Investment Adviser Rulemaking — Notice of Proposed Rule Making (Form CR-102)

PROPOSED RULE MAKING
CODE REVISER USE ONLY
CR-102 (June 2024)
(Implements RCW 34.05.320)
Do NOT use for expedited rule making
Agency: Department of Financial Institutions, Securities Division ☒ Original Notice ☐ Supplemental Notice to WSR ☐ Continuance of WSR ☒ Preproposal Statement of Inquiry was filed as WSR 25-09-059 ; or ☐ Expedited Rule Making--Proposed notice was filed as WSR ; or ☐ Proposal is exempt under RCW 34.05.310(4) or 34.05.330(1); or ☐ Proposal is exempt under RCW . Title of rule and other identifying information: (describe subject) Investment Advisers, Chapter 460-24A WAC Hearing location(s):
Date: Time: Location: (be specific) Comment:
August 26, 2026 11 a.m. Dept. of Financial Institutions 150 Israel Road SW Tumwater, WA 98501 Teams option available. Information will be posted on the Agency’s Rulemaking Docket webpage at https://dfi.wa.gov/rulemaking/investment-adviser￾rulemaking Date of intended adoption: August 27, 2026 (Note: This is NOT the effective date) Submit written comments to: Assistance for persons with disabilities:
Name Jill Vallely Contact Keera Earskine
Address P.O. Box 41200, Olympia, WA 98504-1200 Phone (360) 902-8760 Email jill.vallely@dfi.wa.gov Fax Fax TTY 1-800-833-6384 Other Email keera.earskine@dfi.wa.gov Beginning (date and time) July 22, 2026 Other By (date and time) August 25, 2026 By (date) August 25, 2026 Purpose of the proposal and its anticipated effects, including any changes in existing rules: The Securities Division proposes to amend the investment adviser rules in Chapter 460-24A WAC to make changes consistent with federal law and NASAA Model Rules, and to add protections for the investing public who use the services of investment advisers. The proposed rules would make the following changes:

• Revise WAC 460-24A-005 to add new definitions used in NASAA Model Rules to be adopted in other sections;

• Revise the examination requirements in WAC 460-24A-050 to adopt the NASAA Investment Adviser Representative
  Examination Validity Extension Program Model Rule and to reflect recent amendments to the NASAA Examination Requirements Model Rule;

• Revise WAC 460-24A-050(6) to require the filing of an investment adviser’s business continuity plan with an application
  for registration, and revise WAC 460-24A-205 to require filing of any material amendments to the business continuity plan;

• Add a new rule at WAC 460-24A-051 to adopt a requirement for investment advisers to maintain an error and omissions
  insurance policy, and revise WAC 460-24A-205 to require annual proof of errors and omissions insurance.

• Add a new rule at WAC 460-24A-056 to adopt the NASAA IAR Continuing Education Model Rule;

• Revise WAC 460-24A-057(2) to increase delinquency fee from $50 to $100. This increase would conform to the
  delinquency fee applicable to broker-dealers under WAC 460-20C-050(3);

• Revise the private fund adviser exemption at WAC 460-24A-071 to make corrections and update references to federal
  rules;

• Revise the venture capital fund adviser exemption at WAC 460-24A-072 to update references to federal rules;

• Revise the advertising rule at WAC 460-24A-100 to adopt the provisions of the SEC Marketing Rule, Rule 206(4)-1;

• Revise the custody rules at WAC 460-24A-106, -107, and -109 to make clarifications, and repeal the custody rule at
  WAC 460-24A-108;

• Add a new rule at WAC 460-24A-121 to specify the required content of the investment adviser’s written physical and
  cybersecurity policies and procedures;

• Revise the material nonpublic information policies and procedures rule at WAC 460-24A-122 to add a requirement for
  the investment adviser to deliver a privacy policy to each client;

• Add a new rule at WAC 460-24A-123 to specify the required content of the investment adviser’s code of ethics.

• Revise the proxy voting policies and procedures requirement at WAC 460-24A-125 to require that the investment
  adviser conduct an annual review of the policy;

• Revise the performance compensation rule at WAC 460-24A-150 to adopt the latest definition of “qualified client”
  promulgated by the SEC, and to add a provision to allow the Securities Administrator to update the definition by order to conform to the periodic inflation adjustments promulgated by the SEC;

• Revise the books and records rule at WAC 460-24A-200 to add a requirement to retain documentation of due diligence
  of third-party vendors, and to conform recordkeeping requirements to the SEC Marketing Rule and the NASAA Model Rule for Investment Adviser Written Policies and Procedures;

• Revise the notice of changes rule at WAC 460-24A-205 to require the filing of amendments to Form BR if it has become
  incomplete or inaccurate, to require filing of amendments to the business continuity plan, and to clarify that an investment adviser may not use new or amended advisory contracts or offering materials until cleared by the Securities Administrator;

• Revise the unethical practices rule at WAC 460-24A-220 to revise subsections (6) and (7) to allow borrowing from or
  lending to relatives; and add new subsections (27) to (29) to address unpaid arbitration awards; and

• Make other clarifications and corrections.
  Reasons supporting proposal: The investment adviser rules in Chapter 460-24A WAC were last updated in 2019. Since that time, there have been updates to federal law and NASAA Model Rules. The proposed amendments will promote uniformity by making Washington’s rules consistent with federal law and NASAA Model Rules. By adopting the provisions of the SEC Marketing Rule, the proposed amendments will promote equity by allowing state-registered investment advisers to advertise in the same manner as federal-covered advisers. The proposed amendments will increase investor protection by requiring investment adviser representatives to complete continuing education. In addition, the proposed amendments will increase investor protection by requiring state-registered investment advisers to maintain an errors and omissions insurance policy. The proposed amendments will make necessary updates, clarifications, and corrections. Statutory authority for adoption: RCW 21.20.450 Statute being implemented: RCW 21.20 Is rule necessary because of a:
  Federal Law? ☐ Yes ☒ No
  Federal Court Decision? ☐ Yes ☒ No
  State Court Decision? ☐ Yes ☒ No
  If yes, CITATION:
  Agency comments or recommendations, if any, as to statutory language, implementation, enforcement, and fiscal matters: None. Name of proponent: (person or organization) Department of Financial Institutions Type of proponent: ☐ Private. ☐ Public. ☒ Governmental. Name of agency personnel responsible for:
  Name Office Location Phone
  Drafting Jill Vallely 150 Israel Road SW, Tumwater, WA 98501 (360) 902-8760 Implementation Mark Kissler 150 Israel Road SW, Tumwater, WA 98501 (360) 902-8760 Enforcement Faith Anderson 150 Israel Road SW, Tumwater, WA 98501 (360) 902-8760 Is a school district fiscal impact statement required under RCW 28A.305.135? ☐ Yes ☒ No If yes, insert statement here:
  The public may obtain a copy of the school district fiscal impact statement by contacting:
  Name
  Address
  Phone
  Fax
  TTY
  Email

