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HomeCorporations CodeCh. 3§ 25234 Investment Advisory Contract Requirements

§ 25234 Investment Advisory Contract Requirements

Corporations Code·California
AI Summary·Official Text·Key Terms·Related Statutes·References
AI SummaryVerified

§ 25234 Investment Advisory Contract Requirements

This law tells investment advisers in the state that they can't charge fees based on a share of a client’s profits, must get the client’s okay before they hand the contract to someone else, and must tell the client if the adviser’s partnership members change.

Key Takeaways

  • •Advisers can’t be paid a share of a client’s capital gains or appreciation unless a special rule allows it.
  • •Any contract must say the adviser can’t assign the agreement without the client’s consent.
  • •If the adviser is a partnership, they must tell the client quickly about any changes in partnership members.
  • •Fees based on the average value of a fund over time are still allowed.

Example

A financial adviser promises to manage a client’s portfolio and says they will earn 20% of any profit the client makes. The adviser also plans to sell the contract to another firm without telling the client and later adds a new partner to the advisory firm without notifying the client.

Under this law, the adviser cannot charge a fee that is a piece of the client’s gains, must include a clause that says they need the client’s permission before assigning the contract, and must inform the client promptly if a new partner joins the advisory firm.

AI-generated — May contain errors. Not legal advice. Always verify source.

Official Source
View on CA.gov

§ 25234 Investment Advisory Contract Requirements

(a) No investment adviser licensed under this chapter shall in this state enter into, extend or renew any investment advisory contract, or in any way perform any investment advisory contract entered into, extended or renewed on or after the effective date of this law, if that contract: (1) Provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client, except as may be permitted by rule or order of the commissioner; (2) Fails to provide, in substance, that no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract; (3) Fails to provide, in substance, that the investment adviser, if a partnership, will notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change. (b) As used in this section, “investment advisory contract” means any contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account for a person other than an investment company. Paragraph (1) of subdivision (a) of this section does not prohibit an investment advisory contract that provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates, or taken as of a definite date. (Amended by Stats. 1997, Ch. 391, Sec. 24. Effective January 1, 1998.)

Last verified: January 10, 2026

Key Terms

investment adviserinvestment advisory contractcapital gainscapital appreciationcommissioner

Related Statutes

  • § 25232.1 Disciplinary Actions Against Financial Professiona
  • § 25232.3 Investment Adviser Certificate Revocation
  • § 25236 Investment Adviser Qualification Standards
  • § 25121 Securities Qualification Permit
  • § 25230.1 Investment Adviser Registration Exemption

References

  • Official text at leginfo.legislature.ca.gov
  • California Legislature. Corporations Code. Section 25234.
View Official Source