114TH CONGRESS 
2D SESSION 
H. R. 5424 
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. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Investment Advisers 
Modernization Act of 2016’’. 
SEC. 2. MODERNIZING CERTAIN REQUIREMENTS RELATING 
TO INVESTMENT ADVISERS. 
(a) INVESTMENT ADVISORY CONTRACTS.— 
(1) ASSIGNMENT.— 
(A) 
ASSIGNMENT
DEFINED.—Section 
202(a)(1) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b–2(a)(1)) is amended by 
striking ‘‘; but’’ and all that follows and insert-
ing ‘‘; but no assignment of an investment advi-
sory contract shall be deemed to result from the 
death or withdrawal, or the sale or transfer of 
the interests, of a minority of the members, 
partners, shareholders, or other equity owners 
of the investment adviser having only a minor-
ity interest in the business of the investment 
adviser, or from the admission to the invest-
ment adviser of one or more members, partners, 
shareholders, or other equity owners who, after 
such admission, shall be only a minority of the 
members, partners, shareholders, or other eq-
uity owners and shall have only a minority in-
terest in the business.’’.
(B) CONSENT TO ASSIGNMENT BY QUALI-
FIED CLIENTS.—Section 205(a)(2) of the In-
vestment Advisers Act of 1940 (15 U.S.C. 80b– 
5(a)(2)) is amended by inserting before the 
semicolon the following: ‘‘, except that if such 
other party is a qualified client (as defined in 
section 275.205–3 of title 17, Code of Federal 
Regulations, or any successor thereto), such 
other party may provide such consent at the 
time the parties enter into, extend, or renew 
such contract’’. 
(2) NOT REQUIRED TO PROVIDE FOR NOTIFICA-
TION
OF
CHANGE
IN
MEMBERSHIP
OF
PARTNER-
SHIP.—Section 205 of the Investment Advisers Act 
of 1940 (15 U.S.C. 80b–5) is amended— 
(A) in subsection (a)— 
(i) in paragraph (1), by striking the 
semicolon and inserting ‘‘; or’’; 
(ii) in paragraph (2), by striking ‘‘; 
or’’ and inserting a period; and 
(iii) by striking paragraph (3); and 
(B) in subsection (d), by striking ‘‘para-
graphs (2) and (3) of subsection (a)’’ and in-
serting ‘‘subsection (a)(2)’’. 
(b) ADVERTISING RULE.—
(1) IN GENERAL.—Not later than 90 days after 
the date of the enactment of this Act, the Commis-
sion shall amend section 275.206(4)–1 of title 17, 
Code of Federal Regulations, to provide that para-
graphs (a)(1) and (a)(2) of such section do not 
apply to an advertisement that an investment ad-
viser publishes, circulates, or distributes solely to 
persons described in paragraph (2) of this sub-
section. 
(2) PERSONS
DESCRIBED.—A person is de-
scribed in this paragraph if such person is, or the 
investment adviser reasonably believes such person 
is— 
(A) a qualified client (as defined in section 
275.205–3 of title 17, Code of Federal Regula-
tions), determined as of the time of the publica-
tion, circulation, or distribution of the adver-
tisement rather than immediately prior to or 
after entering into the investment advisory con-
tract referred to in such section; 
(B) a knowledgeable employee (as defined 
in section 270.3c–5 of title 17, Code of Federal 
Regulations) of any private fund to which the 
investment adviser acts as an investment ad-
viser;
(C) a qualified purchaser (as defined in 
section 2(a) of the Investment Company Act of 
1940 (15 U.S.C. 80a–2(a))); or 
(D) an accredited investor (as defined in 
section 230.501 of title 17, Code of Federal 
Regulations), determined as if the investment 
adviser were the issuer of securities referred to 
in such section and the time of the publication, 
circulation, or distribution of the advertisement 
were the sale of such securities. 
SEC. 3. REMOVING DUPLICATIVE BURDENS AND APPRO-
PRIATELY TAILORING CERTAIN REQUIRE-
MENTS. 
(a) FORM PF.—Not later than 90 days after the date 
of the enactment of this Act, the Commission shall amend 
section 275.204(b)–1 of title 17, Code of Federal Regula-
tions, to provide that an investment adviser to a private 
fund is not required to report any information beyond that 
which is required by sections 1a and 1b of Form PF, un-
less such investment adviser is a large hedge fund adviser 
or a large liquidity fund adviser (as such terms are defined 
in such Form). 
(b) CUSTODY RULE.—Not later than 90 days after 
the date of the enactment of this Act, the Commission 
shall amend section 275.206(4)–2 of title 17, Code of Fed-
eral Regulations, consistent with, and expanding on, IM 
Guidance Update No. 2013–04, titled ‘‘Privately Offered 
Securities under the Investment Advisers Act Custody 
Rule’’, published by the Division of Investment Manage-
ment of the Commission, with respect to the exception for 
certain privately offered securities in paragraph (b)(2) of 
such section, so as to— 
(1) remove the requirement of clause (i)(B) of 
such paragraph (relating to the uncertificated nature 
and recordation of ownership of the securities); and 
(2) remove the requirement of clause (ii) of 
such paragraph (relating to audit and financial 
statement distribution requirements with respect to 
securities of pooled investment vehicles). 
(c) PROXY VOTING RULE.—Not later than 90 days 
after the date of the enactment of this Act, the Commis-
sion shall amend section 275.206(4)–6 of title 17, Code 
of Federal Regulations, to provide that such section does 
not apply to any voting authority with respect to client 
securities that are not public securities. 
SEC. 4. FACILITATING ROBUST CAPITAL FORMATION BY 
PREVENTING REGULATORY MISMATCH. 
The Commission may not— 
(1) amend section 230.156 of title 17, Code of 
Federal Regulations, to extend the provisions of
such section to offerings of securities issued by pri-
vate funds; or 
(2) adopt rules applicable to offerings of securi-
ties issued by private funds that are substantially 
the same as the provisions of such section. 
SEC. 5. EXCLUSION OF ADVISORY SERVICES TO REG-
ISTERED INVESTMENT COMPANIES. 
This Act shall not apply with respect to advisory serv-
ices provided, or proposed to be provided, to an investment 
company registered under the Investment Company Act 
of 1940 (15 U.S.C. 80a–1 et seq.). 
SEC. 6. REFERENCES TO REGULATIONS. 
In this Act, any reference to a regulation shall be con-
strued to refer to such regulation or any successor thereto. 
SEC. 7. DEFINITIONS. 
In this Act: 
(1) PUBLIC SECURITY.—The term ‘‘public secu-
rity’’ means a security issued by an issuer that— 
(A) is required to submit reports under 
section 13(a) or 15(d) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78m(a); 
78o(d)); or 
(B) has a security that is listed or traded 
on any exchange or organized market operating 
in a foreign jurisdiction.
(2) TERMS DEFINED IN INVESTMENT ADVISERS 
ACT OF 1940.—The terms defined in section 202(a) 
of the Investment Advisers Act of 1940 (15 U.S.C. 
80b–2(a)) have the meanings given such terms in 
such section. 
Passed the House of Representatives September 9, 
2016. 
Attest: 
Clerk.