Chapter DFI-Sec 5

DFI-Sec 5.06   Prohibited conduct.

DFI-Sec 5.07   Registration and notice filing period.

DFI-Sec 5.08   Withdrawal of registration.

DFI-Sec 5.09   Denial, suspension, revocation and censure.

DFI-Sec 5.10   Electronic filing.

DFI-Sec 5.11   Federal covered investment adviser notice filing procedure.

DFI-Sec 5.12   Transition filing.

DFI-Sec 5.13   Registration exemptions.

Ch. DFI-Sec 5 History History: Chapter SEC 5 was renumbered chapter DFI-Sec 5 under s. 13.93 (2m) (b) 1., Stats., and corrections made under s. 13.93 (2m) (b) 6. and 7., Stats., Register, December, 1996, No. 492.

DFI-Sec 5.01 DFI-Sec 5.01 Registration procedure.

DFI-Sec 5.01(1) (1) Applications for initial and renewal registration of investment adviser and investment adviser representatives, as well as amendments, reports, notices, related filings and fees, shall be filed with:

DFI-Sec 5.01(1)(a) (a) The division on forms prescribed by the division in s. DFI-Sec 9.01 (1); or

DFI-Sec 5.01(1)(b) (b) The investment adviser registration depository on forms established for the investment adviser registration depository.

DFI-Sec 5.01(2) (2) 

DFI-Sec 5.01(2)(a) (a) A registration application for purposes of s. 551.406, Stats., consists of all information required by the form prescribed under sub. (1), any additional information required by the division and all required fees. Any documents or fees required to be filed with the division that are not permitted to be filed with or cannot be accepted by the investment adviser registration depository or the central registration depository shall be filed directly with the division.

DFI-Sec 5.01(2)(b) (b) An application for initial registration as an investment adviser under this paragraph shall be deemed filed under s. 551.406 (1), Stats., on the date the application is transferred from “NO STATUS” to “PENDING” on the records of the investment adviser registration depository. An application for renewal of a registration as an investment adviser under this paragraph shall be deemed filed under s. 551.406 (4), Stats., when the fee on deposit with the investment adviser registration depository has been allocated to the division.

DFI-Sec 5.01(2)(c) (c) An “application” for initial registration or for renewal of a registration as an investment adviser representative for an investment adviser registered under this chapter or a federal covered investment adviser notice filed under this chapter consists of the payment of Wisconsin investment adviser representative registration or renewal fees to the central registration depository. An application for initial registration as an investment adviser representative under this paragraph shall be deemed “filed” under s. 551.406 (1), Stats., on the date when the application is designated ready for approval on the records of the central registration depository. An application for renewal of a registration as an agent under this paragraph shall be deemed “filed” under s. 551.406 (1), Stats., when the fee on deposit with the central registration depository has been allocated to the division.

DFI-Sec 5.01(2)(e) (e) An electronic signature affixed to any filing made in compliance with the requirements of the investment adviser registration depository or the central registration depository shall constitute irrefutable evidence of legal signature by any individual whose name is typed on the filing.

DFI-Sec 5.01(2)(f) (f)

DFI-Sec 5.01(2)(f)1. 1. Pursuant to s. 551.406 (3) (b), Stats., the effective date of a registration application is deferred until noon on the 45th day after the filing of any amendment completing the application, unless the application otherwise becomes effective under s. 551.406 (3) (a), Stats.

DFI-Sec 5.01(2)(f)2. 2. For purposes of s. 551.406 (3) (b), Stats., a written request for additional information is not limited to the applicant or the applicant’s employing investment adviser, but may include other requests of third-party sources relevant to the application.

DFI-Sec 5.01(2)(f)3. 3. Before action on an application, the division may designate an employee to make an examination of the books, records and affairs of the applicant at the applicant’s expense.

DFI-Sec 5.01(3) (3) 

DFI-Sec 5.01(3)(a) (a) Unless waived under sub. (4), each applicant for an initial registration as an investment adviser or as an investment adviser representative shall take and pass within the two year period immediately preceding the “FILING DATE” of the application reflected on the records of the central registration depository, the post-1999 version of the examination specified in subd. 1., or the post-1999 version of the Series 66 examination specified in subd. 2.

DFI-Sec 5.01(3)(a)1. 1. The Series 65 Uniform Investment Adviser Law Examination.

