The Ohio Investment Adviser and Investment Adviser ...

The Ohio Investment Adviser and

Investment Adviser Representative

Handbook 4.0

REVISED JANUARY 2022

Ohio Department of Commerce, Division of Securities

Licensing Section

Handbook 4.0 replaces Handbook 3.0 dated March 2020

For the most recent version, visit



Ohio Investment Adviser Handbook

2

Revised Handbook January 2022

The securities industry is a moving and changing industry. To keep up with new investor

protection challenges, it is imperative that the Division of Securities make amendments

and changes to policy and laws as it pertains to investment advisers. Therefore, as part

of the Division¡¯s continuing outreach and education efforts, the Division is revising the

2020 Handbook. Please refer to Appendix L for specific topics that have changed and a

page locator for those changes. And as always, please feel free to contact our office with

any questions.

The Ohio Department of Commerce

The mission of the Ohio Department of Commerce is to safeguard Ohio¡¯s citizens and

visitors and their property and resources, while ensuring reliable marketplaces conducive

to business growth and prosperity.

The Ohio Division of Securities

The Division of Securities, within the Ohio Department of Commerce, administers and

enforces the Ohio Securities Act. The Division licenses broker-dealers, securities

salespersons, investment advisers, and investment adviser representatives. The Division

also registers securities offered for sale to Ohioans. When Ohio Securities law is violated,

the Division can pursue administrative actions, civil injunctive actions, and criminal

referrals.

Mission: Promoting capital formation while protecting Ohio investors from fraudulent

securities and investment schemes through the sale of properly registered securities by

licensed professionals.

Disclaimer: This compilation of material and information was prepared by the Ohio

Division of Securities to provide general information and assistance regarding the

Division¡¯s oversight of investment advisers and investment adviser representatives in

Ohio. This information is not legal advice and is not a substitute for a thorough review of

the relevant statutory provisions set out in Chapter 1707 of the Ohio Revised Code and

related administrative rules set out in Chapter 1301:6-3 of the Ohio Administrative Code.

Ohio Investment Adviser Handbook

Part 1

3

Table of Contents

Part 2

Introduction .................................................................................................................. 6

Part 3

Licensing ¨C Applications, Renewals, Termination ........................................................ 7

Investment Adviser Licensing ______________________________________________ 7

Are You an Investment Adviser under Ohio Law? _____________________________ 7

How to Form an Investment Adviser Firm in Ohio _____________________________ 8

Investment Adviser Branch Offices ________________________________________ 9

How to Form an Investment Adviser Firm as a Sole Proprietor __________________ 9

The ¡°Good Business Repute¡± Standard for IAs ______________________________ 11

Application Review Process ¨C Approval or Denial ____________________________ 11

Investment Adviser Representative Licensing ________________________________ 12

Are You an Investment Adviser Representative under Ohio law? ________________ 12

How do I Apply to be an IAR in Ohio? _____________________________________ 13

Fingerprinting Requirement _____________________________________________ 13

Minimum Competency ¨C Series Examinations ______________________________ 14

Minimum Competency ¨C Professional Designations __________________________ 15

IAR Dual Registration _________________________________________________ 15

The ¡°Good Business Repute¡± Standard for IARs ____________________________ 16

Application Review Process ¨C Approval and Denial __________________________ 16

Renewal and Expiration of a License _______________________________________ 17

How to Terminate a License ¨C Discontinuing Business ________________________ 17

Part 4

Compliance Obligations ..............................................................................................17

Books and Records _____________________________________________________ 17

Financial Records ____________________________________________________ 18

Trading Records _____________________________________________________ 18

Correspondence _____________________________________________________ 19

Advertising Records __________________________________________________ 19

Client Records _______________________________________________________ 20

Suitability/Know Your Client Records _____________________________________ 21

Fiduciary Duty Records ________________________________________________ 21

Trusted Contact ______________________________________________________ 22

Disclosure Records ___________________________________________________ 22

Privacy Policy _______________________________________________________ 22

Compliance Policies and Procedures _____________________________________ 23

Ohio Investment Adviser Handbook

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Miscellaneous Records ________________________________________________ 23

Retention Period of Books and Records ___________________________________ 24

Electronic Storage ____________________________________________________ 24

Books and Records Should be Current ____________________________________ 24

Financial Records Required to be Kept Quarterly ______________________________ 25

The Brochure Rule ¨C Form ADV (Parts 1 and 2) ______________________________ 25

Form ADV Part 1 _____________________________________________________ 25

Regulatory Assets Under Management (RAUM) _____________________________ 25

Assets Under Advisement ______________________________________________ 26

Third Party Relationships ______________________________________________ 26

Form ADV Parts 2A and 2B_____________________________________________ 27

Material Changes ____________________________________________________ 28

Wrap Fee Program Disclosures _________________________________________ 28

Advertising ___________________________________________________________ 30

Performance Advertising _________________________________________________ 30

Investment Advisory Contracts and Compensation ____________________________ 32

Supervision and Compliance Manual _______________________________________ 33

Compliance Manual ____________________________________________________ 33

Custody ______________________________________________________________ 38

Fees ________________________________________________________________ 40

Wrap Fee Program _____________________________________________________ 41

Fiduciary Standard _____________________________________________________ 42

Mandatory Reporting of Senior Financial Exploitation with Transaction Holds ________ 44

Solicitors and Referral Fees ______________________________________________ 46

Best Execution and Soft Dollars ___________________________________________ 47

Aggregation of Client Orders (Batch Orders) _________________________________ 48

Principal Transactions; Agency Cross Transactions; Cross Trades ____________ 48

Other Disclosure Requirements ________________________________________ 49

Overview of the Anti-Fraud and Conduct Standards ____________________________ 49

Part 5

The Division¡¯s Onsite Examination Program ...............................................................50

Onsite Exams Generally _________________________________________________ 50

Common Deficiencies ___________________________________________________ 52

Part 6

Appendices .................................................................................................................54

Appendix A: Frequently Asked Questions ____________________________________ 54

Appendix B: Common Definitions __________________________________________ 57

Ohio Investment Adviser Handbook

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Appendix C: Investment Adviser Flowchart __________________________________ 60

Appendix D: Investment Adviser Representative Flowchart ______________________ 64

Appendix E: Pre-Licensing Exam __________________________________________ 67

Appendix F: Determining Regulatory Assets Under Management _________________ 69

Appendix G: Trusted Contact Template _____________________________________ 73

Appendix H: Standing Letters of Authority (SLOAs) ____________________________ 74

Appendix I: Annual Compliance Checklist ___________________________________ 76

Appendix J: NASAA¡¯s State IA Cybersecurity Checklist and Guidance _____________ 78

Appendix K: NASAA¡¯s Confidential Data Inventory Checklist _____________________ 92

Appendix L: Summary of Handbook Changes Since 2020 _______________________ 94

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