[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Notices]
[Pages 88297-88300]
[FR Doc No: 2016-29300]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-4581; File No. 803-00234]

Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial
Network, LLC; Notice of Application

December 1, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an exemptive order under section 206A
of the Investment Advisers Act of 1940

(``Advisers Act'') providing an exemption from the written disclosure
and consent requirements of section 206(3).

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    Applicants: Wells Fargo Advisors, LLC (``WFA'') and Wells Fargo
Advisors Financial Network, LLC (``FiNet,'' and, together with WFA,
``Applicants'').
    Relevant Advisers Act Sections: Exemption requested under section
206A from the written disclosure and consent requirements of section
206(3).
    Summary of Application: Applicants request that the Commission
issue an order under section 206A exempting them and Future Advisers
(as defined below) from the written disclosure and consent requirements
of section 206(3) with respect to principal transactions with
nondiscretionary advisory client accounts.
    Filing Dates: The application was filed on November 22, 2016.
    Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving Applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on December 27, 2016, and should be accompanied by proof of
service on Applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Advisers Act,
hearing requests should state the nature of the writer's interest, any
facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Commission's Secretary.

Addresses: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants, Laura E. Flores and
Steven W. Stone, Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Ave.
NW., Washington, DC 20004.

For Further Information Contact: Robert Shapiro, Senior Counsel, at
(202) 551-7758 (Chief Counsel's Office, Division of Investment
Management) or Melissa Harke, Senior Special Counsel, at<PHONE_NUMBER>
(Investment Adviser Regulation Office, Division of Investment
Management).

Supplementary Information: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site at http://www.sec.gov/rules/iareleases.shtml or
by calling<PHONE_NUMBER>.
    Applicants seek relief from the written disclosure and consent
requirements of section 206(3) of the Advisers Act that would be
similar to relief currently provided by Advisers Act rule 206(3)-3T
(the ``Rule''), which will expire by its terms on December 31, 2016.
The relief sought by Applicants, if granted, would be subject to
conditions similar to those under the Rule, as well as certain revised
or additional conditions.

Applicants' Representations

    1. WFA and FiNet are each registered as investment advisers with
the Commission and each is a registered broker-dealer. WFA and FiNet
are each indirect subsidiaries and under the common control of Wells
Fargo & Company, a diversified financial services company with
operations around the world. Each of WFA and FiNet offers a number of
advisory programs, including Asset Advisor (the ``Program''), a
nondiscretionary advisory program.
    2. WFA created the Program in 2004; FiNet has been offering the
Program since 2004. In September 2007, a number of WFA's and FiNet's
fee-based brokerage accounts were converted to nondiscretionary
advisory accounts in the Program following the invalidation of former
Rule 202(a)(11)-1 under the Advisers Act. When these accounts had been
fee-based brokerage accounts, the Applicants, in their capacity as
broker-dealers, engaged in principal transactions with their respective
customers in accordance with applicable law. The Applicants currently
rely on the Rule to engage in principal transactions with their client
accounts in the Program.
    3. The Applicants currently have more than 260,000 client accounts
enrolled in the Program. Those accounts have approximately $115 billion
in assets under management as of August 30, 2016. For 2014 and 2015,
WFA and FiNet conducted 27,478 and 2,476 principal trades,
respectively, in reliance on the Rule, involving more than $1.5 billion
and $141 million in securities, respectively. Approximately 78% percent
of the trades done in reliance on the Rule in 2015 were purchases by
client accounts; the average purchase was approximately $43,000.
Approximately 22% percent of the trades done in reliance on the Rule in
2015 were sales from client accounts; the average sale was
approximately $36,000.
    4. Any principal transactions in securities that are underwritten
by Applicants or an affiliate are effected in accordance with section
206(3) of the Advisers Act.
    5. The Applicants acknowledge that the Order, if granted, would not
be construed as relieving in any way the Applicants from acting in the
best interests of an advisory client, including fulfilling the duty to
seek the best execution for the particular transaction for the advisory
client; nor shall it relieve the Applicants from any obligation that
may be imposed by sections 206(1) or (2) of the Advisers Act or by
other applicable provisions of the federal securities laws or
applicable FINRA rules.

