SEC May Delay “The Switch” to State Securities Regulators for Mid-Sized Investment Advisors

April 18, 2011

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), an investment adviser who has between $25 million and $100 million in assets under management will have to withdraw its registration with the U.S. Securities and Exchange Commission (“SEC”) and register with one or more state securities regulators pursuant to the applicable state laws.  When the Dodd-Frank Act was enacted on July 21, 2010, the deadline for an investment adviser to switch its registration was July 21, 2011, the one year anniversary of the bill’s enactment.  However, in a letter dated April 8, 2011, Robert Plaze, the associate director of the SEC’s Division of Investment Management, stated that the deadline for “the Switch” is likely to be extended until the first quarter of 2012.  Click here to view the full letter.

This letter, which was addressed to David Massey, the president of the North American Securities Administrators Association (“NASAA”), stated that the SEC will likely complete implementing rulemaking by July 21, 2011.  The SEC explained that once the SEC adopts the proposed rules, the Investment Adviser Registration Depository system (“IARD”), will need to be re-programmed to facilitate the transition filings.  The SEC anticipates that this re-programming will take until the end of 2011.  Therefore, it is expected that the SEC will consider extending the transition deadline so that SEC registered investment advisers will have to report their eligibility for registration with SEC in the first quarter of 2012.  Investment advisers, who are no longer eligible for SEC registration at that point, will then have a grace period providing them time to register with the appropriate state securities regulators.

This means that investment advisers must continue to comply with current regulations at this time.  As a result, if your investment adviser is currently registered with a state securities regulator and your investment adviser reported more than $30 million in assets under management when you filed your most recent Form ADV Part 1 annual amendment, your investment adviser must register with the SEC and notice file with any required state securities regulators within 90 days of filing your annual amendment.  Once your SEC registration as investment adviser is approved, your investment adviser will need to withdraw its state registration.  Unfortunately, unless your investment adviser reaches the $100 million threshold by time the SEC implements the new requirement, your investment adviser will likely be required to go through the state registration process again and withdraw your investment adviser’s registration with the SEC.  At this point, investment advisers will have to sit and wait until more information is released from the SEC.  RIA Compliance Consultants will continue to provide updates as they become available.

If you need assistance transitioning your investment adviser’s current registration from state to SEC, contact your RIA Compliance Consultant (“RCC”) or click here to schedule a time that one of RCC’s Consultants can call you to discuss your needs.

Posted by Bryan Hill
Labels: SEC, Switch from SEC to State, Uncategorized