IIB 

114TH CONGRESS 

2D SESSION H. R. 5424 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 12, 2016 

Received; read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

AN ACT 

To amend the Investment Advisers Act of 1940 and to 

direct the Securities and Exchange Commission to amend 

its rules to modernize certain requirements relating to 

investment advisers, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Investment Advisers 

3 Modernization Act of 2016’’. 

4 SEC. 2. MODERNIZING CERTAIN REQUIREMENTS RELATING 

5 TO INVESTMENT ADVISERS. 

6 (a) INVESTMENT ADVISORY CONTRACTS.— 

7 (1) ASSIGNMENT.— 

8 (A) ASSIGNMENT DEFINED.—Section 

9 202(a)(1) of the Investment Advisers Act of 

10 1940 (15 U.S.C. 80b–2(a)(1)) is amended by 

11 striking ‘‘; but’’ and all that follows and insert12 ing ‘‘; but no assignment of an investment advi13 sory contract shall be deemed to result from the 

14 death or withdrawal, or the sale or transfer of 

15 the interests, of a minority of the members, 

16 partners, shareholders, or other equity owners 

17 of the investment adviser having only a minor18 ity interest in the business of the investment 

19 adviser, or from the admission to the invest20 ment adviser of one or more members, partners, 

21 shareholders, or other equity owners who, after 

22 such admission, shall be only a minority of the 

23 members, partners, shareholders, or other eq24 uity owners and shall have only a minority in25 terest in the business.’’. 


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1 (B) CONSENT TO ASSIGNMENT BY QUALI2 FIED CLIENTS.—Section 205(a)(2) of the In3 vestment Advisers Act of 1940 (15 U.S.C. 80b– 

4 5(a)(2)) is amended by inserting before the 

5 semicolon the following: ‘‘, except that if such 

6 other party is a qualified client (as defined in 

7 section 275.205–3 of title 17, Code of Federal 

8 Regulations, or any successor thereto), such 

9 other party may provide such consent at the 

10 time the parties enter into, extend, or renew 

11 such contract’’. 

12 (2) NOT REQUIRED TO PROVIDE FOR NOTIFICA13 TION OF CHANGE IN MEMBERSHIP OF PARTNER14 SHIP.—Section 205 of the Investment Advisers Act 

15 of 1940 (15 U.S.C. 80b–5) is amended— 

16 (A) in subsection (a)— 

17 (i) in paragraph (1), by striking the 

18 semicolon and inserting ‘‘; or’’; 

19 (ii) in paragraph (2), by striking ‘‘; 

20 or’’ and inserting a period; and 

21 (iii) by striking paragraph (3); and 

22 (B) in subsection (d), by striking ‘‘para23 graphs (2) and (3) of subsection (a)’’ and in24 serting ‘‘subsection (a)(2)’’. 

25 (b) ADVERTISING RULE.— 


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1 (1) IN GENERAL.—Not later than 90 days after 

2 the date of the enactment of this Act, the Commis3 sion shall amend section 275.206(4)–1 of title 17, 

4 Code of Federal Regulations, to provide that para5 graphs (a)(1) and (a)(2) of such section do not 

6 apply to an advertisement that an investment ad7 viser publishes, circulates, or distributes solely to 

8 persons described in paragraph (2) of this sub9 section. 

10 (2) PERSONS DESCRIBED.—A person is de11 scribed in this paragraph if such person is, or the 

12 investment adviser reasonably believes such person 

13 is— 

14 (A) a qualified client (as defined in section 

15 275.205–3 of title 17, Code of Federal Regula16 tions), determined as of the time of the publica17 tion, circulation, or distribution of the adver18 tisement rather than immediately prior to or 

19 after entering into the investment advisory con20 tract referred to in such section; 

21 (B) a knowledgeable employee (as defined 

22 in section 270.3c–5 of title 17, Code of Federal 

23 Regulations) of any private fund to which the 

24 investment adviser acts as an investment ad25 viser; 


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1 (C) a qualified purchaser (as defined in 

2 section 2(a) of the Investment Company Act of 

3 1940 (15 U.S.C. 80a–2(a))); or 

4 (D) an accredited investor (as defined in 

5 section 230.501 of title 17, Code of Federal 

6 Regulations), determined as if the investment 

7 adviser were the issuer of securities referred to 

8 in such section and the time of the publication, 

9 circulation, or distribution of the advertisement 

10 were the sale of such securities. 