Applicants' Legal Analysis

    1. Section 206(3) provides that it is unlawful for any investment
adviser, directly or indirectly, acting as principal for its own
account, knowingly to sell any security to or purchase any security
from a client, without disclosing to the client in writing before the
completion of the transaction the capacity in which the adviser is
acting and obtaining the client's consent to the transaction. Rule
206(3)-3T deems an investment adviser to be in compliance with the
provisions of section 206(3) of the Advisers Act when the investment
adviser, or a person controlling, controlled by, or under common
control with the investment adviser, acting as principal for its own
account, sells to or purchases from an advisory client any security,
provided that the investment adviser complies with the conditions of
the Rule.
    2. Rule 206(3)-3T requires, among other things, that the investment
adviser obtain a client's written, revocable consent prospectively
authorizing the adviser, directly or indirectly, acting as principal
for its own account, to sell any security to or purchase any security
from the client. The consent must be obtained after the adviser
provides the client with written disclosure about: (i) The
circumstances under which the investment adviser may engage in
principal transactions with the client; (ii) the nature and
significance of the conflicts the investment adviser has with its
client's interests as a result of those transactions; and (iii) how the
investment adviser addresses those conflicts. The investment adviser
also must provide trade-by-trade disclosure to the client, before the
execution of each principal transaction, of the capacity in which the
adviser may act with respect to the transaction, and obtain the
client's consent (which may be written or oral) to the transaction. The
Rule is available only to an investment adviser that is also a broker-
dealer registered under section 15 of the

Securities Exchange Act of 1934 (``Exchange Act'') and may only be
relied upon with respect to a nondiscretionary account that is a
brokerage account subject to the Exchange Act, and the rules
thereunder, and the rules of the self-regulatory organization(s) of
which it is a member. Rule 206(3)-3T is not available for principal
transactions if the investment adviser or a person who controls, is
controlled by, or is under common control with the adviser (``control
person'') is the issuer or is an underwriter of the security, except
that an adviser may rely on the Rule for trades in which the adviser or
a control person is an underwriter of non-convertible investment-grade
debt securities.
    3. The investment adviser also must provide to the client a trade
confirmation that, in addition to the requirements of rule 10b-10 under
the Exchange Act, includes a conspicuous, plain English statement
informing the client that the investment adviser disclosed to the
client before the execution of the transaction that the investment
adviser may act as principal in connection with the transaction, that
the client authorized the transaction, and that the investment adviser
sold the security to or bought the security from the client for its own
account. The investment adviser also must deliver to the client, at
least annually, a written statement listing all transactions that were
executed in the account in reliance on the Rule, including the date and
price of each transaction.
    4. Rule 206(3)-3T is scheduled to expire on December 31, 2016. Upon
expiration, the Applicants would be required to provide trade-by-trade
written disclosure to each nondiscretionary advisory client with whom
the Applicants sought to engage in a principal transaction in
accordance with section 206(3). The Applicants submit that their
nondiscretionary clients, through the Applicants' current reliance on
the Rule, have had access to the Applicants' inventory through
principal transactions for a number of years, and expect to continue to
have such access in the future. The Applicants believe that engaging in
principal transactions with their clients provides certain benefits to
their clients, including access to securities of limited availability,
such as municipal bonds, and that the written disclosure and client
consent requirements of section 206(3) act as an operational barrier to
their ability to engage in principal trades with their clients,
especially when the transaction involves securities of limited
availability.
    5. Unless the Applicants are provided an exemption from the written
disclosure and client consent requirements of section 206(3),
Applicants believe that they will be unable to provide the same range
of services and access to the same types of securities to their
nondiscretionary advisory clients as they currently is able to provide
to clients under the Rule.
    6. The Applicants note that, if the requested relief is granted,
they will remain subject to the fiduciary duties that are generally
enforceable under sections 206(1) and 206(2) of the Advisers Act,
which, in general terms, require the Applicants to: (i) Disclose
material facts about the advisory relationship to their clients; (ii)
treat each client fairly; and (iii) act only in the best interests of
their client, disclosing conflicts of interest when present and
obtaining client consent to arrangements that present such conflicts.
    7. The Applicants further note that, in their capacity as broker-
dealers with respect to these accounts, they will remain subject to a
comprehensive set of Commission and FINRA regulations that apply to the
relationship between a broker-dealer and its customer in addition to
the fiduciary duties an adviser owes a client. These rules require,
among other things, that the Applicants deal fairly with their
customers, seek to obtain best execution of customer orders, and make
only suitable recommendations. These obligations are designed to
promote business conduct that protects customers from abusive practices
that may not necessarily be fraudulent, and to protect against unfair
prices and excessive commissions. Specifically, these provisions, among
other things, require that the prices charged by the Applicants be
reasonably related to the prevailing market, and limit the commissions
and mark-ups the Applicants can charge. Additionally, these obligations
require that the Applicants have a reasonable basis to believe that a
recommended transaction or investment strategy involving a security or
securities is suitable for the customer, based on information obtained
through reasonable diligence.
    8. The Applicants request that the Commission issue an Order
pursuant to section 206A exempting them from the written disclosure and
consent requirements of section 206(3) only with respect to client
accounts in the Program and any similar nondiscretionary program to be
created in the future. The Applicants also request that the
Commission's Order apply to future investment advisers controlling,
controlled by, or under common control with the Applicants (``Future
Advisers''). Any Future Adviser relying on any Order granted pursuant
to the application will comply with the terms and conditions stated in
the application.\1\
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    \1\ All entities that currently intend to rely on any order
granted pursuant to the application are named as Applicants.
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Applicants' Conditions

