No. 27742 (Repeal and Reenact): R628-19. Requirements for the Use of Investment Advisers by Public Treasurers

DAR File No.: 27742
Filed: 03/11/2005, 01:16
Received by: NL

 

RULE ANALYSIS

Purpose of the rule or reason for the change:

The original rule was written before The Money Management Act, Title 51 Chapter 7, was changed to specifically state that investment advisers were an option and the use of them was governed by Council rule. In the process of drafting rules to do so, several requirements in the rule were moved to the rule that will "certify" investment advisers. The language in this rule will now deal only with what a public treasurer must do. The requirements for investment advisers are covered in another rule.

 

Summary of the rule or change:

The minimum requirements of providing fee information, report formats, how much the funds under management are earning and providing descriptions of securities, have all been moved to Rule R628-15 of the Council as requirements for the investment adviser. Some definitions of terms have been added and are noted as defined in the Act. These terms were not noted in the original rule. Before the statute was changed, there were not certified investment advisers, so the term has been added to this rule and the requirement to use only certified investment advisers has been added. The statement in the purpose paragraph of the notion that these were minimum requirements has been removed because it was felt that this was not a "purpose" for the rule. The requirement of using licensed investment advisers has been removed and is dealt with in Rule R628-15. Public treasurers may now use only certified investment advisers if they choose to use this option to invest. (DAR NOTE: The proposed new Rule R628-15 is under DAR No. 27743 in this issue.)

 

State statutory or constitutional authorization for this rule:

Subsection 51-7-18(2)(b)

 

Anticipated cost or savings to:

the state budget:

None--There is not a requirement to use investment advisers, this rule only provides requirements to follow if a public entity chooses to use advisers. If that is the case, there are costs incurred in fees, which would hopefully be offset by earnings.

 

local governments:

None--There is not a requirement to use investment advisers, this rule provides requirements to follow if a public entity chooses to use advisers. If they do, there are costs incurred in fees based on the amount of funds under management which is difficult to cost out. These fees would hopefully be offset by earnings on the funds being managed.

 

other persons:

None--This rule deals only with the potential use of investment advisers by public treasurers.

 

Compliance costs for affected persons:

There are none. This rule only provides requirements for use of investment advisers by public treasurers.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

There is no direct impact. The proposed rule requires use of certified investment advisers pursuant to Rule R628-15. Any impact on businesses will ensue from compliance with Rule R628-15. Certified investment advisers who provide services to public treasurers will presumably earn advisory fees. Larry Richardson, Chair

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Money Management Council
Administration
Room E315 EAST OFFICE BLDG
STATE CAPITOL COMPLEX
PO BOX 142315
SALT LAKE CITY UT 84114-2315

 

Direct questions regarding this rule to:

Ann Pedroza at the above address, by phone at 801-538-1883, by FAX at 801-538-1465, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

05/02/2005

 

This rule may become effective on:

05/03/2005

 

Authorized by:

Larry Richardson, Chair

 

 

RULE TEXT

R628. Money Management Council, Administration.

R628-19. Requirements for the Use of Investment Advisers by Public Treasurers.

[R628-19-1. Authority.

This rule is issued pursuant to Section 51-7-18(2)(b).

 

R628-19-2. Scope.

This rule establishes basic requirements for public treasurers when using investment advisers.

 

R628-19-3. Purpose.

The purpose of this rule is to outline requirements for public treasurers who are considering utilizing investment advisers to invest public funds. These are minimum requirements and not exhaustive criteria to be used when choosing an adviser.

 

R628-19-4. Definitions.

(1) For purposes of this rule:

(a) Investment adviser as used in this rule has the same meaning as defined in Section 61-1-13(15).

(b) Investment adviser representative as used in this rule has the same meaning as defined in Section 61-1-13(16).

(c) Realized rate of return means: yield calculated by combining interest earned, discounts accreted and premiums amortized, plus any gains or losses realized during the month, less all fees, divided by the average daily balance during the reporting period. The realized return should then be annualized.

 

R628-19-5. General Rule.

When considering and using an investment adviser the public treasurer shall follow these minimum requirements:

(1) A person offering investment advisory services to a public treasurer shall at all times be licensed as an investment adviser or an investment adviser representative with the Utah Securities Division.

(2) The public treasurer shall request and the investment adviser shall furnish, a clear and concise written explanation of any and all fees and the fee structure.

