relative advantages and

disadvantages of investing in securities in general as compared to other

investments would be “advice” for purposes of this prong of the definition. See SEC

Release No. 1A-1092, § II.A.1. (October 8, 1987)

4. Whether an exclusion from the definition of investment adviser is applicable

depends on the relevant facts and circumstances. For example, an attorney or

accountant who holds himself or herself out to the public as providing financial

planning or advisory services would not appear to fall within this “solely incidental”

exclusion. See SEC Release No. IA-1092, § II.B. (October 8, 1987). In general,

three factors are relevant to the determination of whether the “solely incidental”

exclusion is available: (i) whether the person holds himself or herself out to the

public as an investment adviser, financial planner or other provider of advisory

services; (ii) whether the advisory services are rendered in connection with and

reasonably related to the professional services; (iii) whether the fee charged for

advisory services is based on the same factors as those used to determine the fee

for the professional services. See, e.g., Hauk, Soule & Fasani, P.C., SEC No-

Action Letter (April 2, 1986); Milton O. Brown, P.C., SEC No-Action Letter (August

28, 1983).

Ohio Investment Adviser Handbook

5. This exclusion does not include bulletins that are issued from time to time in

response to episodic market activity, advertisements that “tout” particular issues,

advertised lists of stocks “that are sure to go up” that are sold to individual

purchasers or publications distributed as an incident to personalized investment

services. Lowe v. SEC, 472 U.S. 181 (1985). The Lowe court did hold that this

exclusion was applicable to a newsletter that was “completely disinterested” and

“offered to the general public on a regular schedule.” Id. at 206. The definition of

“investment adviser” encompasses publishers as well as authors. See SEC

Release No. IA-563 (January 10, 1997). This exclusion, if it is available, would

extend to authors.

6. A person may act as both an investment adviser and an investment adviser

representative. See ORC § 1707.161(B)(2). However, a person who acts solely as

an investment adviser representative is excluded from the definition of investment

adviser. “Investment adviser representative” is defined in ORC § 1707.01(CC).

7. “Bank” is defined in ORC § 1707.01(O). This exclusion extends to an employee of

a bank to the extent that the employee is acting in his or her capacity as an

employee. See, e.g., Harbor Springs State Bank, SEC No-Action Letter (March 3,

1986). This exclusion does not extend to a bank employee acting in his or her

individual capacity. Id.

8. “Special compensation” for investment advice is compensation to the dealer or

salesperson in excess of that which he or she would be paid for providing a

brokerage or dealer service alone. Consequently, “special compensation” exists

where there is a clearly definable charge for investment advice. See SEC Release

No. IA-626, § V. (April 27, 1978).

9. For example, the Government National Mortgage Association (“GNMA”).

10. See OAC 1301:6-3-01(L)(1). To qualify for this limited exclusion to Investment

Adviser licensure, the Division suggests a complete review of this rule in its

entirety. See codes.ohio.gov/oac/1301:6-3-01.

11. See OAC 1301:6-3-01(L)(2). A solicitor is any person who, directly or indirectly,

solicits any client for, or refers any client to, an investment adviser or investment

adviser representative. The rule regarding cash payments for client solicitations is

contained in OAC 1301:6-3-44(C)(1) and requires, among other things, a solicitor

who received cash payments to provide a written solicitation disclosure document

to clients.

Ohio Investment Adviser Handbook

Appendix D: Investment Adviser Representative

Flowchart

(R.C. 1707.01(CC))

(The accompanying notes are an integral part of this flowchart.)

YES NO

YES

Are you a

“supervised person”

Do you have more than 5 “clients”

who are natural persons other

than “excepted persons”

Are more than 10% of your “clients”

natural persons other than

“excepted persons”

Do you on a regular basis solicit, meet

with, or otherwise communicate with

clients of the investment adviser?

Do you provide only investment advisory services

by means of written materials or oral statements

that do not purport to meet the objectives or

needs of specific individuals or specific accounts

YOU ARE AN INVESTMENT ADVISER

REPRESENTATIVE UNDER OHIO LAW

YOU ARE NOT AN INVESTMENT ADVISER

REPRESENTATIVE UNDER OHIO LAW

Ohio Investment Adviser Handbook

NOTES TO “ARE YOU AN INVESTMENT ADVISER REPRESENTATIVE UNDER

OHIO LAW”?

1. “Supervised person” is defined in ORC § 1707.01(DD) to mean a natural person

who is any of the following:

(1) a partner, officer, or director of an investment adviser, or other person

occupying a similar status or performing similar functions with respect to an

investment adviser; or

(2) an employee of an investment adviser; or

(3) a person who provides investment advisory services on behalf of the

investment adviser and is subject to the supervision and control of the

investment adviser.

This definition of “supervised person” matches the federal definition of “supervised

person” contained in § 202(a)(25) of the Investment Adviser Act of 1940. The

definition of “investment adviser representative” contained in ORC § 1707.01(CC)

tracks the definition of that term set out in SEC Rule 203A-3(a) promulgated under

the Investment Advisers Act of 1940.

2. Ohio Revised Code § 1707.01(CC)(2) lists certain persons who are deemed to be

a single client for purposes of this definition. ORC § 1707.01(CC)(2) tracks SEC

Rule 203(b)(3)-1 promulgated under the Investment Advisers Act of 1940.

3. “Excepted person” is defined in ORC § 1707.01(EE), and generally means a

person who has: (i) at least $750,000 under the management of the adviser; or (ii)

has a net worth (jointly with spouse) of more than $1,500,000; or (iii) is a “qualified

purchaser” as defined in ORC § 1707.01(FF); or (iv) is an executive officer,

director, trustee, general partner, or person serving in a similar capacity of the

investment adviser; or (v) is a non-clerical employee of the investment adviser who

participates in the investment activities of the adviser, and has so participated for

at least 12 months. This definition of “excepted person” tracks the SEC’s definition

of “excepted person” contained in SEC Rule 203A-3(a)(3)(i) promulgated under

the Investment Advisers Act of 1940, which in turn is based on SEC Rule 205-

3(d)(1) promulgated under the Investment Advisers Act of 1940.