    The Applicants agree that any Order granting the requested relief
will be subject to the following conditions:
    1. The Applicants will exercise no ``investment discretion'' (as
such term is defined in section 3(a)(35) of the Exchange Act), except
investment discretion granted by the advisory client on a temporary or
limited basis \2\, with respect to the client's account.
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    \2\ Discretion is considered to be temporary or limited for
purposes of this condition when the investment adviser is given
discretion: (i) As to the price at which or the time to execute an
order given by a client for the purchase or sale of a definite
amount or quantity of a specified security; (ii) on an isolated or
infrequent basis, to purchase or sell a security or type of security
when a client is unavailable for a limited period of time not to
exceed a few months; (iii) as to cash management, such as to
exchange a position in a money market fund for another money market
fund or cash equivalent; (iv) to purchase or sell securities to
satisfy margin requirements; (v) to sell specific bonds and purchase
similar bonds in order to permit a client to take a tax loss on the
original position; (vi) to purchase a bond with a specified credit
rating and maturity; and (vii) to purchase or sell a security or
type of security limited by specific parameters established by the
client. See, e.g., Temporary Rule Regarding Principal Trades with
Certain Advisory Clients, Investment Advisers Act Release No. 2653
(Sept. 24, 2007) at n. 31.
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    2. The Applicants will not trade in reliance on this Order any
security for which either Applicant or any person controlling,
controlled by, or under common control with the Applicants is the
issuer, or, at the time of the sale, an underwriter (as defined in
section 202(a)(20) of the Advisers Act).
    3. The Applicants will not directly or indirectly require the
client to consent to principal trading as a condition to opening or
maintaining an account with an Applicant.
    4. The advisory client has executed a written revocable consent
prospectively authorizing the Applicants directly or indirectly to act
as principal for their own account in selling any security to or
purchasing any security from the advisory client. The advisory client's
written consent must be obtained through a signature or other positive
manifestation of consent that is separate from or in addition to the
signature indicating the client's consent to the advisory agreement.
The separate or additional signature line or alternative means of
expressing consent must be

