On June 22, 2010, the SEC adopted final new rules and amendments to the Investment Advisors Act of 1940 to implement Title IV of the Dodd-Frank Wall Street Reform Act.
Form ADV will be amended for a one-time transition filing for SEC registered advisers at
January 1, 2012. You must file an amendment no later than March 31, 2012, adhering to the proposed registration amendments.
Mid-size advisers (regulatory assets under management (“RAUM) between $25 and $100 million) that are no longer eligible for SEC registration, after filing their
Form ADV amendments, must complete Form ADV-W no later than June 28, 2012. Those advisers registered with the Commission as of July 21, 2011 must remain registered until January 1, 2012, unless an exemption from the SEC is available.
After July 21, 2011, new applicants who are mid-size advisers must register with their
states.
New Form ADV Part 1A, Item 2 requires the following advisers to register with the SEC:
- If already registered with the SEC and with RAUM of $90 million or more.
- If new registration and RAUM of $110 million or more. Note:
may register with SEC if RAUM is a least $100 million but less than $110
million.
- A mid-size adviser that does not meet its state registration criteria or is not
subject to examination by its state.
- Has principal place or business outside of the United States or in the state of Wyoming.
- Meets revised exemptive rules under section 203A.
- Adviser to an investment company.
- Adviser to a business development company with RAUM of $25 million or more.
- SEC order requiring registration.
New rule 204-4 requires exempt reporting advisers to file reports electronically on Form
ADV using the same process as registered advisers. This rule implements new section 203(l) and section 203(m) for exempt advisers solely to venture capital funds and private funds domiciled in the United States with AUM of less than $150 million. Item 7.B and Section 7.B of Schedule D requires exempt reporting private funds advisers to report pooled investment vehicles regardless of whether they are organized as limited partnerships.
The SEC also adopted as proposed amendments to three of the exemptions from prohibition from SEC registration. First, nationally recognized statistical rating organizations would be prohibited from registration. Second, pension
consultants with plan assets of less than $200 million are prohibited from SEC
registration. The $50 million threshold was increased because Congress increased the SEC registration AUM threshold from $25 million to $100 million.
There were several commenters who suggested changes to the new RAUM calculation. However, the SEC did not modify the proposed changes to the RAUM. It includes those
securities portfolios for which advisers provide continuous and regular supervisory or management services. An account is a securities portfolio account if at least 50% of the total value of the account consists of securities. For purposes of this 50% test, securities include:
- Bank deposits, certificates of deposit, bankers acceptances, and similar bank instruments;Adviser family or proprietary accounts;
- Accounts which are charged no compensation for services;
- Accounts of clients who are not United States persons;
- All assets of private funds, including uncalled capital contribution commitments.
A number of amendments to Form ADV were adopted to improve the SEC’s efficiency to allocate examination resources and to evaluate implication of policies in the administration of the Investment Advisers Act of 1940 as follows:
Advisers must provide additional information about: (1) the private funds they advise. However it was not adopted as proposed to disclose private funds; (i) net assets, (ii) assets and liabilities by class and categorization according to the GAAP fair value hierarchy and (iii) specify the percentage of each fund owned by type of beneficial owner. Changes were also made to the definition of hedge fund in the context of the Form PF release; (2) the types of clients, employees and advisory activities; (3) non-advisory activities and financial industry affiliations; (4) participation in client transactions; and (5)custody of client assets.
Compliance Dates:
- Transition to State Registration and Form ADV. New rule 203A-5 provides 90-days from December 31, 2011 for each adviser to determine eligibility for SEC registration.
- Advisers Previously Exempt Under Section 203(b)(3). Under new rule 203-1(e), an adviser previously relying on the private adviser exemption must register with the SEC by March 30, 2012. However, because it can take up to 45 days to be approved, they should file a complete registration by February 14, 2012.
- Exempt Reporting Advisers. These advisers must file their first
reports on Form ADV through the IARD system between January 1, and March 30, 2012.
- Other Amendments. Advisers may rely on the other amendments, not listed above, within 60-days after the new rules’ publications in the federal register.