“Qualified purchaser” is defined in ORC § 1707.01(FF), and generally means a

natural person who owns not less than $5,000,000 in “investments” or who owns

and invests on a discretionary basis not less than $25,000,000 in “investments.”

This definition of “qualified purchaser” is based on the SEC’s definition of “qualified

purchaser” set out in SEC Rule 205-3(d)(1)(ii)(B) promulgated under the

Investment Advisers Act of 1940. For purposes of this definition of “qualified

Ohio Investment Adviser Handbook

purchaser,” the Division defines “investments” to mean “investments” as defined

in § 2(a)(51)(A) of the Investment Company Act of 1940.

4. This is defined as “impersonal investment advice” by the SEC. See SEC Rule

203A-3(a)(3)(ii) promulgated under the Investment Advisers Act of 1940.

Ohio Investment Adviser Handbook

Appendix E: Pre-Licensing Exam

APPLICATION FILED THROUGH THE IARD:

Once the Ohio Division of Securities receives your application for an Investment Adviser

License in Ohio, by way of submitting Form ADV through the IARD system, applicants

will receive notification of the Pre-Licensing Examination.

Please familiarize yourself with Ohio’s investment adviser rules, found in OAC 1301:6-3-

15.1, 1301:6-3-16.1, and 1301:6-3-44. The OAC can be accessed at:

https://codes.ohio.gov/ohio-administrative-code/chapter-1301:6-3.

The Ohio Division of Securities requires all applicants to file ADV Part 2 electronically via

IARD prior to being licensed.

COMPLETION OF THE LICENSING PROCESS:

Once we have reviewed your application through the IARD and determined it to be

complete, the licensing process can be completed. The following tasks must be

completed prior to approval.

In accordance with ORC § 1707.151(B)(1), all IA applicants are required to provide to the

Division with the documents described below. Due to how your business is formed, some

of the requested documents may not be applicable. If this occurs, the Division requires a

written explanation.

These documents should be submitted to the Division electronically to the e-mail address

provided upon application.

DOCUMENTS REQUIRED TO BE SUBMITTED BEFORE INVESTMENT ADVISER

LICENSE CAN BE GRANTED

1. Copies of all investment advisory contracts your firm intends to use. All contracts must

comply with the requirements of OAC 1301:6-3-15.1(I).

2. A list of all branch offices your firm intends to have upon starting business. The list

should include the address, telephone number, the number of investment adviser

representatives, and the name of the manager of the branch office.

3. A list of all employees and their duties.

4. A copy of your firm’s compliance manual, including a business continuity plan, disaster

recovery plan and the designation of a chief compliance officer. Please indicate how you

intend to document the required annual review of your compliance manual.

Ohio Investment Adviser Handbook

5. Copies of business cards for each investment adviser representative of your firm.

6. Copies of any solicitor agreements.

7. A statement of how your firm will comply with the requirements to maintain financial

records and produce financial statements. The financial statement requirements are

found in OAC 1301:6-3-15.1(E)(1).

8. A statement of how your firm intends to comply with the five-year record retention

requirements.

Ohio Investment Adviser Handbook

Appendix F: Determining Regulatory Assets Under

Management

HOW SHOULD YOU DETERMINE AND CALCULATE

YOUR REGULATORY ASSETS UNDER MANAGEMENT

(Form ADV Instructions for Part 1A, Item 5.F)

Your Regulatory Assets Under Management should include, as of the date of filing, the

entire value of all (1) securities portfolios (2) for which the IA provides continuous and

regular supervisory or management services as of the date of filing Form ADV.

Section A Is the account a Securities Portfolio?

1 Does the value of the account consist of at least 50% securities

, cash, and cash

equivalents (e.g., bank deposits, certificates of deposit, and similar instruments)?

Yes—The account is a securities portfolio—to determine whether to include it in

your RAUM,

Do the accounts consist of securities in an employer sponsored retirement

plan or are the securities managed by a third party investment adviser?

Yes – Please see Section D

No. – Please see Section B

No—The account is not a securities portfolio—you should not include it in your

RAUM.

NOTE: under the above rule, you must include securities portfolios that are family or

proprietary accounts, accounts for which you receive no compensation for your services,

and accounts of clients who are not United States persons.

2 Is the account part of a private fund?

Yes—The account is a securities portfolio regardless of the nature of the assets in

the account, including any uncalled commitment by the client to acquire an interest

in, or make a capital contribution to, the private fund—to determine whether to

include it in your RAUM, please see Section B below

No—The account may be a securities portfolio—please see Question 1

For a complete definition of a “security” under the Ohio Securities Act, see ORC § 1707.01(B).

Ohio Investment Adviser Handbook

Section B Do you provide Continuous and Regular supervisory or management

services to the account?

3 Do you have discretionary authority over and provide ongoing supervisory or

management services with respect to the account?

Yes—You should include the account in your RAUM—to determine the appropriate

value to include, please see Section C below

No—please see Question 4

4 If you lack discretionary authority, do you nonetheless have responsibility to make

recommendations, based on the needs of the client, as to specific securities or

other investments the account may purchase and sell and, if such

recommendations are accepted by the client, arrange for the purchase or sale?

Yes—You should include the account in your RAUM—to determine the appropriate

value to include, please see Section C below

No—You should not include the account in your RAUM. For example, services that

are not “regular and continuous” may include providing market timing

recommendations, providing only impersonal investment advice (e.g., market

newsletters), making an initial asset allocation without continuous and regular

monitoring and reallocation, or provide advice on an intermittent basis

NOTE: the following factors are important in determining whether you provide continuous

and regular supervisory management services to an account:

• Terms of the advisory contract—if you agree in an advisory contract to provide

ongoing management services, this suggests that you provide these services;

however other provisions in the contract may suggest otherwise.

• Form of compensation—if you are compensated based on the average value of

the client’s assets you manage over a specified period, that suggests you provide

continuous and regular supervisory or management services for the account;

however, it suggests you do not provide continuous and regular supervisory or

management services if you:

o Are compensated based upon the time spent with a client during client

visits; or

o Are paid a retainer based on a percentage of assets covered by a financial

plan.