DFI-Sec 5.01(3)(a)2. 2. The Series 7 General Securities Representative Examination as well as the Series 66 Uniform Combined State Law Examination.

DFI-Sec 5.01(3)(b) (b) If the investment adviser is an entity, then a supervisory or control individual shall take and pass the examination required in par. (a).

DFI-Sec 5.01(4) (4) The examination requirement in sub. (3) shall be waived for any applicant who meets any of the following criteria:

DFI-Sec 5.01(4)(a) (a)

DFI-Sec 5.01(4)(a)1. 1. The applicant has taken and passed either the post-1999 version of the Series 65 Uniform Investment Adviser State Law Examination, or both the post-1999 version of the Series 66 Uniform Combined State Law Examination and the Series 7 General Securities Representative Examination within 2 years prior to the date the application is filed with the division; or

DFI-Sec 5.01(4)(a)2. 2. The applicant has been registered as an agent of a broker-dealer within two years prior to the date the application is filed, based on having passed the post-1999 version of the Series 66 examination and the Series 7 examination.

DFI-Sec 5.01(4)(b) (b) The applicant has been registered as an investment adviser or registered as an investment adviser representative in any jurisdiction in the United States within 2 years prior to the date the application is filed if that jurisdiction required the examinations specified in sub. (3) (a).

DFI-Sec 5.01(4)(c) (c) The applicant has received an order of the division, issued under such conditions as the division may prescribe, waiving the requirement to take and pass the examination in sub. (3).

DFI-Sec 5.01(4)(d) (d) The applicant provides the division with proof that he or she currently holds one of the following professional designations and at the time of filing an application is current and in good standing with the granting authority:

DFI-Sec 5.01(4)(d)1. 1. Certified Financial Planner (CFP) issued by the Certified Financial Planner Board of Standards, Inc.

DFI-Sec 5.01(4)(d)2. 2. Chartered Financial Consultant (ChFC) awarded by the American College, Bryn Mawr, Pennsylvania.

DFI-Sec 5.01(4)(d)3. 3. Personal Financial Specialist (PFS) administered by the American Institute of Certified Public Accountants.

DFI-Sec 5.01(4)(d)4. 4. Chartered Financial Analyst (CFA) granted by the Association for Investment Management and Research.

DFI-Sec 5.01(4)(d)5. 5. Chartered Investment Counselor (CIC) granted by the Investment Adviser Association.

DFI-Sec 5.01(4)(e) (e) The applicant is registered as an agent of a broker-dealer that conducts investment advisory services under its broker-dealer registration who is not required by the agent’s home state to make a separate filing on the central registration depository as an investment adviser representative, but who has previously met the examination requirement in sub. (3) or received a waiver from that requirement under pars. (a) through (d) and (f) and has provided proof that the home state permits transacting business as an investment adviser representative under the agent’s registration.

DFI-Sec 5.01(4)(f) (f)

DFI-Sec 5.01(4)(f)1. 1. The applicant was registered as an investment adviser or registered as an investment adviser representative in this state on December 31, 2008, except that the administrator may require additional examinations for any individual found to have violated any state or federal securities law.

DFI-Sec 5.01(4)(f)2. 2. The applicant was registered in this state on December 31, 2008 as an agent for a registered broker-dealer that was also approved to act as an investment adviser in this state and who also met the examination requirement in sub. (3), except that the administrator may require additional examinations for any individual found to have violated any state or federal securities law.

DFI-Sec 5.01(5) (5) Prior to issuance of a registration as an investment adviser, at least one employee located at the principal office of the investment adviser must be designated in the registration application on the form prescribed in s. DFI-Sec 9.01 (1) (b) and filed with the division to act in a supervisory capacity and be registered as an investment adviser representative for the investment adviser, and must satisfy the examination requirement in sub. (3) unless the examination is waived under sub. (4).

DFI-Sec 5.01(6) (6) Any application for registration which is not completed or withdrawn within 6 months from the date it is initially received may be deemed materially incomplete under s. 551.412 (4) (a), Stats., and the division may issue an order denying effectiveness to the application.

DFI-Sec 5.01(7) (7) Every investment adviser whose principal office is located in this state shall have at least one person registered as an investment adviser representative employed on a full-time basis at its principal office.

