2011 Review – Are You Aware of the Regulatory Changes Made in 2011?

October 27, 2011

For registered investment advisors, 2011 gave way to many changes as various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) became effective. Understanding the changes made over this past year may help to confirm that your investment advisor is in compliance with the recent regulatory changes. Below is a brief overview of some of the regulatory changes that occurred during this past year.

The Implementation of the New Form ADV 2:

  • U.S. Securities and Exchange Commission (“SEC”) registered investment advisors and most state registered investment advisors were required to prepare and electronically submit the new Form ADV Part 2 Brochure.  An SEC registered investment advisor was required to begin providing the new ADV Part 2A Brochure to all new and perspective clients upon submission of the revised document through the IARD system and was required to deliver a copy of the ADV Part 2A to existing clients within 60 days of filing it through the IARD system.  The SEC issued an extension for some SEC registered investment advisors regarding the delivery of the Form ADV Part 2B supplemental brochures.  An SEC investment advisor that was registered with the SEC as of 12/31/2010 and had a fiscal year end between 12/31/2010 and 4/30/2011 had until 7/31/2011, to prepare and begin delivering the new Brochure Supplements to new and prospective clients.  These SEC registered investment advisors had until 9/30/2011 to deliver the appropriate Brochure Supplements to all existing clients. Additionally, investment advisors that were newly registered with the SEC from 1/1/2011 through 4/30/2011 had until 5/1/2011 to prepare and begin delivering brochure supplements to new and prospective clients and had until July 1, 2011 to deliver the Brochures Supplements to existing clients.  All other investment advisors registered with the SEC were required to meet the delivery requirements specified in the initial adopting release. State registered investment advisors should review the state’s Form ADV delivery requirements to determine if any revisions were made and to ensure that they are complying. Investment Advisors must keep Form ADV Part 2 brochures current by updating them at least annually and promptly when any information in the brochure becomes materially inaccurate.

The “Switch” For Mid-Sized Investment Advisors:

  • On July 21, 2011 the adopted rules and form changes to implement the transition of mid-sized investment advisors (between $25 and $100 million in assets under management) from SEC to State regulation became effective. All investment advisors that are SEC registered as of 12/31/2011 must file a Form ADV Part 1 amendment (regardless of the investment advisor’s fiscal year end) by March 30, 2012 to confirm the investment advisor’s eligibility to remain SEC registered or to begin the transition to state registration.  Amendments will be made to the Form ADV to reflect the regulatory changes related to the transition of regulation for mid-sized investment advisors.  Additional revisions to the Form ADV will also be implemented.

Exemptions for Advisors to Venture Capital Funds, Private Fund Advisors With Less Than $150 Million in Assets Under Management, and Foreign Private Advisors:

  • On July 21, 2011, the SEC adopted rules to implement new exemptions from the investment advisor registration requirements for advisors to certain private funds.  The new rules defined a “venture capital fund,” provide an exemption from registration for advisors with less than $150 million in private fund assets under management in the United States, and clarifies the meaning of certain terms included in a new exemption from registration for “foreign private advisors.”

Whistleblower Provision:

  • A provision under the Dodd-Frank Act gives the SEC the authority to reward whistleblowers and enhances the retaliation penalties and procedures that protect whistleblowers.

Additional, noteworthy changes made include:

  • The dollar amount that must be met before performance fees can be charged by investment advisors was raised to adjust for inflation.
  • Adopted rules defining the term “family office” as it relates to investment advisors and those managing their own family’s financial portfolios.

For more information regarding regulatory changes made in 2011, register for our webinar, “2011 Review – Are You Aware of the Changes in 2011 and Is Your Investment Advisor on Track for 2012?,” hosted Thursday, November 10th at 12:00 Central. The cost for this webinar will be $59.95. To register, please click here.

RIA Compliance Consultants can help you with updating your compliance program to comply with the new regulatory requirements or can assist you with switching from SEC to state registration.  If you are an existing client of RIA Compliance Consultants interested in discussing how we can assist your investment advisor, please contact your consultant. If you are a new client that would like to speak with us regarding the services we can provide, please click here to schedule a time to speak with one of our consultants.

Posted by Bryan Hill
Labels: ADV Part 2, Form ADV, SEC, Switch from SEC to State, Whistleblower