Other
Is a cost-benefit analysis required under RCW 34.05.328?
☐ Yes: A preliminary cost-benefit analysis may be obtained by contacting:
Name
Address
Phone
Fax
TTY
Email
Other
☒ No: Please explain: The Department of Financial Institutions is not one of the agencies listed in RCW 34.05.328(5). Regulatory Fairness Act and Small Business Economic Impact Statement Note: The Governor's Office for Regulatory Innovation and Assistance (ORIA) provides support in completing this part. (1) Identification of exemptions:
This rule proposal, or portions of the proposal, may be exempt from requirements of the Regulatory Fairness Act (see
chapter 19.85 RCW). For additional information on exemptions, consult the exemption guide published by ORIA. Please
check the box for any applicable exemption(s):
☐ This rule proposal, or portions of the proposal, is exempt under RCW 19.85.061 because this rule making is being adopted solely to conform and/or comply with federal statute or regulations. Please cite the specific federal statute or regulation this rule is being adopted to conform or comply with, and describe the consequences to the state if the rule is not adopted. Citation and description:
☐ This rule proposal, or portions of the proposal, is exempt because the agency has completed the pilot rule process defined by RCW 34.05.313 before filing the notice of this proposed rule. ☐ This rule proposal, or portions of the proposal, is exempt under the provisions of RCW 15.65.570(2) because it was adopted by a referendum. ☐ This rule proposal, or portions of the proposal, is exempt under RCW 19.85.025(3). Check all that apply:
☐ RCW 34.05.310 (4)(b) ☐ RCW 34.05.310 (4)(e)
(Internal government operations) (Dictated by statute) ☐ RCW 34.05.310 (4)(c) ☐ RCW 34.05.310 (4)(f) (Incorporation by reference) (Set or adjust fees) ☐ RCW 34.05.310 (4)(d) ☐ RCW 34.05.310 (4)(g) (Correct or clarify language) ((i) Relating to agency hearings; or (ii) process requirements for applying to an agency for a license or permit) ☐ This rule proposal, or portions of the proposal, is exempt under RCW 19.85.025(4). (Does not affect small businesses). ☐ This rule proposal, or portions of the proposal, is exempt under RCW . Explanation of how the above exemption(s) applies to the proposed rule:
(2) Scope of exemptions: Check one.
☐ The rule proposal: Is fully exempt. (Skip section 3.) Exemptions identified above apply to all portions of the rule proposal. ☐ The rule proposal: Is partially exempt. (Complete section 3.) The exemptions identified above apply to portions of the rule proposal, but less than the entire rule proposal. Provide details here (consider using this template from ORIA):
☒ The rule proposal: Is not exempt. (Complete section 3.) No exemptions were identified above. (3) Small business economic impact statement: Complete this section if any portion is not exempt. If any portion of the proposed rule is not exempt, does it impose more-than-minor costs (as defined by RCW 19.85.020(2)) on businesses? ☐ No Briefly summarize the agency’s minor cost analysis and how the agency determined the proposed rule did not impose more-than-minor costs. ☒ Yes Calculations show the rule proposal likely imposes more-than-minor cost to businesses and a small business economic impact statement is required. Insert the required small business economic impact statement here:

Small Business Economic Impact Statement
Chapter 460-24A WAC
Investment Advisers
July 6, 2026
SECTION 1:
Description of the Proposed Rule Amendments
The Department of Financial Institutions, Securities Division has prepared this Small Business Economic Impact Statement (SBEIS) in support of proposed amendments to the investment adviser rules in Chapter 460-24A WAC. Prior to preparing this Small Business Economic Impact Statement, the Securities Division prepared a preliminary draft of amendments to Chapter 460-24A WAC and conducted a survey to assess the economic impact of the potential rule amendments. The results of the survey are discussed in Sections 3 through 6 of this Small Business Economic Impact Statement. The preliminary rules draft amended 25 sections, added four new sections, and repealed one section. The preliminary rules draft included the following substantive changes:

• Revised WAC 460-24A-005 to add new definitions used in NASAA Model Rules to be adopted in other sections.
• Revised the examination requirements in WAC 460-24A-050 to adopt the NASAA Investment Adviser Representative
  Examination Validity Extension Program Model Rule and to reflect recent amendments to the NASAA Examination Requirements Model Rule.
• Revised WAC 460-24A-050(6) to require the filing of an investment adviser’s business continuity plan with an
  application for registration, and revised WAC 460-24A-205 to require filing of any material amendments to the business continuity plan.
• Added a new rule at WAC 460-24A-051 to adopt a requirement for investment advisers to maintain an error and
  omissions insurance policy, and revised WAC 460-24A-205 to require annual proof of errors and omissions insurance.
• Added a new rule at WAC 460-24A-056 to adopt the NASAA IAR Continuing Education Model Rule.
• Revised WAC 460-24A-057(2) to increase delinquency fee from $50 to $100. This increase would conform to the
  delinquency fee applicable to broker-dealers under WAC 460-20C-050(3).
• Revised the private fund adviser exemption at WAC 460-24A-071 to make corrections and update references to federal
  rules.
• Revised the venture capital fund adviser exemption at WAC 460-24A-072 to update references to federal rules.
• Revised the advertising rule at WAC 460-24A-100 to adopt the provisions of the SEC Marketing Rule, SEC Rule 206(4)-