DFI-Sec 5.01 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; am. (1), Register, December, 1979, No. 288, eff. 1-1-80; am. (1) and (6), renum. (4) (b) and (c) to be (4) (c) and (d), cr. (4) (b), r. and recr. (5), Register, December, 1980, No. 300, eff. 1-1-81; am. (3) to (5), Register, December, 1982, No. 324, eff. 1-1-83; am. (1) and (2), r. and recr. (3) and (4), Register, December, 1983, No. 336, eff. 1-1-84; am. (3), renum. (4) (g) to be (4) (h), cr. (4) (g), Register, December, 1986, No. 372, eff. 1-1-87; renum. (3) to be (3) (a) and am., renum. (4) (b) to (h) to be (4) (c) to (i), r. (4) (intro.) and (a), cr. (3) (b), (4) (a) and (b), Register, December, 1987, No. 384, eff. 1-1-88; renum. (4) (c) to (i) to be (4) (c) 1. to 4., (4) (b) 3. and 4. and (c) 5. and; am. (3), r. and recr. (4), Register, December, 1992, No. 444, eff. 1-1-93. am. (4) (b) 3. and 4., cr. (4) (c) (intro.), Register, December, 1988, No. 396, eff. 1-1-89; renum. (4) (a), (c) 1. to 5. to be (4) (a) (intro.) and 2. to 6. and am. (intro.), cr. (4) (a) 1., am. (4) (b) (intro.), r. (4) (c) (intro.), Register, December, 1990, No. 420, eff. 1-1-91; am. (3), r. and recr. (4), Register, December, 1992, No. 444, eff. 1-1-93; renum. (3) (a) to (3), r. (3) (b), Register, December, 1994, No. 468, eff. 1-1-95; r. and recr. (3), am. (4) (a) and (5), Register, December, 1995, No. 480, eff. 1-1-96; am. (1), (3) (intro.), (4) (b), (5) and (7), Register, December, 1998, No. 516, eff. 1-1-99; r. and recr. (3), am. (4) (a), cr. (4) (d), Register, December, 1999, No. 528, eff. 1-1-00; emerg. am. (4) (b), cr. (4) (e), eff. 1-1-00; am. (4) (b), cr. (4) (e), Register, May, 2000, No. 533, eff. 6-1-00; emergency r. and recr. (1) and (2), cr. (8), eff. 1-1-01; CR 01-025: r. and recr. (1) and (2), cr. (8), Register July 2001, No. 547 eff. 8-1-01; correction in (1) (b) made under s. 13.93 (2m) (b) 7., Stats., Register December 2001 No. 552; CR 02-102: renum. (1) (a) to be (1) (a) 1. and am., renum. (1) (b) to be (1) (b) 1. and am., cr. (1) (a) 2., (1) (b) 2., am. (2) (a), (c) (d) 3. and (e), Register December 2002 No. 564, eff. 1-1-03; CR 08-077: am. (title), (2) (a) to (c), (4) (b), (d) (intro.), 5., (5) and (6), r. and recr. (1), (4) (a) and (e), r. (2) (d) 1. and (8), renum. (2) (d) 2. and 3. to be DFI-Sec 5.04 (3) (b) and (c), renum. (3) to be (3) (a) and am. (3) (a) (intro.), cr. (2) (f), (3) (b) and (4) (f) Register December 2008 No. 636, eff. 1-1-09; corrections in (2) (c), (3) (a) (intro.) and (4) (e) made under s. 13.92 (4) (b) 6. and 7., Stats., Register December 2008 No. 636; CR 09-056: am. (4) (a) and (b) Register December 2009 No. 648, eff. 1-1-10; CR 10-062: cr. (2) (f) 3., r. and recr. (4) (a) Register September 2010 No. 657, eff. 10-1-10.

DFI-Sec 5.02 DFI-Sec 5.02 Net worth requirement.

DFI-Sec 5.02(1) (1) Each investment adviser registered or required to be registered under ch. 551, Stats., whose principal office is in this state and who accepts prepayment of fees exceeding $1,200 per client that are collected six or more months in advance, shall maintain at all times a positive net worth. The division may require that a current appraisal be submitted in order to establish the worth of any asset.

DFI-Sec 5.02(2) (2) Except as follows, each investment adviser registered or required to be registered under ch. 551, Stats., whose principal office is in this state who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000:

DFI-Sec 5.02(2)(a) (a) Investment advisers having custody solely as a result of a direct fee deduction, as described in s. DFI-Sec 5.035 (4) (a) 2., who comply with all of the conditions in s. DFI-Sec 5.035 (1) (f), and who make and maintain the records required in s. DFI-Sec 5.035 (3) (b), shall not be required to comply with the net worth requirement in this subsection.

