Investment Adviser

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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Georgia SOS Publishes Proposed IA Rules

October 19, 2011 | Steve Parker

On October 13, 2011 the Georgia Secretary of State published proposed rules under the Georgia Uniform Securities Act of 2008 (“the 2008 Act”). Among the proposed rules are twenty (20) rules governing investment advisers and investment adviser representatives.

Although many of the proposed rules are consistent with the applicable rules under the prior Georgia Securities Act of 1973, quite a few of the proposed rules are new, and are designed to respond to the changing business and regulatory environment, including passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Firms currently registered in Georgia should pay careful attention to the regulatory changes. In addition, formerly SEC-registered advisers that are switching to Georgia registration will find the Georgia regulatory landscape, under both the old rules and the new ones, if adopted, to be quite different than what they are accustomed to.
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Advisers Act Rules Implementing Dodd-Frank Adopted by SEC

June 28, 2011 | Steve Parker

On June 22, 2011, the Securities and Exchange Commission (SEC) adopted new rules and rule amendments under the Investment Advisers Act of 1940 to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the rules, as adopted, provided transitional provisions for investment advisers required to switch from SEC to state registration because they fail to meet the new requirement of $100 million in assets under management, require advisers to hedge funds and other private funds to register with the SEC, require reporting by certain exempt investment advisers, and make substantial changes to the Form ADV.

The final rule relating to transition differed somewhat from the rule originally proposed by the SEC. The final rule requires that any “mid-sized” registrant with the SEC (defined as any firm with between $25 million and $100 million under management) that is registered as of July 21, 2011 (Dodd-Frank’s effective date) must remain registered with the SEC through the transition. New applicants that meet the definition of mid-sized advisers and who seek to apply between January 1, 2011 and July 21, 2011 can apply either with the SEC or the state or states in which it must register.
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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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RIA Switch Deadline Still Not Formally Postponed

June 11, 2011 | Steve Parker

Although the US Securities and Exchanges Commission (SEC) has publicly stated that the July 21, 2011 deadline for “Mid-Sized Investment Advisers” to register with the States will likely be moved, as of yet there is no rule formally postponing the deadline. The same looming deadline applies to hedge funds required to register for the first time.

The switch delay is thought to have been driven primarily by Investment Advisor Registration Depository (IARD) programming delays and the logistical issue of collecting asset under management data from all firms in order to qualify them for the switch. Some advisers, out of caution, are registering dually with the SEC and the states so as to cover their bases; they plan on de-registering with the SEC at the appropriate time.

The deadline may be formally moved at the upcoming June 22 SEC meeting, whose agenda identifies consideration of adoptions of new rules and amendments to implement Dodd-Frank; considering Investment Adviser Act exemption rules for venture capital funds and advisers with assets under management of less than $150 million; and considering the proposed rule defining “family offices” that will be excluded from the definition of an investment adviser under the Investment Advisers Act.

Social Media and the Investment Adviser

June 7, 2011 | Steve Parker

More and more brokers and investment advisers are becoming familiar with the applicable social media regulations, including those described in FINRA Regulatory Notice 10-06, to put into place procedures that permit the wide use of social media for marketing purposes. These social media sites are proving an invaluable way to create and build client relationships, referral networks and other marketing opportunities. While this guidance was welcomed by firms, much of FINRA’s guidance is proving incomplete, as broker-dealers struggle to find ways, for example, to implement procedures to comply with FINRA’s record-keeping and other requirements.

Subject firms wishing to employ greater social media need to make sure that they follow FINRA’s requirements and those of the Exchange Act, the Investment Adviser’s Act and applicable state law. The most important factor is, of course, full, accurate, fair, complete and honest disclosures particularly on those pages that are permanent as opposed to transient messages. As FINRA made clear, all social media records, even Tweets and Facebook wall postings, must be maintained by the firm as part of their supervision. Additionally, a firm needs to set a written social media policy and follow the policy thoroughly.

From a compliance standpoint, for entities subject to FINRA rules, it is important to realize that blog posts, websites, banner ads, bulletin boards and static content on social media sites are considered advertisements under Rule 2210 and thus subject to the detailed requirements of that rule, including principal review or approval prior to posting for publication. This includes profile, background and wall information.
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Investment Adviser Trust Eroding

May 12, 2011 | Steve Parker

The latest financial debacle has done more than drain retirement accounts, it has caused investors to lose faith and trust in their financial advisers.

Investors are encouraged to plan for the future. Common wisdom dictates that someone who knows the business, an “expert,” is the best one to turn to for advice. During the 1990s when times were good investors could not lose with the market climbing ever higher. Then came, in succession, 9/11, the housing bubble, the crash of 2008 and the resulting financial scandals in brokerages large and small.

This was apparently a real wake up call to investors. A recent survey reveals that, as a result, over one-half of all investors fear that their financial advisers are taking unfair advantage of them!
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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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