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• Frequency of Services—if you actively manage assets or provide advice, it is more

likely that you provide continuous and regular supervisory and management

services. Conversely, if you manage assets only on an episodic or one-off basis,

it is less likely that you provide continuous and regular supervisory and

management services.

Section C How should you value the securities portfolios included in your

RAUM?

5 Do you provide continuous and regular supervisory or management services to all

the assets in the securities portfolio?

Yes—you should include the entire value of the securities portfolio based on the

fair market value of the assets determined within 90 days of filing Form ADV, using

the same valuation method used to report account values to clients or to calculate

fees for investment advisory services

No—please see Question 6

6 Do you provide continuous and regular supervisory or management services to

only a portion of a securities portfolio?

Yes—you should include in RAUM only that portion of the securities portfolio for

which you provide such services (e.g., you should exclude the portion of the

account managed by another person, or that consists of real estate or businesses

whose operations you “manage” on behalf of a client but not as an investment)

No—you should not include the account in your RAUM.

NOTE: In the case of a private fund, determine the current market (or fair) value of the

private fund’s assets and the contractual amount of any uncalled commitment pursuant

to which a person is obligated to acquire an interest in, or make a capital contribution to,

the private fund

Section D Employer sponsored retirement plans and third-party managers.

Employer Sponsored Retirement Plans

7 Do you only provide services to the sponsor of an employer sponsored retirement

plan? For example, recommending the securities to be offered to the participants,

handle enrollment meetings, or do other 3(21) fiduciary activities?

Yes—you should not include those accounts in your RAUM

Ohio Investment Adviser Handbook

No—If you manage a pooled retirement account or provide investment advisory

services to individual participants in 401K/403B or similar plans then see Section

Third Party Managers

8 Do you allocate assets among other managers (a “manager of managers”), and

have discretionary authority to hire and fire managers and reallocate assets among

them?

Yes—please see Section B.

No—then you would not be able to include the securities in your regulatory assets

under management. Securities that are advised on under a solicitor or co-adviser

relationship frequently would not be included in RAUM because of the lack of

discretion, even if the adviser is doing all of the on boarding, ongoing client

relations, and even determining if the portfolio is still suitable.

Ohio Investment Adviser Handbook

Appendix G: Trusted Contact Template

I, _____________________________________, hereby give permission to my adviser

to contact the below person(s) in the event that my adviser has concerns about my health

(capacity and well-being), activity in my account (financial exploitation), or if my adviser

is unable to contact me after numerous attempts. I also give my adviser the authority to

discuss details about my account if necessary, however, by signing this the trusted

contact(s) named:

• Cannot make trades in my account;

• Cannot make decisions about my account; and

• Does not have my power of attorney and does not become a legal guardian,

trustee, or executor by virtue of being identified as my trusted contact.

_______________________________ _________________________________

First Name Last Name

___________________________________________________________________

Street Address

______________________________ _____________________ ____________

City State Zip Code

_________________________________________________

Relationship

_________________________________ _______________________________

Mobile Phone Home Phone

______________________________________________

Email Address

___________________________________________ ______________________

lient Signature Date

_______________________________ _________________________________

First Name Last Name

___________________________________________________________________

Street Address

______________________________ _____________________ ____________

City State Zip Code

_________________________________________________

Relationship

_________________________________ _______________________________

Mobile Phone Home Phone

______________________________________________

Email Address

___________________________________________ ______________________

Clie

nt Signature Date

Ohio Investment Adviser Handbook

Appendix H: Standing Letters of Authority (SLOAs)

The Division has received numerous inquiries regarding its position on Standing Letters

of Authorization (“SLOA”) arrangements established by a client with a qualified custodian.

The Division follows the position adopted by the SEC in its February 21, 2017 No Action

Letter to the Investment Adviser Association in that the Division will require state-licensed

investment advisers to disclose custody, for purposes of Form ADV Part 1A, Item 9 and

Part 2A, Item 15, if the adviser acts pursuant to a standing letter of instruction or other

similar asset transfer authorization arrangement established with a client and a qualified

custodian. Under the Act, custody is defined in OAC 1301:6-3-44(B)(3)(a). “Custody”

means “holding, directly or indirectly, client funds or securities, or having any authority to

obtain possession of them.” Custody includes “any arrangement, including a general

power of attorney, a standing letter of instruction, or other similar asset transfer

authorization arrangement, under which the investment adviser or investment adviser

representative are authorized or permitted to withdraw client funds or securities

maintained with a custodian upon the investment adviser’s or investment adviser

representative’s instruction to the custodian.” See OAC 1301:6-3-44(B)(3)(a)(ii).

Consistent with the SEC’s position stated in the February 21, 2017 No Action Letter at

Footnote [1], the Division also takes the position that a SLOA arrangement where “the

investment adviser does not have discretion as to the amount, payee, and timing of

transfers under a SLOA would not implicate the custody rule.”

All advisers with custody under Ohio law are required to meet the safeguarding

requirements of the custody rule, set forth in OAC 1301:6-3-44(B)(1) and (2).

Ohio state-licensed investment advisers are encouraged to meet the seven SLOA

conditions set forth in the February 21, 2017 No Action Letter, as the Division believes

doing so is a best practice. The Division further acknowledges that some advisers may

be required to follow these conditions as a requirement to do business with their

custodian.

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The seven SLOA conditions are as follows:

1. The client provides an instruction to the qualified custodian, in writing, that includes

the client’s signature, the third party’s name, and either the third party’s address or the

third party’s account number at a custodian to which the transfer should be directed.

2. The client authorizes the investment adviser, in writing, either on the qualified

custodian’s form or separately, to direct transfers to the third party either on a specified

schedule or from time to time.

3. The client’s qualified custodian performs appropriate verification of the instruction,

such as a signature review or other method to verify the client’s authorization and provides

a transfer of funds notice to the client promptly after each transfer.