(3) The public treasurer shall request and the investment adviser shall furnish, examples of report formats which shall reflect at a minimum the following information:

(a) the realized rate of return on the funds under the advisers management reported monthly on an actual over 360 day basis; and

(b) a description of the security including the name, interest rate, maturity date and purchase date of the security.

(4) All transactions must be in full compliance with all aspects of the Money Management Act and Rules of the Council particularly those requirements governing safekeeping, utilizing certified dealers, qualified depositories and purchasing only the types of securities listed in 51-7-11., 51-7-12. and 51-7-13. as applicable.

(5) Transaction confirmations shall be provided on every trade transacted for the public entity, within five business days of trade date by the certified dealer, to the public treasurer.

 

R628-19-6. Reporting to the Council.

When a public treasurer has contracted with an investment adviser for the management of public funds, the public treasurer shall provide the detail of those investments to the Council, pursuant to Section 51-7-18.2.

 

KEY: securities, investment adviser, public funds

February 10, 2004

51-7-18(2)(b)

61-1-13]

R628-19-1. Authority.

This rule is issued pursuant to Section 51-7-18(2)(b).

 

R628-19-2. Scope.

This rule establishes basic requirements for public treasurers when using investment advisers.

 

R628-19-3. Purpose.

The purpose of this rule is to outline requirements for public treasurers who are considering utilizing investment advisers to invest public funds.

 

R628-19-4. Definitions.

(1) The following terms are defined in Section 51-7-3 of the Act, and when used in this rule, have the same meaning as in the Act:

(a) "Certified investment adviser";

(b) "Council":

(c) "Director"; and

(d) "Investment adviser representative".

(2) For purposes of this rule:

(a) "Investment adviser" means either a federal covered adviser as defined in Section 61-1-13 or an investment adviser as defined in Section 61-1-13.

 

R628-19-5. General Rule.

1. A public treasurer may use an investment adviser to conduct investment transactions on behalf of the public treasurer as permitted by statute, rules of the Council, and local ordinance or policy.

2. A public treasurer using an investment adviser to conduct investment transactions on behalf of the public treasurer is responsible for full compliance with the Act and rules of the Council.

3. Due diligence in the selection of an investment adviser and in monitoring compliance with the Act and Rules of the Council and the performance of investment advisers is the responsibility of the public treasurer. (The Council advises public treasurers that reliance on certification by the Director may not be sufficient to fully satisfy prudent and reasonable due diligence.)

4. The public treasurer shall assure compliance with the following minimum standards:

(a) A public treasurer may use a Certified investment adviser properly designated pursuant to R628-15.

(b) A public treasurer's use of a Certified investment adviser shall be governed by a written investment advisory services agreement between the public treasurer and the Certified investment adviser. Terms of the agreement shall conform to the requirements of R628-15, and shall be adopted pursuant to all procurement requirements of statute and local ordinance or policy.

(c) Prior to entering into an investment advisory services agreement with a Certified investment adviser, the public treasurer shall request and the investment adviser shall furnish, the SEC Form ADV Part II for review and consideration by the public treasurer.

(d) All investment transactions and activities of the public treasurer and the Certified investment adviser must be in full compliance with all aspects of the Money Management Act and Rules of the Council particularly those requirements governing criteria for investments, safekeeping, utilizing only certified dealers or qualified dealers, and purchasing only the types of securities listed in 51-7-11., 51-7-12. and 51-7-13. as applicable.

(e) Prior to entering into an investment advisory services agreement with a Certified investment adviser, the public treasurer shall request and the investment adviser shall furnish a clear and concise explanation of the investment adviser's program, objectives, management approach and strategies used to add value to the portfolio and return, including the methods and securities to be employed.

5. If selection of a Certified investment adviser to provide investment advisory services to a public treasurer is based upon the investment adviser's representation of special skills or expertise, the investment advisory services agreement shall require the Certified investment adviser to act with the degree of care, skill, prudence, and diligence that a person having special skills or expertise acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

6. The public treasurer is advised to review and consider standards of practice recommended by other sources, such as the Government Finance Officers Association, in the selection and management of investment adviser services.

 

R628-19-6. Reporting to the Council.

When a public treasurer has contracted with an investment adviser for the management of public funds, the public treasurer shall provide the detail of those investments to the Council, pursuant to Section 51-7-18.2.

 

KEY: securities, investment advisers, public funds

2005

51-7-18(2)(b)

61-1-13