SEC Approves New “Switch” Rule for Mid-Sized Investment Advisors

June 24, 2011

Earlier this week, the U.S. Securities and Exchange Commission (“SEC”) approved a new rule “switching” regulatory responsibility from the SEC to state securities regulators for mid-size investment advisers (between $25 million and $100 million of what will now be known as “regulatory” assets under management).

Here is a summary of certain key aspects of the SEC’s new switch rule for mid-size investment advisers.

  • A mid-size investment adviser registered with the SEC as of July 21, 2011 will be required to remain an SEC registered investment until January 1, 2012.
  • As of July 21, 2011, any state or new investment adviser with assets under management between $25 million and $100 million will not be permitted to register with the SEC and must register with the applicable state securities regulator(s).
  • Each existing investment adviser, registered with the SEC on January 1, 2012, must file by March 30, 2012 an amendment to its Form ADV identifying whether the SEC registered investment adviser is a mid-size adviser and is no longer eligible to remain registered with the SEC.
  • “Regulatory” assets under management will include proprietary and family accounts managed by the investment adviser even if no investment advisory fees are charged.
  • The SEC is permitting an existing SEC registered investment adviser to select the date (within 90 days before this Form ADV filing described above) for purposes of calculating “regulatory” assets under management.
  • After making this Form ADV filing in first quarter of 2012, an ineligible mid-size investment adviser must withdraw its SEC registration by filing the Form ADV-W within 90 days (no later than June 28, 2012).
  • In order to avoid frequent switches, there will be an assets under management buffer.  A state registered investment adviser will not be required to register with the SEC until it reaches $110 million of “regulatory” assets under management.  Once an investment adviser is registered with the SEC, the investment adviser will not be required to file the Form ADV-W and de-register with the SEC until the investment adviser has less than $90 million of “regulatory” assets under management.
  • The threshold for the pension consultant exemption available for an investment adviser to register with the SEC has been increased from $50 million to $200 million of pension plan assets under advisement.
  • The number of states requiring registration under the multi-state exemption available for an investment adviser to register with the SEC has been lowered from 30 states to 15 states.

RIA Compliance Consultants will be presenting a complimentary webinar, “Understanding and Preparing for the ‘Switch’ of Mid-Sized Advisors”, on Wednesday, June 29, 2011 at 12:00 pm CST to provide more details regarding the new requirements for mid-sized advisors.  One of our consultants will provide an overview of the new rules and changes to existing rules and discuss timing for any new requirements under these rules.  We will also discuss which investment advisors will be affected by these changes and what actions these investment advisors will need to take in order to comply with the new requirements to switch from SEC to state registration.  If you would like to attend this complimentary webinar, click here to register.

If your investment advisor is affected by these new requirements, RIA Compliance Consultants (RCC) will be able to assist you through the transition from SEC to state registration.  Although you will not be able to complete your new SEC filings until after January 1, 2012, RCC recommends that you begin to prepare your investment advisory documents for this transition as soon as possible. Waiting until the last minute to begin preparing your documents to apply for state registration may result in you not meeting the appropriate regulatory deadlines.  If you would like to engaging RCC to assist you with this process, contact your RCC consultant or click here to schedule a time for one of our consultant’s to call you.

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