Transcript NASAA ALL MEMBER CALL

NASAA ALL-MEMBER CALL
November 3, 2011
Investment Adviser Switch Update
Topics
Update on the timeline for the switch by mid-sized
investment advisers.
NASAA’s investment adviser coordinated review
program.
IARD programming update.
NASAA proposed exemption for private fund
advisers.
Summary.
Questions.
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Reminder – “Mid-sized Investment Adviser”
Mid-sized investment adviser:
 AUM of $25 million - $100 million (note “buffer” for SECregistered firms is $90 million - $110 million).
 Principal office and place of business in a state where IA is
required to be registered and, if registered, is subject to
examination.
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If exempt or excluded in state where principal office is located, then
SEC registration unless exempt.
NY and WY based advisers excluded.
Investment advisers required to register in 15 or more states
will register with the SEC.
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Switch Update – No Changes in Schedule
Mid-sized advisers registered with the SEC as of 1/1/2012.
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Mid-sized advisers registered with the SEC as of 7/21/11 must
remain SEC registered until 1/1/12.
Mid-sized advisers will file an amendment with the SEC
between 1/1/12 - 3/30/12.
Mid-sized advisers no longer eligible for SEC registration must
file ADV-W by 6/28/12.
“New” Mid-sized advisers.
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As of 7/21/2011 mid-sized advisers must register with the
appropriate state regulator (prohibited from SEC registration).
Advisers with AUM of $100 million or more continue to
register with SEC.
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Switch Update: Suggestions for Processing
Switching Firms
Allow firms to file early.
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Remain in “pending” status.
No renewal fees for “pending” firms.
Complete state registration process before filing ADV-W with SEC.
Avoid imposing fees for switching firms.
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Change fee settings with FINRA.
Fee settings available at: http://www.iard.com/pdf/reg_directory.pdf
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Contact regulatory user support staff at FINRA.
“Reg fee if firm is noticed filed” set to “$0.”
Two weeks notice to FINRA.
Transition queue – Recommend not using this queue for switching
firms.
NASAA Investment Adviser
Coordinated Review Program
NASAA Investment Adviser Coordinated Review Program (“Program”).
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NASAA has contracted with a program manager to manage the program.
Advisers required to register in 4 or more states can elect to have their
applications reviewed in the program.
Program availability: November 7 through March 30.
Advisers elect to participate by completing the Investment Adviser Coordinated
Review Form on the NASAA website and clicking the “submit” button.
Submission of the form notifies the program manager of the adviser’s
participation.
The program manager will send an email to the states where the adviser has
applied that a conference call will be convened to discuss the application.
The program’s goals are to expedite the reviews of applications and to avoid
conflicting and inconsistent deficiencies or comments.
Each state can send a separate deficiency letter.
If there are inconsistent or conflicting deficiencies that cannot be resolved, the
program manager will schedule a second call with relevant staff and the state’s
securities administrator.
NASAA Coordinated Review Program
Notice to switching advisers.
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NASAA is sending an email describing the program to advisers
who will be required to register in 4 or more states.
The notice will be sent to these advisers following this call.
A copy of the notice will be available on the Switch Resource
Center on the NASAA website.
FAQs about the program will be posted to the Switch
Resource Center on the NASAA website.
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IARD Programming Update
On target for November 7 release.
In order to implement this release, CRD and IARD will
not be available beginning 8:00 p.m. Eastern on Friday,
November 4.
The scope of the release is available in release notes at:
http://www.finra.org/web/groups/industry/@ip/@comp/
@regis/documents/appsupportdocs/p124651.pdf
Changes to the ADV will include new filing options for
advisers including filing with the states or the SEC as an
exempt reporting adviser.
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Exempt Reporting Advisers
Under Dodd-Frank, advisers to private funds (hedge fund managers,
private equity fund managers, etc) may report to the SEC. These are
“exempt reporting advisers” (“ERAs”).
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Advisers to private funds with less than $150 million AUM.
Advisers to venture capital funds (as defined by the SEC) regardless of
AUM.
ERAs do not register with the SEC and are not “notice filers” with
the states.
No preemption of state authority to require registration.
NASAA has prepared a model rule that would provide an
exemption from registration for some ERAs.
The NASAA Board has recently voted to take the proposal to the
membership for a vote on adoption of the proposal as a model rule.
The rule will be distributed to the members in 7-10 days.
There will be an electronic vote on the rule the first week in
December.
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NASAA’s Private Adviser Proposal
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The rule includes advisers to 3(c)(1) and 3(c)(7) funds and other private funds that would satisfy the
statutory requirements found in these exclusions. Generally, a 3(c)(7) fund is composed entirely of
qualified purchasers (people with at least $5 million in investments), and a 3(c)(1) fund has no more than
100 beneficial owners.
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There is a “bad boy” disqualification provision.
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The exemption is contingent on the adviser filing a report with the state through IARD. This report is
identical to the report required by the SEC for exempt reporting advisers.
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There are additional requirements for advisers to 3(c)(1) funds.
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Investors in the 3(c)(1) fund must be “qualified clients” under SEC Rule 205-3 (either $1 million in
investments managed by the adviser or at least $2 million in net worth excluding primary
residence).
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Specific additional disclosures, including the duties the adviser owes to the individual investors.
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Advisers registered with the SEC are not eligible for the exemption.
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Investment adviser representatives employed by the advisers would not be required to register.
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The rule contemplates a fee for filing the report, but in most instances a statutory change is required.
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Provisions for transitioning to registration if exemption is lost.
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Optional “grandfathering” provision that would allow currently exempt advisers to remain exempt
under certain conditions.
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Summary
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The switch is continuing on schedule.
The coordinated review program of switching advisers
will be underway beginning November 7.
NASAA is sending a notice to advisers with information
about the coordinated review program.
IARD programming is on schedule and will deploy this
weekend.
NASAA will be distributing the proposed rule for exempt
reporting advisers and a vote will happen in early
December.
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Questions
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