Exemptions

Dodd-Frank Registration Requirements Driven By State Law Distinctions

September 7, 2011 | Steve Parker

Now that the effective date of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) has arrived and the SEC has adopted rules implementing changes to the investment adviser registration regime, the landscape can be relatively confusing. For investment advisers currently registered either with the state in which it maintains its principal office or with the SEC, the new rules are fairly easy to apply, particularly in light of the transition rules adopted on June 22, 2011 by the SEC as explained in Parker MacIntyre’s previous post. For others, however, the application of the new rules will prove more complicated, particularly for those advisers whose principal office and place of business are in states that have unusual registration or regulatory provisions.

Take, for example, Wyoming. Since that state does not provide for investment adviser registration, it has always been somewhat of an anomaly, even before Dodd-Frank. Section 203A(a)(1) of the Investment Advisers Act only prohibits registration with the SEC of investment advisers who have assets under management of less than $25 million and are “regulated or required to be regulated as an investment adviser in the State in which it maintains its principal office and place of business.” Wyoming-based advisers must therefore register with the SEC regardless of their assets under management, unless otherwise exempt from registration under the Investment Advisers Act or a private adviser able to rely upon the transition rule provided in 203-1(e).
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Virginia Adopts Private Adviser Policy Statement

July 20, 2011 | Steve Parker

The Virginia State Corporation Commission (Securities and Retail Franchising Division) yesterday adopted a policy statement providing guidance to advisers to private funds in light of the June 22, 2011 adoption of final rules adopted by the Securities and Exchange Commission. Specifically, the Virginia statement recognizes and addresses the “regulatory gap” created by the SEC Rule 203-1(e), which grants an extension to March 30 2012 for private advisers formerly exempt from registration under Investment Adviser Act Section 203(b)(3), which was repealed by Dodd-Frank, to register with the SEC.

As a consequence of Dodd-Frank, Virginia’s Rule 21 VAC 5-80-210A.7, which excludes from the definition of “investment advisers” certain advisers exempt under Section 203(b)(3) of the Investment Adviser Act, becomes a nullity on July 21, 2011. In the absence of the policy statement, the effect of this would be to require private advisers subject to Virginia registration requirements, and that have no other basis for exemption, to register in Virginia as investment advisers by July 22, 2011.
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SEC Defines Family Offices Exempt from RIA Registration

June 23, 2011 | Steve Parker

In a rule adopted yesterday, the Securities and Exchange Commission (SEC) adopted a rule defining “family offices.” “Family offices” are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services. Family offices were exempt from registration as investment advisers with “fewer than fifteen clients” prior to passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but when that act goes into effect on July 21, 2011, they will no longer be able to claim that broad exemption because it will be repealed.

In its place, as authorized by Congress, the SEC has exempted a new category of advisers that constitute “family offices.” A family office (1) provides investment advice only to “family clients,” as defined by the rule; (2) Is wholly owned by family clients and is exclusively controlled by family members and/or family entities, as defined by the rule; and (3) Does not hold itself out to the public as an investment adviser.
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