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

DAR File No.: 27137
Filed: 09/01/2004, 04:00
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The Money Management Council received comments from a public hearing held 07/07/2004 which required additional changes to the original filing.

 

Summary of the rule or change:

These changes add a clarification regarding public treasurers who operate under Rule R628-2. It also clarifies what an investment adviser is not. The charge to not rely on certification as the only means of due diligence to hire an investment adviser, has been changed to a suggestion. (DAR NOTE: This change in proposed rule has been filed to make additional changes to a proposed amendment that was published in the May 15, 2004, issue of the Utah State Bulletin, on page 31. Underlining in the rule below indicates text that has been added since the publication of the proposed rule mentioned above; strike-out indicates text that has been deleted. You must view the change in proposed rule and the proposed amendment together to understand all of the changes that will be enforceable should the agency make this rule effective.)

 

State statutory or constitutional authorization for this rule:

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

 

Anticipated cost or savings to:

the state budget:

There are no additional costs from what was identified in the original filing for the State budget.

 

local governments:

There are no additional costs from what was identified in the original filing for the Local government.

 

other persons:

There would be no costs associated with complying with this rule change for any persons; and there were no costs in the original filing.

 

Compliance costs for affected persons:

There would be no costs associated with complying with this rule change for any persons; and there were no costs in the original filing.

 

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

This rule will have no fiscal impact on businesses as it only applies to Utah public treasurers.

 

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:

10/15/2004

 

This rule may become effective on:

10/16/2004

 

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, and recognizes an exception with regard to public treasurers to which R628-2 applies concerning investment transactions conducted by such public treasurer directly with issuers of the investment securities, including, but not limited to investment transactions conducted with mutual funds, commingled investment funds, and private limited partnerships.

 

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

(i) Investment adviser, with respect to public treasurers to which R628-2 applies, does not mean a mutual fund, commingled investment fund, private limited partnership and similar limited liability investments through which such public treasurer may conduct investment transactions directly with issuers of investment securities, in accordance with Section 51-7-11(1)(a), R628-2-4(A)(2), and this R628-19.

(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.

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]compliance with the Act and Rules of the Council and 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.](The Council advises public treasurers that reliance on certification by the Director may not be sufficient to 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

2004

51-7-18(2)(b)

61-1-13