• Revised the custody rules at WAC 460-24A-106, -107, and -109 to make clarifications, and repealed the custody rule
  at WAC 460-24A-108.
• Added a new rule at WAC 460-24A-121 to specify the required content of the investment adviser’s written physical and
  cybersecurity policies and procedures.
• Revised the material nonpublic information policies and procedures rule at WAC 460-24A-122 to add a requirement for
  the investment adviser to deliver a privacy policy to each client.
• Added a new rule at WAC 460-24A-123 to specify the required content of the investment adviser’s code of ethics.
• Revised the proxy voting policies and procedures requirement at WAC 460-24A-125 to require that the investment
  adviser conduct an annual review of the policy.
• Revised the advisory agreement rule at WAC 460-24A-130 to require that advisory agreements state the physical and
  mailing address of the investment adviser’s place of business.*
• Revised the performance compensation rule at WAC 460-24A-150 to adopt the latest definition of “qualified client”
  promulgated by the SEC, and to add a provision to allow the Securities Administrator to update the definition by order to conform to the periodic inflation adjustments promulgated by the SEC.
• Revised the books and records rule at WAC 460-24A-200 to add a requirement to retain documentation of due diligence
  of third-party vendors, to add a requirements to retain a trusted contact person for clients,* to add a requirements to keep a hard copy of the business continuity plan,* and to conform recordkeeping requirements to the SEC Marketing Rule and the NASAA Model Rule for Investment Adviser Written Policies and Procedures.
• Revised the notice of changes rule at WAC 460-24A-205 to require the filing of amendments to Form BR if it has
  become incomplete or inaccurate, and to clarify that an investment adviser may not use new or amended advisory contracts or offering materials until cleared by the Securities Administrator.
• Revised the unethical practices rule at WAC 460-24A-220 to revise subsections (6) and (7) to allow borrowing from or
  lending to relatives; add new subsections (27) to (29) to address unpaid arbitration awards; and add a new subsection (30) to state that it is an unethical practice to fail to keep a copy of the written advisory contract.* *The Securities Division eliminated these provisions upon review of the economic impact survey results, as described in Section 6 below.

SECTION 2:
Identify which businesses must comply with the proposed rule using the North American Industry Classification System (NAICS) codes and the minor cost thresholds. All investment advisers registered or required to be registered in Washington under RCW 21.20.040(3) will be required to comply with the proposed rules. In addition, all investment adviser representatives who are registered or required to be registered in Washington under RCW 21.20.040(3) will be required to comply with the proposed rules that pertain to investment adviser representatives, including the unethical practices rule and the draft rule to adopt a continuing education requirement. Federal covered advisers must comply with the rules regarding unethical practices, and their investment adviser representatives who are registered or required to be registered in Washington under RCW 21.20.040(3) must comply with the rules pertaining to investment adviser representatives. Exempt reporting advisers must comply with the private fund adviser exemption rule or the venture capital fund adviser rule, as applicable. The NAICS code for investment advisers is 523940. The minor cost threshold that applies to this rulemaking under the Regulatory Fairness Act, RCW 19.85, is a cost per business of less than three-tenths of one percent of annual revenue or income, or $100, whichever is greater, or one percent of annual payroll.
SECTION 3:
Analyze the probable cost of compliance.
In drafting the proposed rules, the Securities Division attempted to balance the business concerns of investment advisers with the Securities Division’s mission to protect the investing public and to promote confidence in the capital markets. We anticipate that compliance with certain of the proposed rules may increase compliance costs for some investment advisers. While the proposed rules may increase costs to investment advisers, the Securities Division believes the proposed rules will increase investor protection. Further, as described in Section 6, the Securities Division made certain revisions to the initial rules draft to reduce costs. Survey of Investment Advisers For the preparation of a Small Business Economic Impact Statement, RCW 19.85.040 provides that an agency may survey a representative sample of affected businesses to assist in the accurate assessment of the costs of proposed rules. To that end, the Securities Division conducted a survey to gather information from its registered investment advisers, its exempt reporting advisers, and its notice-filed federal covered advisers with a principal place of business in Washington. The Securities Division prepared an online survey designed to determine the economic impact of the draft amendments on small businesses. On February 27, 2026, the Securities Division sent an e-mail containing a link to the online survey to the Investment Adviser Registration Depository (IARD) contact person for all Washington-registered investment advisers, all Washington-filed exempt reporting advisers, and all notice-filed federal covered advisers with principal places of business in Washington. The email explained the reasons for conducting the survey and requested that each investment adviser’s Chief Compliance Officer or other appropriate representative complete the online survey. The email also provided links to the draft rules and a PDF copy of the survey questions. The survey consisted of 25 questions. Each substantive question in the survey focused on amendments in the draft rules by topic and provided a background statement briefly explaining the draft amendments. The survey asked whether the draft amendments would increase costs. If a respondent answered “yes,” the survey requested information on the additional costs of compliance with that rule in the categories of professional services, equipment, supplies, labor, and administrative costs. Each question also provided a free-form section for survey respondents to make comments or provide additional information. The survey requested that responding investment advisers provide their number of employees. The survey also queried whether the rulemaking would cause a loss of revenue or the loss or addition of any jobs. The survey period lasted from February 27, 2026 until March 20, 2026. The Securities Division received 36 unique responses, although some respondents did not complete all the questions in the survey. All 36 respondents were small businesses
as defined by RCW 19.85.020(3) of the Regulatory Fairness Act (business with 50 or fewer employees). The following table provides the responses to the survey question regarding whether compliance with the proposed changes to each rule section would create any additional costs:
Whether Rule Amendments Would Create Additional Costs Yes No WAC 460-24A-050: Examination Requirements 19% 81% WAC 460-24A-050(6): File the Business Continuity Plan 33% 67% New WAC 460-24A-051: Errors & Omissions Insurance 40% 60% New WAC 460-24A-056: Adopt IAR Continuing Education Model Rule 70% 30% WAC 460-24A-057(2): Increase Delinquency Fee 3% 97%

