No. 27137 (Amendment): R628-19. Requirements for the Use of Investment Advisers by Public Treasurers

DAR File No.: 27137
Filed: 04/30/2004, 04:27
Received by: NL

 

RULE ANALYSIS

Purpose of the rule or reason for the change:

The Money Management Act was amended this legislative session (H.B. 114), specifically regarding the use of investment advisers by public treasurers. These amendments required that changes be made to the rule to reflect the law. (DAR NOTE: H.B. 114 is found at UT L 2004 Ch 248, and was effective May 3, 2004.)

 

Summary of the rule or change:

The changes incorporate new definitions of certified investment advisers and requires that public treasurers use only Certified investment advisers as defined in Rule R628-15. Additional changes in the rule instruct the public treasurer to review the certified investment adviser's written programs, objectives, management, approach and strategies. (DAR NOTE: The proposed amendment to Rule R628-15 is under DAR No. 27136 in this issue.)

 

State statutory or constitutional authorization for this rule:

Subsections 51-7-3(1) and 51-7-18(2)(b)(v)

 

Anticipated cost or savings to:

the state budget:

The requirement to be licensed as an investment adviser has been removed from this rule. Any fees required to be licensed or certified are now under another rule. So there is no income associated with rule.

 

local governments:

None--In theory, any management fee charged by advisers will be offset by earnings on the funds under management.

 

other persons:

The requirement to be licensed as an investment adviser has been removed from this rule. Any fees required to be licensed or certified are now under another rule. There are no costs associated with this rule.

 

Compliance costs for affected persons:

The licensing requirement has been moved to another rule, there are no costs for other persons under this rule.

 

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

This rule applies only to Utah public treasurers and has no fiscal impact on businesses.

 

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:

06/14/2004

 

This rule may become effective on:

06/15/2004

 

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) 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" [as used in this rule has the same meaning as defined in Section 61-1-13(15).]means either a federal covered adviser as defined in Section 61-1-13 or an investment adviser as defined in Section 61-1-13.[

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

[(c)](b) "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 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 the performance of investment advisers is the responsibility of the public treasurer. In that regard, the public treasurer may not rely on certification by the Director as satisfaction of prudent and reasonable due diligence on the part of the public treasurer.

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

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

([2]b) [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.]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.

([3]c) Prior to entering into an investment advisory services agreement with a Certified investment adviser, [T]the public treasurer shall request and the investment adviser shall furnish, [examples of report formats which shall reflect at a minimum the following information:]the SEC Form ADV Part II for review and consideration by the public treasurer.

[(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]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,[ qualified depositories] and purchasing only the types of securities listed in 51-7-11., 51-7-12. and 51-7-13. as applicable.

([5]e) [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.]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

2004

51-7-18(2)(b)

61-1-13