DFI-Sec 5.02(2)(b) (b) Investment advisers having custody solely as a result of advising pooled investment vehicles, as defined in s. DFI-Sec 5.035 (4) (a) 3., who comply with all of the conditions in s. DFI-Sec 5.035 (1) (g) or (2) (c) and who create and maintain the records required in s. DFI-Sec 5.035 (3) (c), shall not be required to comply with the net worth requirement in this subsection.

DFI-Sec 5.02(3) (3) If an investment adviser is an individual, the person shall segregate from personal capital an amount sufficient to satisfy the net capital requirement, and the amount so segregated shall be utilized solely for the business for which the investment adviser is registered.

DFI-Sec 5.02(4) (4) The requirements of subs. (1) and (2) shall not apply to any investment adviser that has its principal office in a state other than this state, provided that the investment adviser is registered in that state and is in compliance with that state’s minimum net capital requirements, if any.

DFI-Sec 5.02(5) (5) For purposes of this section, the term “net worth” means an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets any of the following:

DFI-Sec 5.02(5)(a) (a) Prepaid expenses, deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other assets of an intangible nature.

DFI-Sec 5.02(5)(b) (b) Home, home furnishings, automobiles and any other personal items not readily marketable, if the investment adviser is an individual.

DFI-Sec 5.02(5)(c) (c) Advances or loans to stockholders and officers, if the investment adviser is a corporation.

DFI-Sec 5.02(5)(d) (d) Advances or loans to partners or members, if the investment adviser is a partnership or limited liability company.

DFI-Sec 5.02(6) (6) The division may by order exempt any investment adviser whose principal office is in this state from the provisions of this section, either unconditionally or upon specified conditions, if by reason of the special nature of its business or the particular facts and circumstances of the application, the division determines that compliance with the provisions is not necessary in the public interest or for the protection of investors.

DFI-Sec 5.02 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; cr. (3), Register, December, 1992, No. 444, eff. 1-1-93; am. (1), Register, December, 1995, No. 480, eff. 1-1-96; am. (1), renum. (2) and (3) to be (3) and (6) and am. (6), cr. (2), (4) and (5), Register, December, 1998, No. 516, eff. 1-1-99; r. and recr. (1) and (2), Register, December, 1999, No. 528, eff. 1-1-00; CR 04-074: am. (2) Register December 2004 No. 588, eff. 1-1-05; CR 08-077: am. (1), (2) (intro.), (3), (4), (5) (intro.) and (d) Register December 2008 No. 636, eff. 1-1-09.

DFI-Sec 5.03 DFI-Sec 5.03 Investment advisers’ records.

DFI-Sec 5.03(1) (1) Every registered investment adviser whose principal office is in this state shall prepare and keep current at that office, or at a designated office located in this state, as specified in writing to, and permitted by, the division, or at an office under the direct supervision and control of the principal or designated office, the following books and records relating to its business:

DFI-Sec 5.03(1)(a) (a) All partnership agreements, or all articles of incorporation, by-laws, minute books and stock certificate books of the investment adviser.

DFI-Sec 5.03(1)(b) (b) A general ledger (or other records in the case of a sole proprietor) reflecting all asset, liability, income, expense, and capital accounts.

DFI-Sec 5.03(1)(c) (c) A record showing all payments received, including date of receipt, purpose, and from whom received; and all disbursements, including date paid, purpose, and to whom made.

DFI-Sec 5.03(1)(d) (d) A record showing all receivables and payables.

DFI-Sec 5.03(1)(e) (e) All trial balances, financial statements, and internal audit working papers which may be prepared relating to the business of the investment adviser.

DFI-Sec 5.03(1)(f) (f) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any order or instruction. The memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order; and shall show the account for which entered, the date of entry, and the bank, broker or dealer by or through whom executed. Orders entered pursuant to the exercise of discretionary power shall be so designated.

DFI-Sec 5.03(1)(g) (g) Copies of all written communications, correspondence, confirmations, appraisals and other records relating to investment activities of clients.