WAC 460-24A-071: Private Fund Adviser Exemption 3% 97% WAC 460-24A-072: Venture Capital Fund Adviser Exemption 3% 97% WAC 460-24A-100: Adopt SEC Marketing Rule 23% 77% WAC 460-24A-106, -107, -108, and -109: Revise Custody Rules 10% 90% New WAC 460-24A-121: NASAA Cybersecurity Model Rule 60% 40% WAC 460-24A-122: Privacy Policy Requirement 27% 73% New WAC 460-24A-123: NASAA Code of Ethics Model Rule 67% 33% WAC 460-24A-125: Conform Proxy Policy to NASAA Model Rule 43% 57% WAC 460-24A-130: Require IA Address in Advisory Contracts 37% 63% WAC 460-24A-150: Update Qualified Client Definition 13% 87% WAC 460-24A-200: Books and Records 79% 21% WAC 460-24A-205: Notice of Changes 66% 34% WAC 460-24A-220: Unethical Business Practices 37% 63% Will the rules result in lost sales or revenue? 34% 66% Will the rules cause your business to eliminate jobs? 17% 83% Will the rules cause your business to add jobs? 7% 93% The Securities Division used the survey data to calculate the increased costs per employee for the survey respondents in the categories of professional services, equipment, supplies, labor, and administrative costs for the draft amendments. The following table provides the average cost increase per employee for the draft amendments for all survey respondents:
Average Cost Increase Per Employee (All Respondents) Rule Provision Prof’l Services Equipme nt Supplies Labor Admin WAC 460-24A-050: Examination Requirements $419.94 $161.29 $96.77 $667.74 $79.03 WAC 460-24A-050(6): File the Business Continuity Plan $732.72 $ - $0.53 $214.44 $467.78 New WAC 460-24A-051: Errors & Omissions Insurance $319.17 $ - $ - $25.83 $116.67 New WAC 460-24A-056: Adopt IAR Continuing Educ. Model Rule $931.16 $ - $15.56 $871.57 $347.83 WAC 460-24A-057(2): Increase Delinquency Fee $1.67 $ - $ - $ - $ - WAC 460-24A-071: Private Fund Adviser Exemption $ - $ - $ - $ - $ - WAC 460-24A-072: Venture Capital Fund Adviser Exemption $ - $ - $ - $ - $ - WAC 460-24A-100: Adopt SEC Marketing Rule $110.00 $ - $ - $126.67 $141.67 WAC 460-24A-106, -107, -108, and -109: Revise Custody Rules $10.00 $ - $ - $20.00 New WAC 460-24A-121: NASAA Cybersecurity Model Rule $493.06 $ - $1.67 $284.17 $308.89 WAC 460-24A-122: Privacy Policy Requirement $20.00 $ - $ - $66.67 $33.33 New WAC 460-24A-123: NASAA Code of Ethics Model Rule $528.61 $ - $ - $366.39 $325.56 WAC 460-24A-125: Conform Proxy Policy to Model Rule $299.17 $ - $ - $139.44 $170.83 WAC 460-24A-130: Require IA Address in Advisory Contracts $568.33 $ - $ - $176.70 $5,058.33 WAC 460-24A-150: Update Qualified Client Definition $83.33 $ - $16.67 $16.67 $33.33 WAC 460-24A-200: Books and Records $2,377.01 $68.97 $22.41 $778.16 $1,824.71 WAC 460-24A-205: Notice of Changes $247.70 $ - $ - $100.57 $157.47 WAC 460-24A-220: Unethical Business Practices $17.27 $ - $ - $44.83 $34.54

The following table provides the average cost increase per employee only for those survey respondents who indicated that a particular rule change would create additional costs:
Average Cost Increase Per Employee (Responses Greater than $0) Rule Provision Prof’l Services Equipme nt Supplies Labor Admin WAC 460-24A-050: Examination Requirements $2,603.60 $5,000.00 $3,000.00 $6,900.00 $816.67 WAC 460-24A-050(6): File the Business Continuity Plan $2,198.17 $ - $7.92 $919.05 $2,004.76 New WAC 460-24A-051: Errors & Omissions Insurance $736.54 $ - $ - $193.75 $437.50 New WAC 460-24A-056: Adopt IAR Continuing Educ. Model Rule $1,471.25 $ - $233.33 $2,377.00 $948.64 WAC 460-24A-057(2): Increase Delinquency Fee $50.00 $ - $ - $ - $ - WAC 460-24A-071: Private Fund Adviser Exemption $ - $ - $ - $ - $ - WAC 460-24A-072: Venture Capital Fund Adviser Exemption $ - $ - $ - $ - $ - WAC 460-24A-100: Adopt SEC Marketing Rule $1,100.00 $ - $ - $950.00 $2,125.00 WAC 460-24A-106, -107, -108, and -109: Revise Custody Rules $300.00 $ - $ - $600.00 New WAC 460-24A-121: NASAA Cybersecurity Model Rule $1,137.82 $ - $50.00 $775.00 $1,158.33 WAC 460-24A-122: Privacy Policy Requirement $600.00 $ - $ - $500.00 $500.00 New WAC 460-24A-123: NASAA Code of Ethics Model Rule $1,219.87 $ - $ - $999.24 $1,627.78 WAC 460-24A-125: Conform Proxy Policy to Model Rule $997.22 $ - $ - $464.81 $854.17 WAC 460-24A-130: Require IA Address in Advisory Contracts $2,481.67 $ - $ - $1,325.00 $37,937.50 WAC 460-24A-150: Update Qualified Client Definition $833.33 $ - $500.00 WAC 460-24A-200: Books and Records $4,308.33 $2,000.00 $216.67 $1,880.56 $4,810.61 WAC 460-24A-205: Notice of Changes $98.15 $ - $ - $416.67 $570.83 WAC 460-24A-220: Unethical Business Practices $500.00 $ - $ - $433.33 $333.89 The following table presents the survey results for the lost sales or revenue anticipated to be caused by the draft rules as a whole:
Amount of Lost Sales or Revenue Caused by the Rules (Per Employee) Average of All Survey Respondents $4,365.52 Average of Responses Greater than $0 $15,825.00 Discussion of Survey Results:
The survey results indicated that certain draft rule amendments would be likely to increase costs and that those costs would exceed more than minor costs. These included the draft rule amendments regarding submission of business continuity plan (33% indicating increased costs), errors and omissions insurance (40% indicating increased costs), investment adviser representative continuing education (70% indicating increased costs), cybersecurity policies and procedures (60% indicating increased costs), code of ethics (67% indicating increased costs), proxy policies and procedures (43% indicating increased costs), advisory contracts (37% indicating increased costs), books and records (79% indicating increased costs), notice of changes (66% indicating increased costs), and unethical business practices (37% indicating increased costs). We discuss the survey results in further detail below. WAC 460-24A-050(6): File the Business Continuity Plan

