NASAA

Bill Requiring State Adviser SRO Draws Mixed Response

November 2, 2011 | Steve Parker

Congressman Spencer Bachus (R – Ala), Chairman of the House Financial Services Committee, recently published draft legislation and held hearings concerning whether a self-regulatory organization (SRO) should regulate registered investment advisers. In addition to assigning regulatory responsibilities for SEC-registered firms to an SRO, Bacchus’s bill would apparently do the same for state-regulated advisers. In the recently passed Dodd-Frank Act, the SEC was assigned the task of studying the concept of extending SRO oversight to IA firms.

IA groups are split on whether an SRO should replace all or part of current SEC/State oversight . For example, the Financial Planning Coalition, comprised of the CFP Board, the FPA and NAPFA, said in September that an SRO “is not the solution” to improve and increase IA examinations. However, the Financial Services Institute (FSI) has encouraged adoption of such a plan.
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Regulators Issue Report on Investment Adviser Violations

October 30, 2011 | Steve Parker

With the increase in authority granted by the Dodd-Frank Act to state regulators over registered investment advisers, there has been a noticeable uptick in the number and intensity of state examinations of IA firms. In a national survey coordinated by NASAA, and released this fall, 40 state RIA examiners were found to have uncovered 3,543 violations in examinations of 825 firms during the first half of this year, an average of over 4 violations per firm. The survey found that registration and books and records violations predominated, with violations related to unethical practices and supervision not far behind.

Well over half of the firms examined were cited for registration violations, and 45% for books and record violations. The examinations also found significant numbers of violations in the areas of advertising, compliance with privacy rules, financial disclosure, fees charged and custody of funds.
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State Investment Adviser Regulators Hold Forums

September 13, 2011 | Steve Parker

Two Parker MacIntyre attorneys — Bob Terry and Steve Parker — attended forums held this week by the Investment Adviser Section of the North American Securities Administrators Association, and by the NASAA members of the Joint NASAA/FINRA CRD/IARD Steering Committee, at the NASAA Annual Conference in Wichita, Kansas. The forums’ panelists included Melanie Senter Lubin, Securities Administrator for the State of Maryland, NASAA General Counsel Joseph Brady, Michigan Securities Director Linda Cena, and other Section and Committee members. Bob Terry, Counsel to Parker MacIntyre, served as Vice Chair of the CRD/IARD Committee for over three years until he left the office of the Georgia Secretary of State in January of 2011.

The hottest topics of both forums were details relating to transitioning to state registration of mid-sized advisers, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank’) and implementing regulations.

At least 20 states to date have conducted training seminars to investment advisers seeking information about switching to state registration and what to expect from becoming state-registered. NASAA has provided training materials and logistical support to securities administrators in those states. The goal is to introduce the prospective registrants to state-specific issues that may affect their registration process or their ongoing operations, particularly in the areas of regulation that may differ slightly or even significantly from the SEC rule or practice that the adviser to which the adviser is accustomed.
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Custody Rule for States Proposed by NASAA

April 19, 2011 | Steve Parker

The North American Securities Administrators Association (NASAA) today published for comment a proposed custody rule for investment advisers. The proposed rule modifies the account statement detail requirement in subsection (b)(4)(A) of a proposed rule previously issued by NASAA relating to the same subject.

Comments to the previous proposed rule focused on the requirement that an investment adviser to private funds provide detailed quarterly statements to all clients. In response to these overwhelming comments, NASAA modified subsection (b)(4)(A) to reduce the level of detail to be contained in the quarterly statements that are to be sent to investment fund participants. Under the new proposed rule, the quarterly statements need only contain the quarter-end holdings and transactions during the quarter.

The basic structure of the proposed custody rule is consistent with prior model custody rules proposed by NASAA pursuant to Uniform Securities Acts of 1956 and 2002 and adopted by many states. More specifically, it provides for a number of safekeeping requirements including, among other things, providing notice to the state’s securities administrator, employing a qualified custodian, and giving certain notices to clients. In particular, the NASAA proposed rule requires any investment adviser who sends a statement to a client to urge the client to compare the account statements received from a qualified custodian with those received from the investment adviser. Any adviser who has a reasonable basis for believing that the qualified custodian sent account statements to the investors directly need not provide a separate account statement.
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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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