NASAA Series 63Regulation of Investment Advisers and IARsMedium
An investment adviser enters into a merger whereby its advisory contracts will be transferred to the surviving entity. Under the Uniform Securities Act, this assignment of advisory contracts to the new entity is permissible only if:
- Athe adviser notifies clients within 30 days after the assignment has occurred
- Bthe assignment involves only a minority interest transfer
- Cthe SEC pre-approves the merger before any client is notified
- Dthe affected clients consent to the assignment prior to its taking effect
Show answer & explanationAnswer & explanation
Correct answer: D. the affected clients consent to the assignment prior to its taking effect
Advisory contracts may not be assigned without the client's consent. It is an unethical business practice for an adviser to assign a client's contract to another party without obtaining that client's prior consent.
Why the other options are wrong
- A. Notice after the fact is insufficient; consent must be obtained before the assignment.
- B. There is no exception based on the size of the ownership interest transferred.
- C. The SEC does not approve private mergers of advisory firms.
Assignment of Advisory Contracts
An investment adviser may not assign a client's advisory contract to another party without the client's prior consent.
- Assignment includes transfers via merger or change of control
- Consent must be obtained before, not after, the assignment
- Violation is an unethical business practice under the USA
Memory trick: No assignment without permission first