4. The client has the ability to terminate or change the instruction to the client’s

qualified custodian.

5. The investment adviser has no authority or ability to designate or change the

identity of the third party, the address, or any other information about the third party

contained in the client’s instruction.

6. The investment adviser maintains records showing that the third party is not a

related party of the investment adviser or located at the same address as the investment

adviser.

7. The client’s qualified custodian sends the client, in writing, an initial notice

confirming the instruction and an annual notice reconfirming the instruction.

Ohio Investment Adviser Handbook

Appendix I: Annual Compliance Checklist

*Disclaimer: This list is compiled as a summary of key compliance obligations

occurring annually. This checklist does not replace a robust compliance program

as required by the Ohio Securities Act.

• Annual Obligation to FINRA CRD/IARD certification for system entitlement.

Firms are typically notified by email from mid-January to mid-February to confirm

those who need access to the CRD system.

• Annual License Renewal for firms and representatives.

Firms are alerted by email in November of each year that it is time to renew the

licenses of both the firm and each rep. The required fees for the renewals should

be in the firms account to prevent a license from being terminated.

• Updates Due within 90 days after your fiscal year end.

Form ADV Part 1

Must be reviewed and updated on the CRD system annually within 90 days of the

firm’s fiscal year end.

BROCHURE: Form ADV Part 2

Must be reviewed, updated, and filed on the IARD system annually within 90 days

firm’s fiscal year end.

If there are material changes you must:

(i) deliver, within 120 days of the end of your fiscal year, to each client a free

updated brochure that either includes a summary of material changes or is

accompanied by a summary of material changes, or

(ii) deliver to each client a summary of material changes that includes an offer

to provide a copy of the updated brochure and information on how a client

may obtain the brochure.

The delivery may be made electronically. If there are no material changes, you do

not have to deliver a summary or the brochure. All annual amendment updates

must be maintained.

If you have a solicitor, the updated brochure should be provided for them since

they are required to provide it to potential clients referred to you.

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Wrap Fee Brochure (if applicable)

Must be reviewed, updated, and filed on the IARD system annually within 90 days

firm’s fiscal year end.

If there are material changes you must

(i) deliver, within 120 days of the end of your fiscal year, to each client a free

updated brochure that either includes a summary of material changes or is

accompanied by a summary of material changes, or

(ii) deliver to each client a summary of material changes that includes an offer

to provide a copy of the updated brochure and information on how a client

may obtain the brochure.

The delivery may be made electronically. If there are no material changes, you do

not have to deliver a summary or the brochure. All annual amendment updates

must be maintained.

If you have a solicitor, the updated brochure should be provided for them since

they are required to provide it to potential clients referred to you.

• Privacy Policy must be provided to all clients annually.

• The firm’s Compliance Manual should be reviewed and updated. Dates should

be maintained evidencing this review and each IAR should receive a copy of the

revised Compliance Manual.

Ohio Investment Adviser Handbook

Appendix J: NASAA’s State IA Cybersecurity

Checklist and Guidance

Disclaimer: the information provided in this Appendix is for your convenience only, is

illustrative, and is not intended as legal advice. For the Cybersecurity Checklist template

that corresponds to the guidance in this Appendix, please see http://www.nasaa.org/wp-

content/uploads/2020/04/Cybersecurity-Checklist-Update-3-19-20.pdf.

Checklist Overview:

The NASAA Model Rule and corresponding Cybersecurity Checklist for Investment

Advisers are designed to assist investment advisers in securing their systems and the

non-public information of their clients. This guidance is designed to assist investment

advisers in better understanding the meaning, intention, and connectivity of each of the

sections of the NASAA Cybersecurity Checklist for Investment Advisers.

The importance of cybersecurity is consistently illustrated through the nearly daily

occurrence of large-scale data breaches. As such, NASAA proactively created this

guidance to assist investment advisers in addressing cybersecurity risks, securing their

information technology infrastructure, identifying the occurrence of a risk event,

confronting a cybersecurity incident, and then, quickly normalizing business operations.

To illustrate the importance of a balanced approach to cybersecurity, consider a common

practice used by IT professionals known as the “Cybersecurity Triangle.” As pictured

below, the goal of any cybersecurity procedure is to appropriately balance confidentiality,

integrity, and availability. For example, one would not want client PII so available for

business use that it is no longer confidential, but one also would not want it so secure that

it is more secure than the nuclear football. Thus, the “Cybersecurity triangle” assists in

illustrating the balance required by information technology procedures.

To ensure a cybersecurity procedure appropriately balances this approach, one must

ensure that it is in the center of this triangle (i.e., the red circle). Thus, after completing

the NASAA Cybersecurity Checklist for Investment Advisers, the investment adviser

Ohio Investment Adviser Handbook

should use the “Cybersecurity Triangle” as guidance when addressing any identified

deficiencies.

Identify – Risk Assessments & Management

1. Cybersecurity is included in the risk assessment.

If the investment adviser does conduct an evaluation of its vulnerabilities, does the

assessment include cybersecurity vulnerabilities that the investment adviser

possess.

2. Risk assessments are conducted frequently (e.g., annually, quarterly, or more often).

Does the investment adviser conduct a frequent evaluation of the threats to which

it is vulnerable?

3. The risk assessment includes an examination of the data its business collects and

creates, where it is stored, and whether it is encrypted.

Is the investment adviser’s evaluation of its vulnerabilities granular enough to

address specific types of data and the level to which it is secured?

4. Internal “insider” risk (e.g., disgruntled employees) and external risks are included in

the risk assessment.

Does the investment adviser have policies and procedures to address malicious

employees and data extrication? Does the investment adviser have policies and

procedures to address the termination of employees and ensure their access to

networks and data is restricted before or after their departure? Does the

investment adviser explore external risks related to the acts of clients, visitors, or

maintenance staff?

5. The risk assessment includes relationships with third parties.

Does the investment adviser’s evaluation of its vulnerabilities address any third

parties with whom it has executed agreements? If so, what due diligence does the

investment adviser conduct prior to executing such an agreement and continuously

throughout the relationship?