The draft amendments would revise WAC 460-24A-050(6) to require the filing of an investment adviser’s business continuity plan upon its application for registration. Currently, WAC 460-24A-126 requires investment advisers registered in Washington to maintain a business continuity plan. However, the Securities Division does not currently require advisers to file a copy of it. Investment advisers may incur professional services, labor, or administrative expenses in reviewing and filing the business continuity plan. The survey results indicated that approximately 33% of survey respondents believed that the draft rule at WAC 460-24A-050(6) would increase costs. For all survey respondents, these costs included an average of $732.72 per employee for professional services, $0.53 for supplies, $214.44 for labor, and $467.78 for administrative costs. New WAC 460-24A-051: Errors & Omissions Insurance The draft rule amendments would create a new rule, WAC 460-24A-051, that would require registered investment advisers to maintain an errors and omissions insurance policy of $1 million or more. Draft amendments to WAC 460-24A-205 would also require investment advisers to file annual proof of insurance with the Securities Division. This would represent a new substantive requirement. While 87% of the survey respondents indicated that they already maintained errors and omissions insurance of $1 million or more, 40% of the respondents expected the draft rule to increase their costs. Respondents expressed that the need to file annual proof of insurance and to obtain coverage or verify that their current coverage would meet the state’s requirements would increase costs. For all survey respondents, these costs included an average of $319.17 per employee for professional services, $25.83 for labor, and $116.67 for administrative costs. The survey also asked respondents who currently maintain errors and omissions insurance to state their annual cost of coverage. The average cost of coverage per investment adviser was $12,596.69. However, one adviser reported an annual cost of $120,000, which was $106,000 more than any of the other 25 responses. Disregarding this outlier, the average annual cost of coverage per adviser was $3,646.42. New WAC 460-24A-056: Adopt IAR Continuing Education Model Rule The draft rule WAC 460-24A-056 would create a continuing education requirement for investment adviser representatives. Under the draft rule, an investment adviser representative (IAR) would be required to complete annually six credits of ethics and professional responsibility content and six credits of products and practice content. If an IAR is out of compliance at the end of one annual period, and fails to make up the missing credits by the end of the next annual period, the Securities Division would have a basis to not renew the IAR’s registration. Investment adviser representatives, or their investment adviser firms, will likely incur tuition expenses to attend continuing
education classes. IARs will also spend time attending classes and engaging in administrative tasks such as reporting and tracking credits. The time an IAR must spend on continuing education may reduce the time available for revenue-generating activities. The survey results indicated that approximately 70% of survey respondents believed that the draft continuing education rule would increase costs. For all survey respondents, these costs included an average of $931.16 per employee for professional services, $15.56 for supplies, and $871.57 for labor, and $347.83 for administrative costs. New WAC 460-24A-121: NASAA Cybersecurity Model Rule The draft amendments would create a new rule at WAC 460-24A-121 to adopt the provisions of the NASAA Model Rule for Investment Adviser Written Policies and Procedures that specify the content of the investment adviser’s physical and cybersecurity policies and procedures. Currently, registered investment advisers must maintain written physical and cybersecurity policies and procedures pursuant to WAC 460-24A-200(1)(bb). Regardless, the draft rule may increase professional services, labor, or administrative expenses related to reviewing and revising existing physical and cybersecurity policies and procedures to ensure compliance with the provisions of the NASAA Model Rule for Investment Adviser Written Policies and Procedures. Some investment advisers may hire third-party consultants to assist them with this task. The survey results indicated that approximately 60% of survey respondents believed that the draft cybersecurity rule would increase costs. For all survey respondents, these costs included an average of $493.06 per employee for professional services, $1.67 for supplies, and $284.17 for labor, and $308.89 for administrative costs. New WAC 460-24A-123: NASAA Code of Ethics Model Rule The draft amendments would create a new rule at WAC 460-24A-123 to adopt the provisions of the NASAA Model Rule for Investment Adviser Written Policies and Procedures that specify the content of the investment adviser’s code of ethics. Currently, registered investment advisers must maintain a written code of ethics pursuant to WAC 460-24A-200(1)(aa). Regardless, the draft rule may increase professional services, labor, or administrative expenses related to reviewing or revising the existing code of ethics to ensure compliance with the provisions of the NASAA Model Rule for Investment Adviser Written Policies and Procedures. Some investment advisers may hire third-party consultants to assist them with this task. Implementing a code of ethics that meets the requirements of the NASAA Model Rule may also increase recordkeeping and other administrative expenses. The survey results indicated that approximately 67% of survey respondents believed that the draft code of ethics rule would increase costs. For all survey respondents, these costs included an average of $528.61 per employee for professional services, $366.39 for labor, and
$325.56 for administrative costs. WAC 460-24A-125: Conform Proxy Policy to NASAA Model Rule

