Mid-Sized Investment Advisers Required to Register with the SEC Rather than New York Investor Protection Bureau

August 31, 2012

New York City houses one of the financial epicenters of the world so many may find it surprising that investment advisers with their principal office and place of business in New York are not subject to an examination by the New York Investor Protection Bureau.  The New York Investor Protection Bureau is charged with enforcing the New York State securities laws and requires investment advisers to register with the New York Attorney General’s Office.  Because the New York Investor Protection Bureau does not conduct examinations of investment advisers with a principal office and place of business who are registered with the New York Attorney General’s Office, the U.S. Securities and Exchange Commission (“SEC”) will handle the registration and examination of mid-sized investment advisers (investment advisers with between $25 million and $100 million of assets under management) with a principal office or place of business in New York.

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Understanding Investment Advisers’ Responsibilities Concerning Information Security

August 28, 2012

Investment advisers must protect records that contain certain clients’ non-public, personal information. In efforts to safeguard client records and information, investment advisers should have in place a written information security plan. The main purpose of developing and implementing a strong written information security plan is to make sure that investment advisers have written policies and procedures in place to protect clients’ personal information. Investment advisers’ information security written policies and procedures must be reasonably designed to ensure the security and confidentiality of client records and information and to protect such records and information against any anticipated threats, hazards or unauthorized access or use.

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Kansas and Louisiana Securities Regulators Require Submission of Written Supervisory Procedures When Registering as an Investment Adviser

August 27, 2012

A firm that wants to register as an investment adviser must at a minimum prepare and file the Form ADV through the Investment Adviser Registration Depository (“IARD”) system.  When registering as an investment adviser with a state securities regulator, an investment adviser is typically required to submit additional documentation directly to the state securities regulator.  An investment adviser applicant seeking registration with a state securities regulator should review the investment adviser registration requirements for each particular state where the investment adviser applicant is required to register since the requirements typically vary from state to state.

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Certain State Securities Regulators Require Branch Registration for Investment Advisers

August 24, 2012

Fifteen states require investment advisers to register their branch offices with the state securities regulator. Currently, the Alabama Securities Commission, the  Arkansas Securities Department, the Connecticut Department of Banking, Securities and Business Investments Division, Florida’s Office of Financial Regulation , Hawaii’s Department of Commerce and Consumer Affairs, Idaho’s Department of Finance, the Illinois Securities Department, Maine’s Office of Securities, the New Hampshire Bureau of Securities, the New Mexico Securities Division, the Ohio Department of Commerce, the Texas State Securities Board, Vermont’s Department of Financial Regulation, the West Virginia Securities Commission, and Wisconsin’s Department of Financial Institutions require investment adviser branch offices to register with state securities regulators. Some of these 15 state securities regulators require an investment adviser branch office registration fee while other states only require registration of each investment adviser branch located in their state.  For state securities regulators that do charge branch office registration fees, the charges range from $20 (by the Illinois Securities Department) to $300 (by the New Mexico Securities Division). For further information on the investment adviser registration requirements in each state, refer to the North American Securities Administrators Association (“NASAA”) website.

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New Jersey’s Bureau of Securities Written Examination of Investment Advisers

August 24, 2012

Many states have unique requirements for their investment advisers. The New Jersey Bureau of Securities, the securities regulator in the state, requires that state registered investment advisers fill out a written examination. These written examinations must be completed annually by the investment adviser firm. The New Jersey Bureau of Securities’ written examination form states that “written examinations do not take the place of on-site examinations, but may alleviate the need to conduct on-site examinations.”  Alternatively, information in the written examination questionnaire may raise red flags for theNew Jersey Bureau of Securities and lead to an on-site examination by regulators.

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Investment Advisers must have Procedures in Place to Safeguard Client Records and Information

August 22, 2012

Pursuant to Rule 30 of Regulation S-P (“Regulation S-P”), investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) “…must adopt policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information. These policies and procedures must be reasonably designed to:

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State Privacy Laws and Investment Advisers’ Recordkeeping Requirements

August 16, 2012

Recently, Maryland and Illinois have passed employment privacy laws that could potentially have an effect on investment advisers and their recordkeeping requirements under both state and SEC rules. Delaware passed a similar privacy law that protects students from infringement by educational institutions. Maryland was the first state to pass a law of this kind in May 2012. Illinois followed a couple months later in July 2012. Several other states have similar bills on the docket for their state legislatures and members of Congress also have a bill to deliberate.

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Investment Advisers Must Make Investment Adviser Representatives Aware of the Need to Update U4

August 15, 2012

Investment adviser representatives must make amendments in a timely manner to their Form U4s when a material change occurs. Typically, this means filing an amended Form U4 within 30 days of the material change. Failure to do so can lead to fines, suspensions, or even being barred from acting as an investment adviser representative. Investment advisers must make sure their investment adviser representatives are aware of this requirement and understand the consequences of failing to update their Form U4s.

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Basics About the IAPD Website

August 07, 2012

The Investment Adviser Public Disclosure (“IAPD”) website was created by the U.S. Securities and Exchange Commission (“SEC”) to provide investors with information about their investment adviser and investment adviser representative. The IAPD was created as a result of a 1996 amendment to the Investment Advisers Act of 1940. The website provides information on both SEC and state registered investment advisers, certain investment adviser firms that are exempt from registration with the SEC or states, and state-registered investment adviser representatives.

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DOL Creates On-Line Tool to Help ERISA Plans Report Violations of 408(b)(2)

August 03, 2012

The U.S. Department of Labor (“DOL”) recently announced a new proposal to provide a web-based tool for ERISA covered retirement plans to report violations of the new 408(b)(2) disclosure requirements.  Under the new 408(b)(2) regulations, as of July 1, 2012 ERISA covered service providers were required to provide retirement plans, to which they provide services, with certain disclosures.  Failure to provide the required disclosures will result in services to the ERISA covered plan being classified as a prohibited transaction under ERISA and the Internal Revenue Code.  The purpose of the new tool is to assist plan sponsors in determining whether they have all the required information and to provide an easy way for plan sponsors to report service providers who fail to make the required 408(b)(2) disclosures.

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