6. Adequate policies and procedures demonstrate expectations of employees regarding

cybersecurity practices (e.g., frequent password changes, locking of devices, reporting of

lost or stolen devices, etc.)

Does the investment adviser ensure that its employees are explicitly aware of their

roles and responsibilities concerning cybersecurity? Are the investment adviser’s

employees aware of the consequences for violating investment adviser

cybersecurity policies? Does the investment adviser document the on-going

education of its employees and instances of employee violations?

Ohio Investment Adviser Handbook

7. Primary and secondary person(s) are assigned as the central point of contact in the

event of a cybersecurity incident.

Does the investment adviser have designated individual(s) to handle cybersecurity

incidents that occur? The investment adviser should test its procedures as it

develops to ensure that they are functioning prior to the actual occurrence of an

incident.

8. Specific roles and responsibilities are tasked to the primary and secondary person(s)

regarding a cybersecurity incident.

Does the investment adviser have specific responsibilities assigned to specific

employees to ensure incidents are handled effectively and efficiently? The

investment adviser should ensure that the assigned roles and responsibilities have

“back-ups” for the critical functions to ensure that, in the event a primary individual

is unable to perform the assigned functions, the roles are still adequately

performed.

9. The investment adviser has an inventory of all hardware and software.

Is the investment adviser able to quickly and accurately locate and report all of its

devices? Can the investment adviser account for all software authorized to run on

its network? These are essential to ensure that the investment adviser can identify

when unauthorized devices or programs access its digital assets.

Protect – Use of Electronic Mail

1. Identifiable information of a client is transmitted via email

Does the investment adviser electronically communicate non-public information of

clients? If so, what safeguards does the investment adviser have in place to protect

this information?

2. Authentication practices for access to email on all devices (computer and mobile

devices) is required.

What procedures does the investment adviser have in place to ensure only

authorized users are accessing the investment adviser’s electronic assets? Does

the investment adviser require encryption on all portable electronic devices? Does

the investment adviser require a passcode on all investment adviser cell phones?

3. Passwords for access to email are changed frequently (e.g., monthly, quarterly).

What is the investment adviser’s password policy? Does the investment adviser

require a certain length and complexity be maintained in user passwords? How

often are users required to update their passwords?

Ohio Investment Adviser Handbook

4. Policies and procedures detail how to authenticate client instructions received via

email.

Does the investment adviser require that any client transactions initiated over email

be verified with additional information? Does the investment adviser call its clients

to verify their request when withdrawal instructions are received via email?

5. Email communications are secured. (If the response is no, proceed to the next

question.)

Does the investment adviser use a secure email service? Does the investment

adviser store its electronic communications in a secure location (On-site server,

cloud-service, etc.)?

6. Employees and clients are aware that email communication is not secured.

If the investment adviser does not use a secure email service, and does not store

its communication in a secure location, are clients and employees aware of that

information so that they can adjust their business practices accordingly?

Protect – Devices

1. Device access (physical and digital) is permitted for authorized users, including

personnel and clients.

What procedures does the investment adviser have in place to ensure only

authorized users are accessing the investment adviser’s electronic assets? Does

the investment adviser require encryption on all portable electronic devices? Does

the investment adviser require a passcode on all investment adviser cell phones?

2. Device access is routinely audited and updated appropriately.

How often does the investment adviser review its practices and procedures to

ensure compliance and advancement?

3. Devices are routinely backed up and underlying data is stored in a separate location

(i.e., on an external drive, in the cloud, etc.)

If the investment adviser was unable to access the information locally stored on

certain devices, would the investment adviser still be able to fulfill its business

needs?

4. Backups are routinely tested.

A backup of information is not useful if it does not work or contain the correct

information.

5. The investment adviser has written policies and procedures regarding destruction of

electronic data and physical documents.

Ohio Investment Adviser Handbook

How does investment adviser address the disposal of electronic records and

devices? Does the investment adviser use the appropriate method to ensure the

data is not recoverable? This prevents the investment adviser from unintended and

unauthorized disclosure of confidential information.

6. Destruction of electronic data and physical documents are destroyed in accordance

with written policies and procedures.

How often does the investment adviser audit its practices to ensure compliance

with written procedures? What are the ramifications for a failure to comply with the

written procedures? How is discipline handled in such instances?

Protect – Use of Cloud Services

1. Due diligence has been conducted on the cloud service provider prior to signing an

agreement or contract.

Does the investment adviser check to ensure that the third parties it is entrusting

its data to are secure? Is the investment adviser monitoring access to the

information to ensure the third-party is executing the contract with the defined

scope?

2. As part of the due diligence, the investment adviser has evaluated whether the cloud

service provider has safeguards against breaches and a documented process in the

event of breaches.

The investment adviser will want to verify that the third-party is equipped to handle

any cybersecurity incidents that may occur during the course of business. Does

the investment adviser ensure the third-party has a data breach response plan?

Do they test the plan to address any issues it may have prior to a cybersecurity

event occurring?

3. The investment adviser has a business relationship with the cloud service provider and

has the contact information for that entity.

Does the investment adviser execute a specific contract with the third-party that

outlines the scope of the relationship, the use and security of data, the length of

the relationship, and the expectations of confidentiality?

4. The investment adviser is aware of the assignability terms of the contract.

The investment adviser understands what portions, if any, will be assigned to other

parties. Assignability is similar to sub-contracting, and the investment adviser will

want to be aware of what portions of the contract will be fulfilled by another party.

5. The investment adviser understands how the investment adviser’s data is segregated

from other entities’ data within the cloud service.

Ohio Investment Adviser Handbook

Is the investment adviser’s data intermingled with the data of other entities also

using the same provider? Is the investment adviser’s data stored independently of

other entities?

6. The investment adviser is familiar with the restoration procedures in the event of a

breach or loss of data stored through the cloud service.

Does the investment adviser understand what steps of the disaster recovery

process it is responsible for? Has the investment adviser practiced these

procedures to ensure they can be effectively and efficiently performed during a

disaster situation?