The draft rule amendments would revise the proxy policies and procedures rule at WAC 460-24A-125 to conform its language to the NASAA Model Rule for Investment Adviser Written Policies and Procedures. The draft amendment would require the adviser, consistent with the NASAA Model Rule, to conduct an annual review of its proxy voting policy. The draft rule amendment may increase professional services, labor, or administrative expenses related to the adviser’s annual review of the proxy voting policies and procedures. Some investment advisers may hire third-party consultants to assist them with the annual review. The survey results indicated that approximately 43% of survey respondents believed that the draft amendments to the proxy voting rule would increase costs. For all survey respondents, these costs included an average of $299.17 per employee for professional services, $139.44 for labor, and $170.83 for administrative costs. WAC 460-24A-130: Require IA Address in Advisory Contracts The draft amendments would revise the advisory agreement rule at WAC 460-24A-130 to add a requirement that the advisory agreement state the physical and mailing address of the investment adviser’s principal place of business. The draft amendment may increase professional services, labor, or administrative expenses related to the revision of advisory agreement to include its physical and mailing addresses. Certain advisers indicated in response to the survey that they work solely from home and object to providing a physical address for safety and privacy reasons. Certain advisers stated they may incur significant expenses by renting an office to avoid disclosing their home address. The survey results indicated that approximately 37% of survey respondents believed that the requirement to include a physical and mailing address on the advisory contract would increase costs. For all survey respondents, these costs included an average of $568.33 per employee for professional services, $176.70 for labor, and $5,058.33 for administrative costs. After reviewing the survey results, the Securities Division removed this draft provision to reduce costs, as described in Section 6. WAC 460-24A-200: Books and Records The draft amendments to the books and records rule at WAC 460-24A-200 would make revisions requiring the retention of records related to the adoption of the SEC Marketing Rule, and would update internal references to include new rule sections. The amendments would also accomplish the following:

• Revise subsection (1)(r) to add net worth, liquid net worth, and annual income to the written client suitability information
  that advisers must keep.
• Revise subsection (1)(y) to require evidence of annual review of business continuity plan, and add a requirement to
  store a hard copy.
• Specify that the documentation required under subsection (1)(dd) must be made within 10 business days.
• Add new subsection (1)(ff) to require adviser to keep documentation of its due diligence regarding third-party vendors.
• Add new subsection (1)(gg) to require advisers to keep a record of a trusted contact person for clients.
• Revise subsection (5)(c) to change the retention period from five years to six years. This change is consistent with the
  retention period in subsection 5(a).
  The draft amendments may increase professional services, labor, or administrative expenses related to the implementation of the new recordkeeping requirements. Advisers may incur professional services, labor, or administrative expenses to amend compliance policies to reflect the new recordkeeping requirements. There may also be storage expenses incurred from the need to retain additional records. The survey results indicated that approximately 79% of survey respondents believed that the amendments to the books and records rule would increase costs. For all survey respondents, these costs included an average of $2,377.01 per employee for professional services, $68.97 for equipment, $22.41 for supplies, $778.16 for labor, and $1,824.71 for administrative costs. After reviewing the survey results, the Securities Division removed certain amendments to reduce costs, as described in Section 6. WAC 460-24A-205: Notice of Changes The draft amendments to the notice of changes rule at WAC 460-24A-205 would clarify that an investment adviser may not use new or amended advisory contracts or offering materials until the director has cleared them for use. The draft amendments would also require the investment adviser to promptly file an amendment to Form BR if the information on the Form has become incomplete or inaccurate. This includes the opening, closing, relocation, or acquisition of a branch office in Washington, or the engagement of a new person in charge of a branch office in Washington. The draft amendments may increase professional services, labor, or administrative expenses related to the requirement to file amendments to Form BR. Survey respondents expressed concerned regarding the amount of time they may be required to wait for approval of contracts and offering materials from the Securities Division before they could begin using the revised documents. The survey results indicated that approximately 66% of survey respondents believed that the amendments to the notice of changes rule would increase costs. For all survey respondents, these costs included an average of $247.70 per employee for professional services, $100.57 for labor, and $157.47 for administrative costs. WAC 460-24A-220: Unethical Business Practices The draft amendments to the unethical practice rule at WAC 460-24A-220 including revising subsections (6) and (7) to allow borrowing or lending to relatives as defined in RCW 21.20.005(13); adding provisions to address unpaid arbitration awards from the NASAA Unethical Practices of Investment Advisers Model Rule; and adding a new subsection to make it an unethical practice to fail to keep a copy of the written advisory contracts required by WAC 460-24A-130 and WAC 460-24A-200(1)(j). Advisers may incur professional services, labor, or administrative expenses to amend compliance policies to reflect the

