Source: http://www.ria-compliance-consultants.com/frequently_asked_questions/faqs_switch_mid-sized_investment_advisor_adviser_sec_state/
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Switch of Mid-Sized Investment Advisors from the SEC to State Securities Regulators | RIA Compliance Consultants
Frequently Asked QuestionsSwitch of Mid-Sized Investment Advisors from the SEC to State Securities Regulators
The following are some frequently asked questions concerning the switch of mid-sized investment advisors from registration with the U.S. Securities and Exchange Commission (“SEC”) to state securities regulator(s). The information presented here is general in nature and not a substitute for consulting with an investment compliance professional regarding your unique circumstances and the requirements of the securities regulator(s) with jurisdiction over your investment advisor. This webpage will become dated and is not intended to be an all-encompassing analysis of the SEC´s new switch rules for mid-sized investment advisors, and you should not rely solely on its contents.
What is the reason for the SEC switching the regulatory jurisdiction of mid-sized investment advisors from the SEC to state securities regulators?
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in July 2010, the SEC is required to issue rules generally requiring mid-sized investment advisors to switch from the SEC to state registration, which will reallocate the primary responsibility of regulatory oversight of mid-sized investment advisors to the state securities regulators.
When did the SEC´s new switch rules for mid-sized investment advisors become effective?
The SEC´s new switch rules became effective July 21, 2011.
What is a mid-sized investment advisor and under which securities regulator will a mid-sized investment advisor now register?
A mid-sized investment advisor has between $25 million and $100 million of assets under management and must register with the applicable state securities regulator(s) unless the investment advisor is not subject to investment advisor registration and/or examination by its home state. Currently, Wyoming does not regulate investments advisors and consequently does not require registration, and New York does not perform examinations of investment advisors. Therefore, a mid-sized investment advisor with a home office in either Wyoming or New York must register as investment advisor with the SEC. It is important to note that the mid-sized investment advisor “required to be registered” standard is different that the “regulated or required to be regulated” standard for a small investment advisor (advisors with less than $25 million of assets under management). If a mid-sized investment advisor has its principal place of business in a state that does not require investment advisor registration based on certain exemptions (e.g., number of clients) or is excluded from the definition of investment advisor in that state, the mid-sized advisor would be required to register with the SEC because it does not meet the registration requirements of the state securities regulator where the investment advisor has it principal place of business.
Does an investment advisor need $100 million or more of assets under management to register as an investment advisor with the SEC?
No. Although assets under management is the most common basis for an investment advisor to register with the SEC, Rule 203A under the Investment Advisers Act of 1940 provides exemptions to the asset under management test and other criteria to qualify for SEC registration as an investment advisor. Under the SEC´s new switch rules, revisions have been made to some of the existing exemptions which allow for SEC registration as an investment advisor. If an SEC registered investment advisor has previously relied upon one of these exemptions, the investment advisor should review the exemptions listed in the new Form ADV Part 1A to determine if the investment advisor will still qualify for SEC registration as an investment advisor.
How does an existing investment advisor let the applicable securities regulators know whether the investment advisor is required to register with the state securities regulator or remain registered with the SEC?
Every investment advisor registered with the SEC as of January 1, 2012 must file an amendment to its Form ADV by no later than March 30, 2012, which discloses its assets under management as of the filing date. For many SEC registered investment advisors, this required amendment will coincide with their annual updating amendment. Once registered with the SEC, an investment advisor can remain registered with the SEC as long as it has at least $90 million of assets under management as of its annual amendment filing.
When can a mid-sized investment advisor start registering with state securities regulators?
A mid-sized investment advisor can start applying for registration with state securities regulators at this time, but the investment advisor should first check with each state securities regulator to make sure the state will not object to the investment advisor´s dual registration as an investment advisor with the state securities regulator and the SEC. Every state securities regulator has its own investment advisor registration requirements and additional documentation may be required to be submitted along with the investment advisor registration application.
Can a mid-sized investment advisor withdraw its registration as investment advisor from the SEC once it is registered as an investment advisor with the required state securities regulators?
All mid-sized investment advisors registered with the SEC as of July 21, 2011, must remain registered with the SEC until at least January 1, 2012, and must also file the required Form ADV amendment with the SEC by March 30, 2012. A mid-sized advisor no longer eligible for SEC registration must withdraw its registration with the SEC by filing a Form ADV-W by no later than June 28, 2012. The SEC will cancel the registration of investment advisors no longer eligible for SEC registration if the Form ADV amendment isn´t filed by March 30, 2012, or if the Form ADV-W is not filed by June 28, 2012.
Are there fees for filing as an investment advisor with a state securities regulator?
Each state securities regulator has filing fees for investment advisor registration, which are collected at the time that the initial registration application is made. The fees vary by state securities regulator. An investment advisor which is dually registered with state securities regulators and the SEC will pay multiple fees (state investment advisor registrations and notice filings) in approximately early November when it is time for 2012 renewals. The IARD system fees for state registered investment advisors and investment adviser representatives have been waived for 2011. It is not yet know if state registered investment advisors and investment adviser representatives will be charged with 2012 renewals.
Will investment advisor representatives have to file Form U4 amendments?
Possibly. Some investment advisor representatives that may have been exempt from licensing under the investment advisor´s SEC registration may need to be licensed with state securities regulators if the advisor must move to state registration.
Will investment advisors still calculate assets under management in a manner similar to current requirements?
The SEC is revising its instructions in order to implement a uniform method for calculating assets under management that will be used for regulatory purposes in addition to assessing whether an investment advisor is eligible to register with the SEC. These assets will be referred to as “regulatory assets under management” in order to distinguish from the assets under management disclosure of the Form ADV Part 2A.
Are there any changes to the information asked in the Form ADV Part 1?
Yes. For example, the SEC and state securities regulators have made revisions to the Form ADV Part 1A, Item 2A to reflect the new assets under management threshold for investment advisor registration and the other criteria that would make an investment advisor eligible for SEC registration. Each SEC registered investment advisor will be required to indicate its basis for SEC registration and to report annually whether it is eligible to remain registered. A mid-sized investment advisor registering with the SEC will be required to initially and annually affirm that the investment advisor is not (1) required to register as an investment advisor with the state securities regulator of its principal office or (2) subject to an examination as an investment advisor by that state securities regulator. The Form ADV Part 1 will also have new and revised questions on a variety of topics such as the types of services, number of employees, number and types of clients, client referrals and custody of client assets. The changes to the Form ADV Part 1 should be available in November 2011.
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