7. The investment adviser has written policies and procedures in the event that the cloud

service provider is purchased, closed, or otherwise unable to be accessed.

How will the investment adviser address any issues with the third-party it has

contracted should its data be unavailable for business use?

8. The investment adviser solely relies on free cloud storage.

If the investment adviser does not have a third-party on contract and only uses free

services, is the investment adviser aware of who owns the data that it stores with

the free service?

9. The investment adviser has a back-up of all records off-site.

Is the investment adviser prepared to continue business functions in the event that

all of its on-site data and devices are destroyed?

10. Data containing sensitive or personally identifiable information is stored through a

cloud service.

If the investment adviser stores the non-public information of its clients in a cloud,

what safeguards are in place to ensure that confidential information remains that

way.

11. Data containing sensitive or personally identifiable information, which is stored

through a cloud service, is encrypted.

By encrypting confidential information stored in the cloud, the investment adviser

is adding an additional safeguard to protect the non-public information of its clients.

12. The investment adviser has written policies and procedures related to the use of

mobile devices by staff who access data in the cloud.

How does the investment adviser address employees’ access to non-public

information while off-site? Are employees required to have security features

enabled on those devices? How is that information checked?

Ohio Investment Adviser Handbook

13. The cloud service provider (or its staff) has unfettered access to the investment

adviser’s data stored in the cloud.

As previously mentioned, is the investment adviser aware of the level of privacy

they are obtaining with their third-party service provider?

14. The investment adviser allows remote access to its network (e.g., through use of

VPN).

As previously mentioned, are employees authorized to work off-site? If so, what

precautions and features are required to increase the security of the investment

adviser’s information?

15. The VPN access of employees is monitored.

Does the investment adviser ensure that, even though their traffic is encrypted,

employees are using business resources for business purposes and not

unnecessarily increasing the investment adviser’s likelihood of a cybersecurity

breach by visiting unauthorized sites?

16. The investment adviser has written policies and procedures related to the termination

of VPN access when an employee resigns or is terminated.

Is employee access “cut-off” prior to their formal termination? If not, how soon after

official separation is employee access terminated?

Protect – Use of Investment adviser Websites

1. The investment adviser relies on a parent or affiliated company for the construction

and maintenance of the website.

Who is responsible for updating and managing the investment adviser’s website?

Is it an affiliate or parent company?

2. The investment adviser relies on internal personnel for the construction and

maintenance of the website.

Is there a specific person within the investment adviser that is designated as the

investment adviser’s webmaster? If so, what is the scope of their responsibility and

liability?

3. The investment adviser relies on a third-party vendor for the construction and

maintenance of the website.

Who is responsible for updating and managing the investment adviser’s website?

Is it an external entity?

4. If the investment adviser relies on a third party for website maintenance, there is an

agreement with the third party regarding the services and the confidentiality of

information.

Ohio Investment Adviser Handbook

What due diligence did the investment adviser conduct prior to executing an

agreement with them? Is the investment adviser aware of the scope of privacy

granted by their agreement with the third-party? Who is responsible for website

data breaches?

5. The investment adviser can directly make changes to the website.

If the investment adviser executed an agreement with a third-party for web

services, did the investment adviser maintain control of day-to-day operations?

6. The investment adviser can directly access the domain renewal information and the

security certificate information.

Is the investment adviser able to review logs associated with its webpage(s) to

ensure the security and accuracy of its public-facing information?

7. The investment adviser’s website is used to access client information.

If clients can remotely access their information, what additional steps and

safeguards are in place to protect against unauthorized access and disclosure?

8. SSL or other encryption is used when accessing client information on the investment

adviser’s website.

Does the investment adviser use encrypted sites to add an additional level of

security? Is the investment adviser’s website accessed through HTTP or HTTPS?

9. The investment adviser’s website includes a client portal.

Is there a portion of the investment adviser’s website that houses non-public client

information that clients must log-in to access?

10. SSL or other encryption is used when accessing a client portal.

As previously mentioned, is this portion of the website accessed through a more

secure connection than the other public-facing portions of the website?

11. When accessing the client portal, user authentication credentials (i.e., username and

password) are encrypted.

When a client enters their information, is that data encrypted while being

transmitted to the investment adviser’s webserver?

12. Additional authentication credentials (i.e., challenge questions, etc.) are required

when accessing the client portal from an unfamiliar network or computer.

If the client remote access is an anomaly, what additional steps are required to

authenticate the client’s identity?

13. The investment adviser has written policies and procedures related to a distributed

denial of service issue.

Ohio Investment Adviser Handbook

If the investment adviser’s webpage is inaccessible for any reason—specifically, a

DDoS attack—then how will the investment adviser handle the client impact?

Protect – Custodians & Other Third-Party Vendors

1. The investment adviser’s due diligence on third parties includes cybersecurity as a

component.

When executing agreements with external entities, the investment adviser verifies

the reputation of the third-party and ensures safeguards are in place to protect any

information the third-party will access or possess.

2. The investment adviser has requested vendors to complete a cybersecurity

questionnaire, with a focus on issues of liability sharing and whether vendors have

policies and procedures based on industry standards.

The investment adviser requires any third parties, with whom an agreement is, or

to be, executed, to explain and justify their cybersecurity practices and reviews any

written cybersecurity procedures.

3. The investment adviser understands that the vendor has IT staff or outsources some

of its functions.

What are the third-parties cybersecurity capabilities? Is it well enough equipped to

protect the investment adviser’s information?

4. The investment adviser has obtained a written attestation from the vendor that it uses

software to ensure customer data is protected.

Has the investment adviser obtained written notice that the third-party actively

monitors its electronic assets to verify that unauthorized access or disclosure has

not occurred?

5. The investment adviser has inquired whether a vendor performs a cybersecurity risk

assessment or audit on a regular basis.

Does the third-party regularly review its cybersecurity practices, procedures, and

vulnerabilities to ensure that its systems are secure and that it is protecting the

information that it is entrusted with?

6. The cyber-security terms of the agreement with an outside vendor are not voided

because of the actions of an employee of the investment adviser.