DFI-Sec 5.03(1)(h) (h) A separate file containing a copy of all complaints made or submitted by clients relating to investment activities for clients, and all investigative inquiries made by law enforcement and securities regulatory authorities to the investment adviser or its investment adviser representatives regarding their securities and investment advisory business, and containing evidence, including representative copies, of the responses made by the investment adviser and its investment adviser representatives to the complaint or investigation. In this paragraph, “complaint” means any written or oral statement of a client or any person acting on behalf of a client alleging a grievance involving the activities of persons under the control of the investment adviser in connection with providing investment advice or placing orders on behalf of clients.

DFI-Sec 5.03(1)(i) (i) A list or other record 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.

DFI-Sec 5.03(1)(j) (j) A copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser or to a third party.

DFI-Sec 5.03(1)(k) (k) A copy of all written agreements entered into by the investment adviser with any client, or with any other person if the agreement relates to the business of the investment adviser.

DFI-Sec 5.03(1)(L) (L) A file containing any advertisement (as defined within the meaning of section 206 (4)-1. of the investment advisers act of 1940) used in connection with the offering of the investment advisory services in this state.

DFI-Sec 5.03(1)(m) (m) A record or information demonstrating compliance with the net worth requirement in s. DFI-Sec 5.02.

DFI-Sec 5.03(1)(n) (n) A record that complies with Rule 204-2 (a) (12) under section 204 of the investment advisers act of 1940 containing information for all securities transactions effected for the account of the investment adviser or any of its employees subject to that rule, including the title and amount of the security involved, the date and nature of the transaction, the execution price, and information regarding client transactions in the same security.

DFI-Sec 5.03(1)(o) (o) A record of the initial offer and delivery, evidenced by the client’s written acknowledgement, as well as the annual offer or delivery, or both, to each client of the adviser’s brochure or other document used to comply with s. DFI-Sec 5.05 (8).

DFI-Sec 5.03(1)(p) (p)

DFI-Sec 5.03(1)(p)1. 1. A copy of each brochure and supplement and each amendment or revision to the brochure or supplement, given or sent to any client or prospective client of the investment adviser as required by s. DFI-Sec 5.05 (8);

DFI-Sec 5.03(1)(p)2. 2. A summary of material changes that are required by Part 2 of Form ADV, but are not contained in the brochure or supplement; and

DFI-Sec 5.03(1)(p)3. 3. A record of the dates that each brochure and supplement, each amendment or revision thereto, and each summary of material changes, was given or offered to any client or to any prospective client who subsequently becomes a client.

DFI-Sec 5.03(1)(q) (q) Copies bearing signatures of the investment adviser’s appropriate signatory and the investment adviser representative, of each initial Form U-4 and each amendment to the disclosure reporting pages of Form U-4. These documents shall be retained by the investment adviser who prepared the filing on behalf of the investment adviser representative.

DFI-Sec 5.03(2) (2) Each registered investment adviser who renders investment supervisory or management service to any client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, maintain and keep current:

DFI-Sec 5.03(2)(a) (a) Records for each client showing the securities purchased or sold on advice of the adviser, and the date, amount, and price of each purchase and sale.

DFI-Sec 5.03(2)(b) (b) Records identifying the client and the current amount or interest owned by each client for each security in which any client has a current position.

DFI-Sec 5.03(2)(c) (c) Written information concerning a client’s net worth, annual income and other financial information, investment objectives and experience and such other information necessary and relied upon by the investment adviser to determine the suitability of any investment recommendation or investment advice to the client. The written information shall be updated when the investment adviser receives information from the client that results in material changes to the client’s annual income, net worth, investment objectives or other changes to information affecting the investment adviser’s ability to make suitable recommendations for the client as required under s. DFI-Sec 5.06 (4).

DFI-Sec 5.03(3) (3) Every registered investment adviser shall preserve for a period of not less than 5 years, the first 2 years in an easily accessible place, all records required under subs. (1) and (2) except that records respecting an account required under sub. (1) (i), (j) and (k) shall be preserved by the investment adviser for a period of not less than 5 years from the end of the first fiscal year during which the last entry was made on such record and records required under sub. (1) (a) shall be preserved by the investment adviser for a period of not less than 3 years after withdrawal or expiration of its registration in this state. The record may be retained by computer if a printed copy of the record can be prepared immediately upon request. In the event a record has been preserved for 2 years as required in this subsection, a microfilm copy may be substituted for the remainder of the required period.