Industry News

Most private fund managers and registered investment advisers who advise funds based in the United States will be affected by the revisions to the Investment Advisers Act of 1940 contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in July 2010. The major impact will be felt by funds, fund managers and advisers in the form of new registration requirements and different, more highly defined, exemptions from registration. Dodd-Frank also mandates increased compliance obligations for those required to register, enhanced record-keeping requirements for both registered and exempt managers and funds, and, in some cases, a requirement to file reports detailing information necessary to assess systemic risks.

The most direct impact of Dodd-Frank is the elimination of the exemption for registration for an investment adviser with “fewer than fifteen” clients. This broad stroke eliminates the basis upon which hedge fund managers have traditionally been exempt from investment adviser registration. In place of the “fewer than fifteen” client exemption, Dodd-Frank carves out exemptions for investment advisers based upon either assets under management or the type of fund advised.
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The Georgia Secretary of State issued an Implementation Order that became effective yesterday (December 31, 2010) excluding many solicitors from the definition of “Investment Adviser Representatives,” thereby eliminating the registration requirement for those coming within the exclusion. Entered pursuant to the Georgia Uniform Securities Act of 2002, Secretary of State Uniform Act Implementation Order No. 2010-4 substantially preserves, but slightly modifies, the practice that prevailed under the Georgia Securities Act of 1973.

Under the Georgia Uniform Securities Act of 2008, an individual associated with an investment adviser who “receives compensation to solicit, offer, or negotiate for the sale of investment advice” must register as an “investment adviser representative.”

The Implementation Order, however, excludes from the definition of “investment adviser representative” a solicitor that does not provide investment advice and who meets a number of other requisites. The effect of the Order is to allow persons who typically provide client solicitation services under SEC Rule 206(4)-3, without advising solicited clients, to avoid registration in Georgia. Care should be taken to insure that the solicitor who seeks benefit of the exclusion follows a number of unique provisions of the Georgia order, among them that compensation can be received for no more than 10 clients in a calendar year, unless the solicitor does nothing more than provide a list of investment advisers without determining or representing the advisability of a prospective client entering into a relationship with a particular adviser. Attorneys and CPAs may also solicit persons with whom they have existing relationships.

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Dodd-Frank’s Impact on Hedge Funds

Georgia Excludes Certain RIA Solicitors