If the investment adviser has executed an agreement with a third-party, under what

circumstances will the contract be terminated? If it is terminated because of the

actions of the investment adviser, or one of its employees, what are the

ramifications?

Ohio Investment Adviser Handbook

7. Confidentiality agreements are signed by the investment adviser and third-party

vendors.

Does the investment adviser execute agreements with the third-party that ensure

its information, or any information related to a breach, will not be disclosed except

as required by law?

8. The investment adviser has been provided enough information to assess the

cybersecurity practices of any third-party vendors.

Is the investment adviser aware of the cybersecurity practices of each of the third

parties with which it has executed an agreement? Is the investment adviser

comfortable with the practices of those third parties as they relate to the practices

of the specific industry of the third-party?

9. [Relevant to custodians only] The investment adviser has discussed with the custodian

matters regarding impersonation of clients and authentication of client orders.

Does the investment adviser discuss with its clients why specific procedures are

in place and provide the client with “best practices” to prevent unauthorized

access, trades, and withdrawals in their accounts?

Protect – Encryption

1. The investment adviser routinely consults with an IT professional knowledgeable in

cybersecurity.

Is the investment adviser capable of effectively and efficiently securing its

electronic resources without the help of a qualified professional? If not, does the

investment adviser employ, or contract, a professional to assist with their

cybersecurity efforts?

2. The investment adviser has written policies and procedures in place to categorize data

as either confidential or non-confidential.

How does the investment adviser classify data stored on its electronic assets? Can

the investment adviser account for all confidential information stored within its

infrastructure and verify that unauthorized access and disclosure has not

occurred?

3. The investment adviser has written policies and procedures in place to address data

security and/or encryption requirements.

Within the investment adviser’s compliance manual, does the investment adviser

have a section addressing the security of its electronic assets and data?

Ohio Investment Adviser Handbook

4. The investment adviser has written policies and procedures in place to address the

physical security of confidential data and systems containing confidential data (i.e.,

servers, laptops, tablets, removable media, etc.).

Within the investment adviser’s compliance manual, does the investment adviser

have a section addressing physical access controls it will utilize to ensure the

security of its electronic assets and data?

5. The investment adviser utilizes encryption on all data systems that contain (or access)

confidential information.

What safeguards does the investment adviser have in place to ensure that the non-

public information it accesses, or stores, is protected from unauthorized

disclosure?

6. The identities and credentials for authorized users are monitored.

Does the investment adviser actively scan its electronic assets and infrastructure

to ensure that unauthorized access is not occurring?

Detect – Anti-Virus Protection and Firewalls

1. The investment adviser regularly uses anti-virus software on all devices accessing the

investment adviser’s network, including mobile phones.

Does the investment adviser require that an anti-virus program be running on all

devices that it authorizes to access its network? If not, does the investment adviser

have any requirements for devices that it authorizes to access its network?

2. The investment adviser understands how the anti-virus software deploys and how to

handle alerts.

Does the investment adviser have a basic understanding of the purposes and

functions of anti-virus software? Arguably more importantly, does the investment

adviser understand what anti-virus software does not do?

3. Anti-virus updates are run on a regular and continuous basis.

Does the investment adviser ensure that the “library” of its anti-virus software is

consistently and constantly updated? This will ensure that the anti-virus software

is current and addresses recently identified virus heuristics.

4. All software is scheduled to update.

Are software patches set to manually update or will the system update software

automatically? Automatic updates remove the time-commitment of manually

ensuring that software is updated as patches become available.

Ohio Investment Adviser Handbook

5. Employees are trained and educated on the basic function of anti-virus programs and

how to report potential malicious events.

Are the investment adviser’s employees aware of their roles and responsibilities

when they suspect the investment adviser has suffered a cybersecurity event?

6. If the alerts are set up by an outside vendor, there is an ongoing relationship between

the vendor and the investment adviser to ensure continuity and updates.

Is there an executed agreement between the investment adviser and any third-

party services providers from which it is obtaining services?

7. A firewall is employed and configured to appropriate to the investment adviser’s needs.

Does the investment adviser understand the basic functions and importance of

utilizing a firewall? Does the investment adviser understand the functions and

settings of its firewall and ensure that it is satisfying the investment adviser’s

needs?

8. The investment adviser has policies and procedures to address flagged network

events.

Does the investment adviser have written policies and procedures outlining how it

will mitigate the occurrence of a suspected cybersecurity event?

Respond – Responding to a Cyber Event

1. The investment adviser has a plan and procedure for immediately notifying authorities

in the case of a disaster or security incident.

Does the investment adviser understand its legal obligations in the event of a

cybersecurity event?

2. The plans and procedures identify which authorities should be contracted based on the

type of incident and who should be responsible for initiating those contacts.

Do the investment adviser’s written policies and procedures document the

authoritative bodies to which it must report the occurrence of specific events?

3. The investment adviser has a communications plan, which identifies who will speak to

the public/press in the case of an incident and how internal communications will be

managed.

Do the investment adviser’s written policies and procedures document the internal

parties responsible for handling external communication? Do the policies and

procedures outline the ramifications for unauthorized parties communicating the

occurrence of a cybersecurity event to external parties?

Ohio Investment Adviser Handbook

4. The communications plan identifies the process for notifying clients.

Do the investment adviser’s written policies and procedures address the internal

parties responsible for communicating a cybersecurity event to the investment

adviser’s clients? Do the policies and procedures document how promptly the

event’s occurrence will be communicated to clients?

Recover – Cyber-insurance

1. The investment adviser has considered whether cyber-insurance is necessary or

appropriate.

Is the investment adviser legally, or contractually, required to maintain cyber-

insurance? If not, does the investment adviser feel that cyber-insurance is

appropriate considering their business model and the associated risks?

2. The investment adviser has evaluated the coverage in a cybersecurity insurance policy

to determine whether it covers breaches, including: breaches by foreign cyber intruders;

insider breaches (e.g., legal expenses, notification expenses, third-party remediation

expenses).

Is the investment adviser aware of the limits of its coverage? Does the investment

adviser understand specifically what events are, and are not, covered?