11 SEC. 3. REMOVING DUPLICATIVE BURDENS AND APPRO12 PRIATELY TAILORING CERTAIN REQUIRE13 MENTS. 

14 (a) FORM PF.—Not later than 90 days after the date 

15 of the enactment of this Act, the Commission shall amend 

16 section 275.204(b)–1 of title 17, Code of Federal Regula17 tions, to provide that an investment adviser to a private 

18 fund is not required to report any information beyond that 

19 which is required by sections 1a and 1b of Form PF, un20 less such investment adviser is a large hedge fund adviser 

21 or a large liquidity fund adviser (as such terms are defined 

22 in such Form). 

23 (b) CUSTODY RULE.—Not later than 90 days after 

24 the date of the enactment of this Act, the Commission 

25 shall amend section 275.206(4)–2 of title 17, Code of FedVerDate Sep 11 2014 22:07 Sep 12, 2016 Jkt 059200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H5424.RFS H5424

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1 eral Regulations, consistent with, and expanding on, IM 

2 Guidance Update No. 2013–04, titled ‘‘Privately Offered 

3 Securities under the Investment Advisers Act Custody 

4 Rule’’, published by the Division of Investment Manage5 ment of the Commission, with respect to the exception for 

6 certain privately offered securities in paragraph (b)(2) of 

7 such section, so as to— 

8 (1) remove the requirement of clause (i)(B) of 

9 such paragraph (relating to the uncertificated nature 

10 and recordation of ownership of the securities); and 

11 (2) remove the requirement of clause (ii) of 

12 such paragraph (relating to audit and financial 

13 statement distribution requirements with respect to 

14 securities of pooled investment vehicles). 

15 (c) PROXY VOTING RULE.—Not later than 90 days 

16 after the date of the enactment of this Act, the Commis17 sion shall amend section 275.206(4)–6 of title 17, Code 

18 of Federal Regulations, to provide that such section does 

19 not apply to any voting authority with respect to client 

20 securities that are not public securities. 

21 SEC. 4. FACILITATING ROBUST CAPITAL FORMATION BY 

22 PREVENTING REGULATORY MISMATCH. 

23 The Commission may not— 

24 (1) amend section 230.156 of title 17, Code of 

25 Federal Regulations, to extend the provisions of 


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1 such section to offerings of securities issued by pri2 vate funds; or 

3 (2) adopt rules applicable to offerings of securi4 ties issued by private funds that are substantially 

5 the same as the provisions of such section. 

6 SEC. 5. EXCLUSION OF ADVISORY SERVICES TO REG7 ISTERED INVESTMENT COMPANIES. 

8 This Act shall not apply with respect to advisory serv9 ices provided, or proposed to be provided, to an investment 

10 company registered under the Investment Company Act 

11 of 1940 (15 U.S.C. 80a–1 et seq.). 

12 SEC. 6. REFERENCES TO REGULATIONS. 

13 In this Act, any reference to a regulation shall be con14 strued to refer to such regulation or any successor thereto. 

15 SEC. 7. DEFINITIONS. 

16 In this Act: 

17 (1) PUBLIC SECURITY.—The term ‘‘public secu18 rity’’ means a security issued by an issuer that— 

19 (A) is required to submit reports under 

20 section 13(a) or 15(d) of the Securities Ex21 change Act of 1934 (15 U.S.C. 78m(a); 

22 78o(d)); or 

23 (B) has a security that is listed or traded 

24 on any exchange or organized market operating 

25 in a foreign jurisdiction. 


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1 (2) TERMS DEFINED IN INVESTMENT ADVISERS

2 ACT OF 1940.—The terms defined in section 202(a) 

3 of the Investment Advisers Act of 1940 (15 U.S.C. 

4 80b–2(a)) have the meanings given such terms in 

5 such section. 

Passed the House of Representatives September 9, 

2016. 

Attest: KAREN L. HAAS, 

Clerk. 


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