NASAA ALL-MEMBER CALLNovember 3, 2011 Investment Adviser Switch Update
Topics • Update on the timeline for the switch by mid-sized investment advisers. • NASAA’s investment adviser coordinated review program. • IARD programming update. • NASAA proposed exemption for private fund advisers. • Summary. • Questions.
Reminder – “Mid-sized Investment Adviser” • Mid-sized investment adviser: • AUM of $25 million - $100 million (note “buffer” for SEC-registered firms is $90 million - $110 million). • Principal office and place of business in a state where IA is required to be registered and, if registered, is subject to examination. • If exempt or excluded in state where principal office is located, then SEC registration unless exempt. • NY and WY based advisers excluded. • Investment advisers required to register in 15 or more states will register with the SEC.
Switch Update – No Changes in Schedule • Mid-sized advisers registered with the SEC as of 1/1/2012. • Mid-sized advisers registered with the SEC as of 7/21/11 must remain SEC registered until 1/1/12. • Mid-sized advisers will file an amendment with the SEC between 1/1/12 - 3/30/12. • Mid-sized advisers no longer eligible for SEC registration must file ADV-W by 6/28/12. • “New” Mid-sized advisers. • As of 7/21/2011 mid-sized advisers must register with the appropriate state regulator (prohibited from SEC registration). • Advisers with AUM of $100 million or more continue to register with SEC.
Switch Update: Suggestions for Processing Switching Firms • Allow firms to file early. • Remain in “pending” status. • No renewal fees for “pending” firms. • Complete state registration process before filing ADV-W with SEC. • Avoid imposing fees for switching firms. • Change fee settings with FINRA. • Fee settings available at: http://www.iard.com/pdf/reg_directory.pdf • Contact regulatory user support staff at FINRA. • “Reg fee if firm is noticed filed” set to “$0.” • Two weeks notice to FINRA. • Transition queue – Recommend not using this queue for switching firms.
NASAA Investment Adviser Coordinated Review Program • NASAA Investment Adviser Coordinated Review Program (“Program”). • NASAA has contracted with a program manager to manage the program. • Advisers required to register in 4 or more states can elect to have their applications reviewed in the program. • Program availability: November 7 through March 30. • Advisers elect to participate by completing the Investment Adviser Coordinated Review Form on the NASAA website and clicking the “submit” button. • Submission of the form notifies the program manager of the adviser’s participation. • The program manager will send an email to the states where the adviser has applied that a conference call will be convened to discuss the application. • The program’s goals are to expedite the reviews of applications and to avoid conflicting and inconsistent deficiencies or comments. • Each state can send a separate deficiency letter. • If there are inconsistent or conflicting deficiencies that cannot be resolved, the program manager will schedule a second call with relevant staff and the state’s securities administrator.
NASAA Coordinated Review Program • Notice to switching advisers. • NASAA is sending an email describing the program to advisers who will be required to register in 4 or more states. • The notice will be sent to these advisers following this call. • A copy of the notice will be available on the Switch Resource Center on the NASAA website. • FAQs about the program will be posted to the Switch Resource Center on the NASAA website.
IARD Programming Update • On target for November 7 release. • In order to implement this release, CRD and IARD will not be available beginning 8:00 p.m. Eastern on Friday, November 4. • The scope of the release is available in release notes at: http://www.finra.org/web/groups/industry/@ip/@comp/@regis/documents/appsupportdocs/p124651.pdf • Changes to the ADV will include new filing options for advisers including filing with the states or the SEC as an exempt reporting adviser.
Exempt Reporting Advisers • Under Dodd-Frank, advisers to private funds (hedge fund managers, private equity fund managers, etc) may report to the SEC. These are “exempt reporting advisers” (“ERAs”). • Advisers to private funds with less than $150 million AUM. • Advisers to venture capital funds (as defined by the SEC) regardless of AUM. • ERAs do not register with the SEC and are not “notice filers” with the states. • No preemption of state authority to require registration. • NASAA has prepared a model rule that would provide an exemption from registration for some ERAs. • The NASAA Board has recently voted to take the proposal to the membership for a vote on adoption of the proposal as a model rule. • The rule will be distributed to the members in 7-10 days. • There will be an electronic vote on the rule the first week in December.
NASAA’s Private Adviser Proposal • The rule includes advisers to 3(c)(1) and 3(c)(7) funds and other private funds that would satisfy the statutory requirements found in these exclusions. Generally, a 3(c)(7) fund is composed entirely of qualified purchasers (people with at least $5 million in investments), and a 3(c)(1) fund has no more than 100 beneficial owners. • There is a “bad boy” disqualification provision. • The exemption is contingent on the adviser filing a report with the state through IARD. This report is identical to the report required by the SEC for exempt reporting advisers. • There are additional requirements for advisers to 3(c)(1) funds. • Investors in the 3(c)(1) fund must be “qualified clients” under SEC Rule 205-3 (either $1 million in investments managed by the adviser or at least $2 million in net worth excluding primary residence). • Specific additional disclosures, including the duties the adviser owes to the individual investors. • Advisers registered with the SEC are not eligible for the exemption. • Investment adviser representatives employed by the advisers would not be required to register. • The rule contemplates a fee for filing the report, but in most instances a statutory change is required. • Provisions for transitioning to registration if exemption is lost. • Optional “grandfathering” provision that would allow currently exempt advisers to remain exempt under certain conditions.
Summary • The switch is continuing on schedule. • The coordinated review program of switching advisers will be underway beginning November 7. • NASAA is sending a notice to advisers with information about the coordinated review program. • IARD programming is on schedule and will deploy this weekend. • NASAA will be distributing the proposed rule for exempt reporting advisers and a vote will happen in early December.