3. The cybersecurity insurance policy covers notification (clients and regulators) costs.

Is the investment adviser aware of the extent of coverage and total expenses

allotted to cover costs by the cyber-insurance it obtained?

4. The investment adviser has evaluated whether the policy includes first-party coverage

(e.g., damages associated with theft, data loss, hacking and denial of service attacks) or

third-party coverage (e.g., legal expenses, notification expenses, third-party remediation

expenses).

Does the investment adviser understand the specific events whose occurrence are

not covered by its cyber-insurance? How does the investment adviser plan to

mitigate those events?

5. The exclusions of the cybersecurity insurance policy are appropriate for the investment

adviser’s business model.

Has the investment adviser evaluated its business practices/needs and

determined the cybersecurity events excluded by its cyber-insurance policy are not

events that it desires to be covered?

Ohio Investment Adviser Handbook

6. The investment adviser has put into place all safeguards necessary to ensure that the

cybersecurity policy is not voided through the investment adviser’s employee actions,

such as negligent computer security where software patches and updates are not

installed in a timely manner.

Does the investment adviser understand the specific actions and steps it is

required to take to ensure the cyber-insurance policy remains in effect? How does

the investment adviser mitigate the occurrence of events that would void its policy?

Recover – Disaster Recovery

1. The investment adviser has a business continuity plan to implement in the event of a

cybersecurity event.

Does the investment adviser have a written plan addressing how it will respond to

the occurrence of a cybersecurity incident? Has the investment adviser tested this

plan to ensure that it properly works prior to the occurrence of a cybersecurity

incident?

2. The investment adviser has a process for retrieving backed up data and archival copies

of information.

Does the investment adviser maintain data back-ups? Is the investment adviser

aware if these back-ups are stored on-site or off-site? Has the investment adviser

tested the back-ups to ensure they function and contain the intended information?

3. The investment adviser has written policies and procedures for employees regarding

the storage and archival of information.

Does the investment adviser document, in writing, the roles and responsibilities of

its employees should the disaster recovery process be required? Is it stored in a

location that employees are still able to access the information in the event of a

cybersecurity incident?

4. The investment adviser provides training on the recovery process.

Are employees trained on the written policies and procedures and their

responsibilities during the recovery process? Is this training documented to ensure

the investment adviser complies with its written policies and procedures? Are

ramifications for non-compliance explicitly documented?

[* * * * *]

Ohio Investment Adviser Handbook

Appendix K: NASAA’s Confidential Data Inventory

Checklist

Disclaimer: the information provided in this Appendix is for your convenience only, is

illustrative, and is not intended as legal advice.

Confidential Data Inventory

Definitions:

“Personal Identifying Information,” “PII,” and/or “Firm Sensitive Information”: PII is any

data that connects or identifies a specific person or business, which includes name, social

security number, date and place of birth, mother’s maiden name, or financial records

including customer accounts and holding information. Firm Sensitive Information can

include data such as contact information, email addresses, physical addresses, marketing

plans, employee information, financial records, tax filings, etc. Firms can list data at a

group level such as customer account information, or at the granular level such as social

security number, customer name, date of birth, etc. (Please note: Definitions may vary by

State.)

***Consider the questions below to determine where this information may be located

within your firm and to address how it can be protected. Log the information into the chart

below and maintain the inventory through routine internal cybersecurity risk assessments.

How is it captured? – What forms require the information? Is it included in multiple places?

(i.e., Investment contracts, tax filings, custodian account forms)

Where is it physically/digitally located? – Where is the data stored? (i.e., files in a filing

room, saved in a folder on the network drive, stored in a local file)

Who has access? – Who can view the data? (i.e., does the firm use the principle of least

privilege?)

How is the data protected? – What steps does the firm take to secure the stored data?

(i.e., encryption, password protected)

Is the data backed up? – Does the firm copy the data to be used in case of a cybersecurity

incident? Does the firm initiate backups daily, weekly, annually?

Where are the backups located? – Does the firm store the backups on-site, offsite, in the

cloud?

Ohio Investment Adviser Handbook

What is the

confidential

data?

How is it

captured?

Where is it

located?

Who has

access?

How is the

data

protected?

Is the

data

backed

up? How

often?

Where are

the

backups

located?

Ohio Investment Adviser Handbook

Appendix L: Summary of Handbook Changes Since

2020

Page 9 How to Form an Investment Adviser Firm as a Sole Proprietor  updated

minimum competency standards

Page 13 Fingerprinting Requirement  updated fingerprinting guidance

Page 14 Minimum Competency – Series Examinations  updated rules regarding

series exams required for licensure

Page 20 Client records  clarified recordkeeping requirements

Page 21 Suitability/Know your Client Records  included detailed guidance

Page 22 Trusted Contact  included trusted contact form

Page 22 Privacy Policy  added section on privacy policies

Page 23 Miscellaneous Records  included additional types of records to retain

Page 25 Regulatory Assets Under Management (RAUM)  added section on

determining and calculating RAUM

Page 26 Assets Under Advisement  added section on defining assets under

advisement

Page 26 Third Party Relationships  added section on defining third party

relationships e.g., a solicitor relationship

Page 32 Investment Advisory Contracts and Compensation  added prohibition

on mandatory arbitration clauses in customer contracts

Page 39 Fees  added section on defining and determination of unreasonable,

unearned, and excessive fees

Page 42 Fiduciary Standard  added a list of the types of conduct that constitute

a breach of an adviser’s fiduciary duty, and suitability guidance

Page 45 Mandatory Reporting Senior Financial Exploitation with Transaction

Holds  added section describing circumstances under which reporting

of exploitation is appropriate

Page 52 Common Deficiencies  included additional guidance on suitability

Page 70 Appendix F – Determining Regulatory Assets Under Management 

added RAUM “decision tree”

Page 74 Appendix G – Trusted Contact Template  updated trusted contact

template

Page 77 Appendix I – Annual Compliance Checklist  revised to include 2020

updates by NASAA

Page 93 Appendix K – Confidential Data Inventory Checklist  added Appendix