preceded immediately by prominent, plain English disclosure containing
either: (a) An explanation of: (i) The circumstances under which an
Applicant directly or indirectly may engage in principal transactions;
(ii) the nature and significance of conflicts with its client's
interests as a result of the transactions; and (iii) how an Applicant
addresses those conflicts; or (b) a statement explaining that the
client is consenting to principal transactions, followed by a cross-
reference to a specific document provided to the client containing the
disclosure in (a)(i)-(iii) above and to the specific page or pages on
which such disclosure is located; provided, however, that if an
Applicant requires time to modify its electronic systems to provide the
specific page cross-reference required by clause (b), the Applicant
may, while updating such electronic systems, and for no more than 90
days from the date of the Order, instead provide a cross-reference to a
specific document provided to the client containing the disclosure in
(a)(i)-(iii) above and to the specific section in such document in
which such disclosure is located. Transition provision: To the extent
that the Applicants obtained fully informed written revocable consent
from an advisory client for purposes of rule 206(3)-3T(a)(3) prior to
December 31, 2016, the Applicants may rely on this Order with respect
to such client without obtaining additional prospective consent from
such client.
    5. The Applicants, prior to the execution of each transaction in
reliance on this Order, will: (a) Inform the advisory client, orally or
in writing, of the capacity in which they may act with respect to such
transaction; and (b) obtain consent from the advisory client, orally or
in writing, to act as principal for their own account with respect to
such transaction.
    6. The Applicants will send a written confirmation at or before
completion of each such transaction that includes, in addition to the
information required by rule 10b-10 under the Exchange Act, a
conspicuous, plain English statement informing the advisory client that
the Applicants: (a) Disclosed to the client prior to the execution of
the transaction that the Applicants may be acting in a principal
capacity in connection with the transaction and the client authorized
the transaction; and (b) sold the security to, or bought the security
from, the client for its own account.
    7. The Applicants will send to the client, no less frequently than
annually, written disclosure containing a list of all transactions that
were executed in the client's account in reliance upon this Order, and
the date and price of each such transaction.
    8. Each Applicant is a broker-dealer registered under section 15 of
the Exchange Act and each account for which the Applicants rely on this
Order is a brokerage account subject to the Exchange Act, and the rules
thereunder, and the rules of the self-regulatory organization(s) of
which it is a member.
    9. Each written disclosure required as a condition to this Order
will include a conspicuous, plain English statement that the client may
revoke the written consent referred to in Condition 4 above without
penalty at any time by written notice to the Applicants in accordance
with reasonable procedures established by the Applicants, but in all
cases such revocation must be given effect within 5 business days of
the Applicants' receipt thereof.
    10. The Applicants will maintain records sufficient to enable
verification of compliance with the conditions of this Order. Such
records will include, without limitation: (a) Documentation sufficient
to demonstrate compliance with each disclosure and consent requirement
under this Order; (b) in particular, documentation sufficient to
demonstrate that, prior to the execution of each transaction in
reliance on this Order, each Applicant informed the relevant advisory
client of the capacity in which the Applicant may act with respect to
the transaction and that it received the advisory client's consent (if
the Applicant informs the client orally of the capacity in which it may
act with respect to such transaction or obtains oral consent, such
records may, for example, include recordings of telephone conversations
or contemporaneous written notations); and (c) documentation sufficient
to enable assessment of compliance by the Applicants with sections
206(1) and (2) of the Advisers Act in connection with its reliance on
this Order.\3\ In each case, such records will be maintained and
preserved in an easily accessible place for a period of not less than
five years, the first two years in an appropriate office of the
Applicants, and be available for inspection by the staff of the
Commission.
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    \3\ For example, under sections 206(1) and (2), an adviser may
not engage in any transaction on a principal basis with a client
that is not consistent with the best interests of the client or that
subrogates the client's interests to the adviser's own. Cf.
Investment Advisers Act Release No. 2106 (Jan. 31, 2003) (adopting
Rule 206(4)-6).
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    11. The Applicants will adopt written compliance policies and
procedures reasonably designed to ensure, and each Applicant's chief
compliance officer will monitor, the Applicant's compliance with the
conditions of this Order. Each Applicant's chief compliance officer
will, on at least a quarterly basis, conduct testing reasonably
sufficient to verify such compliance. Such written policies and
procedures, monitoring and testing will address, without limitation:
(a) Compliance by the Applicant with its disclosure and consent
requirements under this Order; (b) the integrity and operation of
electronic systems employed by the Applicant in connection with its
reliance on this Order; (c) compliance by the Applicant with its
recordkeeping obligations under this Order; and (d) whether there is
any evidence of the Applicant engaging in ``dumping'' in connection
with its reliance on this Order.\4\ Each Applicant's chief compliance
officer will document the frequency and results of such monitoring and
testing, and each Applicant will maintain and preserve such
documentation in an easily accessible place for a period of not less
than five years, the first two years in an appropriate office of the
Applicant, and be available for inspection by the staff of the
Commission.
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    \4\ See Report of the Securities and Exchange Commission,
Investment Trusts and Investment Companies, H.R. Doc. No. 279, 76th
Cong., 2d Sess., pt. 3, at 2581, 2589 (1939); Hearings on S. 3580
Before a Subcommittee of the Commission on Banking and Currency,
76th Cong., 3d Sess. 209, 212-23 (1940); Hearings on S. 3580 Before
the Subcomm. of the Comm. on Banking and Currency, 76th Cong., 3d
Sess. 322 (1940).

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016-29300 Filed 12-6-16; 8:45 am]
 BILLING CODE 8011-01-P