RIA Compliance Blog

RIA Switch for Mid-Sized Advisers Delayed by SEC

April 15, 2011 | Steve Parker

According to a recent letter addressed to the North American Securities Administrators Association (NASAA) from Robert Plaze, Associate Director for Regulation of the SEC’s Division of Investment Management, a switch in regulators for advisers who manage between $25 million and $100 million in assets that was supposed to start occurring this summer may now be extended to the first quarter of 2012. The reason is that regulators need until the end of 2011 to reprogram a national registration database for advisers.

Advisers are still waiting for the SEC to adopt the proposed rules that will make the regulatory transition official. The extension of the deadline also must be considered in a rule-making procedure by the SEC.

Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.

Georgia Notifies of RIA Switch Deadline Postponement

April 12, 2011 | Steve Parker

According to a Press Release issued today, Georgia Secretary of State Brian Kemp informed investment advisers that Georgia will likely extend the current July 21, 2011 deadline for transitioning mid-sized advisers to state registration. The new deadline will likely be some time in the first quarter of 2011.

According to the Press Release, the SEC has indicated that it will likely extend the date by which investment advisers with between $25 million and $100 million in assets under management must transition to state registration in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Although the provision in the Dodd-Frank Act requiring the change in registration becomes effective July 21, 2011, the SEC’s Division of Investment Management is recommending to the Commissioners that the transition to state regulation be delayed until sometime in the first quarter of 2012.

The SEC notified the North American Securities Administrators Association that once the SEC adopts the implementing rules, the investment adviser online registration system, known as the Investment Adviser Registration Depository system (IARD), will require reprogramming that will take until the end of 2011 to complete.
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Florida Urges Dual Registration for RIAs Required to Switch

April 8, 2011 | Steve Parker

The Florida Office of Financial Regulation (OFR) issued a press release this week encouraging all federal covered investment advisers with less than $100 million under management to consider dually registering with OFR and the SEC, and to initiate OFR registration as soon as possible. Dual registration would allow the investment adviser to continue as a federal covered adviser while Florida reviews the firm’s application. Upon being approved by OFR, the firm can then withdraw its SEC registration after July 21, 2011.

Florida’s recommendation was prompted by the time it takes to renew and approve applications. Early application increases a firm’s chance of being approved prior to July 21.
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Departing Advisers Taking More Assets, Study Says

April 1, 2011 | Steve Parker

According to the 2011 Broker and Advisor Sentiment Index recently published by Fidelity Investments, investment advisers and brokers who moved to an independent firm or who started their own independent firm are more effective than ever in taking their assets with them when they switch firms. The study was conducted in late 2010. Its results showed that 1,046 respondents, including brokers and investment adviser representatives, who recently had moved to an independent reportedly took 70% of their client assets with them. In 2008, the number of total client assets taken was 61%. Moreover, the professionals reported that they voluntarily left part of their book behind.

The respondents gave further insights. More than half of them said that in the current economic climate, they found the independent model more attractive and concluded that it had the highest earning potential of all business models in the near term. Of those brokers and representatives that reportedly anticipate switching firms within the year, 63% said they would move to an independent business model, mainly for better pay. Another key change compared to the 2008 results is that larger number of teams of reps rather than individuals are making the transition to independent firms.

Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.

Dodd-Frank’s Impact on Hedge Funds

February 7, 2011 | Steve Parker

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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Georgia Extends RIA De Minimis Exemption

January 5, 2011 | Steve Parker

Registered Investment Advisers in Georgia can take advantage of a “de minimis” registration exemption, according to a new Implementation Order dated December 31, 2010. In that Order, the Georgia Securities Commissioner has exempted from registration any adviser with fewer than six clients within the preceding twelve months. Although the Georgia Securities Act of 1973 contained such an exemption, the more recently enacted Georgia Uniform Securities Act of 2008 did not, providing only an exemption to advisers that have no office in Georgia.

Under the National Securities Markets Improvements Act (NSMIA), Congress precluded states from requiring registration for investment advisers that have no place of business in that state and direct business communications to not more than five non-institutional clients in any single year. But the Georgia exemption goes further, exempting advisers that do have a place of business in the state so long as they have five or fewer clients of any type.

One of the main consequences of the exemption is that it exempts hedge fund advisers that only advise the fund. This result occurs because of a separate rule defining such a fund as as single “client.”

Georgia Excludes Certain RIA Solicitors

January 1, 2011 | Steve Parker

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.