SEC Release is Out
SEC Release IA-3110 with proposed rules to implement amendments to the registration provisions of the Advisers Act of 1940 is out. There are a myriad of details in the Release.
This article will focus on eligibility for SEC registration and the rules for transition for the many currently SEC registered investment advisers who will have to become state registered advisers instead.
The Mid Sized Adviser
Investment advisers having between $25 Million and $100 Million (called “mid-sized” advisers by the SEC) in assets under management will be primarily regulated by state securities authorities. However, unlike for advisers having under $25 Million (called “small advisers” by the SEC) in assets under management, SEC registration will be permitted for mid-sized advisers under certain circumstances.
A mid-sized adviser will not be prohibited from registering with the SEC : (i) if the adviser is not required to be registered as an investment adviser with the securities commissioner (or any agency or office performing like functions) of the state in which it maintains its principal office and place of business; (ii) if registered, the adviser would not be subject to examination as an investment adviser by that securities commissioner (that would be a rare case - in fact apparently only Wyoming) ; or (iii) if the adviser is required to register in 15 or more states.
A mid-sized adviser also will be required to register with the SEC if it is an adviser to a registered investment company or business development company under the Investment Company Act. Id. As a result, mid-sized advisers to registered investment companies and business development companies will not have to withdraw their SEC registrations.
This means according to the SEC that some 4,100 mid-sized advisers currently registered with the SEC will be required to “get out of Dodge” , that is, to withdraw their SEC registration and register with one or more, but not more than 14, state securities authorities.
Certain Pension Consultants
The SEC is proposing to increase the minimum value of plan assets for a pension consultant to register with the SEC from $50 million to $200 million. Presumably pension consultants handling below $200 Million in plan assets will be required to withdraw their current SEC registration in the same fashion as a mid-sized adviser not otherwise eligible for SEC registration as an investment adviser.
Counting AUM
The SEC has objectified what is included in the AUM count. For example, uncalled capital commitments to a fund now must be included in its AUM.
Getting out of Dodge - Transitional Rules and Time Periods
Under the SEC proposal, each investment adviser registered with the SEC on July 21, 2011 will be required to file an amendment to its Form ADV no later than August 20, 2011 to report the market value of its assets under management within 30 days of the filing date. In turn an adviser no longer eligible for SEC registration will be required to withdraw its SEC registration by filing Form ADV-W with the SEC no later than October 19, 2011.
Essentially, this will give investment advisers who are no longer eligible for SEC registration 90 days (from July 21, 2011 to October 19, 2011) to transition from SEC registration to required state registrations.
Possible IARD Delays
The Release notes that these dates could get pushed back if the electronic adviser registry (the acronym for which is IARD) administered by FINRA (the old NASD of bygone days) cannot get its technological act together to handle the transition process on a timely basis.
A Break from Having to Temporarily Register with the SEC
Also the SEC is prepared to cut a break to investment advisers who would be required under current law to register with the SEC because they have assets under management of more than $30 Million only to find that they will have to withdraw next year when the threshold for SEC registration becomes $100 Million. Such advisers, if registered as such in good faith with the state where they maintain their principal office and place of business, will generally not have to register with the SEC.
Comment Period
There is a 45 day comment period after publication of the Rules in the Federal Register before these Rules can become final.
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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.
Nothing is this blog is intended to or may be relied upon as specific legal advice. Securities and related laws are complex and competent counsel should be consulted
