RIA Compliance Consultants
Wednesday, March 05, 2008

Form 13G Requirements – Is Your Investment Adviser a 5% Beneficial Owner?

Many registered investment advisors are familiar with Form 13F requirements under the Securities and Exchange Act of 1934 (the 1934 Act). However, are you aware of an equally important requirement under Section 13(g) of the 1934 Act?

Section 13(g) applies to beneficial owners of more than 5% of a class of equity securities registered under the 1934 Act. Section 13(g) can only be relied upon if the beneficial owner is also a qualified institutional investor and/or a passive investor. Beneficial ownership is broadly defined. A registered investment advisor may be defined as a beneficial owner if it shares either of the following:

  • Voting power – includes the power to vote or direct the voting of the shares; or

  • Investment power – the power to dispose of direct the disposition of the security.
Registered investment advisors are considered qualified institutional investors (other examples include broker/dealers and mutual fund companies) and more likely subject to Section 13(g) as opposed to Section 13(d). Under Section 13(g), registered investment advisors must file Schedule 13G when they exceed 5% beneficial ownership of a class of outstanding registered equity securities. Schedule 13G may only be used if the registered investment advisor holds the securities due to its normal course of business and not to affect change or influence control of the issuer (i.e. a passive investor). If a registered investment advisor intends to affect or influence control of the issuer, the more stringent Section 13(d) requirements apply.

An initial Schedule 13G must be filed through the SEC’s EDGAR system within 45 days after the end of the calendar year when the registered investment advisor attains more than 5% beneficial ownership. If a registered investment advisor attains more than 10% beneficial ownership prior to the end of the calendar year, the initial Schedule 13G must be filed within 10 days after the end of the first month in which beneficial ownership exceeds 10% as computed on the last day of the month.

Amendments to Schedule 13G must be filed annually when there are changes. However, if the initial Schedule 13G reports ownership of more than 5% and the registered investment advisor exceeds 10% prior to the end of the year, an amendment must be filed 10 days after the month in which beneficial ownership exceeds 10%, as computed on the last day of the month. Thereafter, the registered investment advisor must file an amendment within 10 days after the month when ownership decreases or increases by 5%. Once an amendment has been filed showing change of ownership below 5%, no additional filings are needed.

To learn more about RIA Compliance Consultants, Inc.’s Section 13(g) consulting services, please give us call.


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    posted by bhill at 1:51 PM



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