amendments to the unethical business practices rule. The survey results indicated that approximately 37% of survey respondents believed that the amendments to the unethical business practices rule would increase costs. For all survey respondents, these costs included an average of $17.24 per employee for professional services, $44.83 for labor, and $34.54 for administrative costs. After reviewing the survey results, the Securities Division removed certain amendments to reduce costs, as described in Section 6. Lost Sales or Revenue The survey revealed that 34% of respondents believed that compliance with the draft rule changes would result in lost sales or revenue. For all survey respondents, the estimated lost revenue per employee was $4,365.52. The 34% who believed the changes would lead to lost sales or revenue estimated they would lose an average of $15,825.00 in revenue per employee. The survey requested a free-form response to identify which provisions in the draft rules would cause lost sales or revenue. The responses stated that investment adviser representative continuing education would reduce time available to serve clients and generate revenue. The responses also expressed that investment advisers would spend time on legal and compliance matters, including updating books and records procedures and reviewing compliance policies. Many Washington-registered investment advisers have one employee, who is also the chief compliance officer. The time spent reviewing and implementing rule changes may decrease the time available to spend on revenue-generating activities. Certain investment advisers may hire outside consultants or incur additional costs to assist with these tasks. Funds spent on compliance would not be available to spend on other activities, such as advertising, that might potentially increase revenue.
SECTION 4:
Analyze whether the proposed rule may impose more than minor costs on businesses in the industry. RCW 19.85.030 provides that an agency must prepare a small business economic impact statement if the agency proposes rules that would impose more than minor costs on businesses in an industry. RCW 19.85.020 defines a “minor cost” as a cost per business that is less than three-tenths of one percent of annual revenue or income, or one hundred dollars, whatever is greater; or one percent of annual payroll. The Securities Division has determined, based on the results of the survey described in Section 3, that at least some of the rule amendments may impose more than minor costs on investment advisers because such costs may exceed $100.
SECTION 5:
Determine whether the proposed rule may have a disproportionate impact on small businesses as compared to the 10 percent of businesses that are the largest businesses required to comply with the proposed rule. Also, consider, based on input received, whether compliance with the rule will cause businesses to lose sales or revenue. RCW 19.85.040 requires that the Securities Division determine whether compliance with the proposed rules would have a disproportionate impact on small businesses by comparing the cost of compliance for small business with the costs of compliance for the 10% of businesses that are the largest businesses required to comply with the proposed rules. The Securities Division categorized each survey response based on whether it came from a small business or whether it represented the 10% of businesses that were the largest businesses that responded. Small businesses are defined by RCW 19.85.020(3) as 50 or fewer employees. We likewise determined the largest 10% of business by the number of employees. We then compared the two categories to each other. Certain businesses were in both categories, because all respondents met the definition of a small business. The survey results demonstrated that the increased costs per employee of small businesses were generally greater than the increased costs per employee of the largest 10% of businesses. The following table compares the average cost increase associated with the draft rules for small businesses and the largest 10% of businesses required to comply:
Average Cost Increase – Comparison of Small Business and Largest 10% of Businesses Prof’l Services Equipment Supplies Labor Admin WAC 460-24A-050: Examination Requirements Small Businesses $419.94 $161.29 $96.77 $667.74 $79.03 Largest 10% $100.00 $ - $ - $50.00 $50.00 WAC 460-24A-050(6): File the Business Continuity Plan Small Businesses $732.72 $ - $0.53 $214.44 $467.78 Largest 10% $541.67 $ - $0.21 $533.33 $8.33 New WAC 460-24A-051: Errors & Omissions Insurance Small Businesses $319.17 $ - $ - $25.83 $116.67

Largest 10% $75.00 $ - $ - $ - $75.00
New WAC 460-24A-056: Adopt IAR Continuing Education Model Rule Small Businesses $931.16 $ - $15.56 $871.57 $347.83 Largest 10% $538.83 $ - $ - $536.75 $2.08 WAC 460-24A-057(2): Increase Delinquency Fee Small Businesses $1.67 $ - $ - $ - $ - Largest 10% $ - $ - $ - $ - $ - WAC 460-24A-071: Private Fund Adviser Exemption Small Businesses $ - $ - $ - $ - $ - Largest 10% $ - $ - $ - $ - $ - WAC 460-24A-072: Venture Capital Fund Adviser Exemption Small Businesses $ - $ - $ - $ - $ - Largest 10% $ - $ - $ - $ - $ - WAC 460-24A-100: Adopt SEC Marketing Rule Small Businesses $110.00 $ - $ - $126.67 $141.67 Largest 10% $ - $ - $ - $ - $ - WAC 460-24A-106, -107, -108, and -109: Revise Custody Rules Small Businesses $10.00 $ - $ - $20.00 Largest 10% $ - $ - $ - $ - $ - New WAC 460-24A-121: NASAA Cybersecurity Model Rule Small Businesses $493.06 $ - $1.67 $284.17 $308.89 Largest 10% $41.67 $ - $ - $37.50 $4.17 WAC 460-24A-122: Privacy Policy Requirement Small Businesses $20.00 $ - $ - $66.67 $33.33 Largest 10% $150.00 $ - $ - $150.00 $ - New WAC 460-24A-123: NASAA Code of Ethics Model Rule Small Businesses $528.61 $ - $ - $366.39 $325.56 Largest 10% $583.33 $ - $ - $579.17 $4.17 WAC 460-24A-125: Conform Proxy Policy to NASAA Model Rule Small Businesses $299.17 $ - $ - $139.44 $170.83 Largest 10% $150.00 $ - $ - $158.33 $ - WAC 460-24A-130: Require IA Address in Advisory Contracts Small Businesses $568.33 $ - $ - $176.70 $5,058.33 Largest 10% $125.00 $ - $ - $125.00 $ - WAC 460-24A-150: Update Qualified Client Definition Small Businesses $83.33 $ - $16.67 $16.67 $33.33 Largest 10% $125.00 $ - $ - $125.00 $ - WAC 460-24A-200: Books and Records Small Businesses $2,377.01 $68.97 $22.41 $778.16 $1,824.71 Largest 10% $1,708.33 $500.00 $ - $604.17 $604.17 WAC 460-24A-205: Notice of Changes Small Businesses $247.70 $ - $ - $100.57 $157.47 Largest 10% $833.33 $ - $ - $204.17 $629.17 WAC 460-24A-220: Unethical Business Practices Small Businesses $17.27 $ - $ - $44.83 $34.54 Largest 10% $ - $ - $ - $ - $0.42 Comparison of lost sales or revenue The largest 10% of businesses indicated in their survey responses that they would not lose any revenue. The small businesses estimated that they would lose an average of $4,365.52 in revenue per employee, with 10 small businesses reporting that they expected to lose revenue because of the rule changes (although only 8 provided an estimate of anticipated lost sales or revenue). Comparison of addition or elimination of jobs Approximately 7% of survey respondents indicated that the rule changes would cause them to add jobs. This represented 2 small businesses, none of which were among the 10% of the largest businesses required to comply with the rule amendments. Therefore, the rule changes may disproportionately cause small businesses to create jobs. Approximately 17% of survey respondents indicated that the rule changes would cause them to eliminate jobs. This figure represented 5 small businesses, 2 of which were the 10% of the
largest business required to comply with the rule changes.

