Private Advisors: Be Aware of New SEC Compliance Requirements
by
Stephanie Padly-Julien on Dec. 10, 2012
Business Criminal White Collar Crime Government
Summary: The Dodd- Frank Act has eliminated the exemption for private advisors. Many advisors had relied on this exemption to avoid registering with the Commission..
SEC Compliance Requirements:
Private Fund Advisors and Commission Registration - Exemptions Changed:
The Dodd- Frank Act has eliminated the exemption for private advisors. Many advisors had relied on this exemption to avoid registering with the Commission under the Investment Advisors Act of 1940. Due to this change, those previously unregistered advisors with the Commission will be subject to the same requirements and oversight as the investment advisors that were registered with the SEC.
Form ADV Reporting Requirements for Investment Advisors - New Disclosures:
The Commission amended Form ADV (which is the investment advisor registration form) in order to improve its oversight capabilities. The changes made to Form ADV require advisors to include more information about the private funds they take care of for their investors. These advisors will also have to provide the gatekeeper identification and the basic organizational and operational information of each fund they manage.
Other changes to Form ADV were made in order to increase the Commission’s regulatory program. These changes will also require all registered advisors to provide more information to the Commission about their advisory business. Other information the Commission is asking for includes a risk assessment and a list of any conflicts of interest. Advisors are also required to give more information about their non-advisory activities and their affiliations in the financial industry.
Reporting Requirements for Exempt Reporting Advisors - New Exemptions:
Some advisors may not be required to register if they are able to rely on one of three new registration exemptions under the Dodd-Frank Act. The Commission imposes the following requirements on advisors relying on the exemptions for advisors who only handle venture capital funds or advisors who only handle private funds with less than $150 million in assets and under management in the United States.
The exempt advisors must file and occasionally update reports with the Commission using Form ADV. These advisors must fill out a small subset of items on Form ADV including advisor identification, disciplinary information, and private fund data and conflicts of interest.
Reallocation of Regulatory Responsibility - the Mid-Sized Advisors:
Since 1996, the regulatory responsibilities for investment advisors were divided between the Commission and the states. The main determination that determined whether the Commission and the state regulated the advisors was the amount of money that each advisor managed for their clients. Previously, advisors usually couldn’t register with the Commission unless they had managed a minimum of $25 million for their clients.
The Dodd- Frank Act increased this registration amount with the Commission to $100 million. In doing so, they have created a new category of advisors which they have called “mid-sized advisors.” A mid-sized advisor is subject to state registration but generally may not have to register with the Commission. They say a mid-sized advisor manages between $25 and $100 million for their clients; the advisor must be registered in the state where its main office and place of office is located; and the advisors will be examined by the state they are located in if they are required to register.
To reflect the new requirements for advisors to register with the Commission, the Commission has made some changes to several of its rules and forms.It has put into place a buffer that will help prevent advisors from constantly switching between the Commission and the State registrations. The Commission has clearly defined which advisors will be considered a mid-sized advisor. They will help with the transition that advisors will go through between the federal and state registrations.
Please call us if you have any questions or would like us to help you register with the Commission (239) 963-6043. We are here to help!
*This article is intended as general information and does not serve as legal advice. It also does not create any attorney-client relationship or privileges. Every situation is different and require an individual analysis and assessments. Please contact us so we can help you directly.