This figure represented 17% of small businesses and 50% of the largest 10% of businesses required to comply. Therefore, the rule changes will not disproportionately cause small businesses to eliminate jobs as compared to the largest 10% of businesses required to comply with the rules.
SECTION 6:
If the proposed rule is likely to impose a disproportionate impact on small businesses, identify the steps taken to reduce the costs of the rule on small businesses. As a result of feedback received from affected businesses, the Securities Division made certain revisions to the initial rules draft to reduce the cost of compliance for small businesses. We detail these revisions below. The Securities Division also outlines additional mitigation steps we intend to take to reduce the burden of compliance. The Securities Division does not believe that it can reduce costs further and still accomplish the investor protection purpose of the rulemaking. Reducing, modifying, or eliminating substantive regulatory requirements The Securities Division removed the provision in its draft rules at WAC 460-24A-130(11) that would have required investment advisers to add their physical and mailing address to all advisory contracts. This will reduce administrative expenses for investment advisers. The Securities Division also removed the provision in its draft rules at WAC 460-24A-220(30) that would have made it an unethical practice to fail to keep a written advisory contract for each client. Simplifying, reducing, or eliminating recordkeeping and reporting requirements The Securities Division revised the draft rules at WAC 460-24A-200(1)(y) to remove the provision that would have required investment advisers to keep a hard copy of the business continuity plan. In addition, the Securities Division revised the draft rules to remove WAC 460-24A-200(1)(g)(g), which would have required investment advisers to keep a record of a trusted contact person for each client. These changes will reduce recordkeeping requirements and any associated administrative expenses. Reducing the frequency of inspections The Securities Division does not believe that reducing the frequency of inspections or examinations would be in the interest of the investing public. Therefore, we have not made any changes to the draft rules that would reduce the frequency of inspections or examinations. Delaying compliance timetables The Securities Division will allow investment advisers adequate time to implement the rule changes through existing processes. Through the exam and deficiency letter process, the Securities Division will provide reasonable time for investment advisers to fix any deficiencies related to the new rules that the staff identifies during its routine examinations of investment advisers. Further, the draft continuing education rule at WAC 460-24A-056 provides one year of registration in “CE Inactive” status for investment adviser representatives who fail to complete all credits in the prior year. Only after failure to complete credits at the end of the CE Inactive year would an investment adviser representative become ineligible to renew a license. Accordingly, the draft continuing education rule by its terms will provide reasonable time for investment advisers to achieve compliance
with the continuing education requirement. Reducing or modifying fine schedules for noncompliance The Securities Division does not believe that reducing or modifying fine schedules for noncompliance would be in the interest of the investing public. Therefore, we have not made any changes to the draft rules that would reduce or modify fine schedules for noncompliance. Any other mitigation techniques, including those suggested by small businesses or small business advocates Upon adoption of the rules, to facilitate compliance with new requirements, the Securities Division intends to hold outreach events to provide information to its registered investment adviser regarding the amended rules. In addition, the Securities Division will fulfill reasonable requests received from investment advisers in Washington to provide training or technical assistance visits regarding compliance with the amended rules. In addition, the Securities Division undertakes to provide a sample code of ethics that advisers may adopt to comply with the amended code of ethics requirements. The Securities Division will also provide links on its website to NASAA resources regarding continuing education and cybersecurity policies.
SECTION 7:
Describe how small businesses were involved in the development of the proposed rule.
Throughout the rulemaking process, the Securities Division has involved its registered investment advisers, exempt reporting advisers, and notice-filed federal covered advisers. Many of these investment advisers are small businesses with fewer than 50 employees.

The Securities Division filed a Form CR-101: Pre-Proposal Statement of Inquiry with the Code Reviser’s Office on April 14, 2025 stating that the Securities Division was considering amending the rules in Chapter 460-24A WAC. On May 5, 2025, the Securities Division electronically mailed the CR-101 to its securities rulemaking interested persons list. On May 9, 2025, the Securities Division electronically mailed the CR-101 to all its registered investment advisers, exempt reporting advisers, and notice-filed federal covered advisers to solicit comments. The Securities Division received five comment letters on the Form CR-101, and incorporated the suggestions into the preparation of an initial draft of possible amendments to Chapter 460-24A WAC. On February 27, 2026, the Securities Division posted the draft amendments on our website. In addition, the Securities Division conducted a survey to determine the costs associated with the draft rule amendments. The survey was emailed to all investment advisers registered in Washington, all exempt reporting advisers filed in Washington, and all notice-filed federal covered advisers with a principal place of business in Washington. The survey period remained open until March 20, 2026. All the respondents to the survey were small businesses. Following the completion of the survey, the Securities Division revised the draft rules in response to feedback received in the survey, as detailed in Section 6. The Securities Division now intends to proceed with the rulemaking by formally proposing amendments to Chapter 460-24A WAC in a CR-102 filing with the Code Reviser. Investment advisers and all interested members of the public will have an opportunity to submit comments on the proposed rule and participate in the rulemaking hearing.
SECTION 8:
Identify the estimated number of jobs that will be created or lost as the result of compliance with the proposed rule. The results of the survey indicated that 17% of survey respondents may eliminate jobs as a result of compliance with the draft rule amendments. This represented an average of 0.068 jobs eliminated per survey respondent. The results of the survey indicated that 7% of survey respondents thought they may add jobs as a result of compliance with the draft rule amendments. This represented an average of 0.078 jobs added per survey respondent.
SECTION 9:
Summarize the results of the analysis, including the determination if costs are disproportionate. As discussed in Section 5 above, the survey indicated that several of the rules may impose disproportionate costs on small businesses as compared to the largest 10% of businesses required to comply with the rules. To mitigate this, the Securities Division revised its draft rules to lower costs as detailed in Section 6. While the potential rule changes may increase costs to licensees, the Securities Division believes the increased investor protection outweighs the concerns regarding cost increases. The public may obtain a copy of the small business economic impact statement or the detailed cost calculations by contacting:
Name Jill Vallely
Address P.O. Box 41200, Olympia, WA 98504-1200 Phone (360) 902-8760 Fax TTY 1-800-833-6384 Email jill.vallely@dfi.wa.gov Other Date: 7/14/2026 Name: Charlie Clark Title: Director, Department of Financial Institutions Signature: