Don't forget about your annual renewal fees!

We have officially entered the annual renewal season for 2016! As we prepare for the holidays, don't forget that you must submit payment for your firm's annual renewal fees. Failure to do so by the stated deadline will result in the termination of your RIA's registration.  You should have already received an email from FINRA in regards to your Preliminary Statement.  Your preparations should be underway now as the deadline for payments is December 18, 2015.  What do you need to do?  


Complete a thorough review of your current registration status.  Here are a few questions to ask yourself:

• Based on your client growth, have you exceeded the de minimus threshold in additional state(s)?  
• Are you currently registered in any states where you are now under the de minimus threshold?
• Are your IARs properly registered?  Key Reminder: For SEC firms, some states do not require IAR registration if there is no place of business or under the de minimus threshold. 
• Once you have confirmed your applicable registrations, make sure to validate the fees calculated by FINRA and transfer funds into your Renewal Account (IARD system). 

If you are not an AdvisorAssist Compliance Client and are seeking assistance with the Annual Renewal process, please contact us at:  sales@advisorassist.com.

For more information, please see the IARD Renewal Program page:  http://www.iard.com/renewals.asp

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Minnesota IARs - Did you register?

The registration for Investment Advisor Representative (IAR) registrations in Minnesota is January 31, 2014

In August 2013, Minnesota enacted a law bringing its IAR rules in line with virtually every other state. [See August Post]. Effective August 31, 2013, Minnesota law required formal registration for all IARs.

Due to system delays at FINRA, the Minnesota Department of Commerce issued [“Implementation of Registration Process for Investment Adviser Representatives.” dated October 31, 2014], which set forth the required filing period [November 1, 2013 to January 31, 2014].

A Form U4 must be filed for each IAR. Further, each IAR must have completed the required examinations [Series 65 or 66] or have a recognized exemption from the examination requirements [CFP®, ChFC®, CFA®, PFS, or CIC designations in good standing].

If you are in need of assistance with these requirements, please contact us at info@advisorassist.com or call 617-800-0388.

Below is a notice emailed to advisor from the Minnesota Department of Commerce.

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Minnesota issued an update to all Minnesota Registered Investment Advisors on February 6, 2014

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As of February 1, 2014 The Minnesota Department of Commerce has closed the initial Investment Advisor registration window. This allowed investment advisors to register with the State of Minnesota without first meeting an exam requirement per the Amended Order (.pdf) issued on October 31st, 2013.

Any applications that have been submitted on or prior to January 31st 2014, will be reviewed and processed as outlined in the amended order. Any applications received on or after February 1, 2014 will need to comply with the requirements as outlined in Minnesota Statute 80A.58 [AA Note: which requires the Series 65 or 66 exam or specific exemption].

To date, close to 10,000 investment advisor representatives have been approved for registration and more than 2,000 refunds have been issued to firms. If you are waiting for a refund please remember to send the following information to the Securities Registration mailbox.

Firm Name/CRD Number
Individual name/CRD number
Transaction Number & Transaction Date
Posting Date
Dollar Amount
Hire Date

Please send questions or comments to: securities.commerce@state.mn.us.

For additional information please visit the Securities Registration and Enforcement Section of the Minnesota Department of Commerce website.

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SEC Issues Notice of Intent to Cancel Registrations of 293 Investment Advisers

SEC Issues Notice of Intent to Cancel Registrations of 293 Investment Advisers

Summary of SEC Release No. IA-3490; October 19, 2012

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law requiring mid-sized advisers (those between $25 million and $90 million) to move from SEC to state registration by June 28, 2012. As of the date of this report, more than 2,300 mid-sized advisers – those managing less than $100 million of assets – have made the transition to state regulation, but there are 293 that have yet to transition.

On October 19, 2012, the SEC issued Release No. IA-3490 identifying 293 advisers who may no longer be eligible for registration with the SEC because they manage less than $90 million or have failed to comply with other requirements.

Advisers identified in the notice have until December 17, 2012 to withdraw their SEC registration by filing a partial Form ADV-W, or inform the Commission staff that they have should remain eligible for registration with the SEC. After that date, the Commission may issue an order cancelling the registration of advisers who have not filed an amendment, withdrawn from registration, or requested a hearing.

Advisors receiving such a letter should work with their compliance consultants and their state regulators to promptly resolve any open registrations. If you have a registration in process with the state(s), we do suggest contacting the SEC in writing to demonstrate that the Advisor is making a good faith effort to comply.

If you have any questions regarding this compliance alert, please contact us at Support@AdvisorAssist.com or call 617-800-0388.

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Massachusetts Issues RIA Survey

The Massachusetts Securities Division released an Investment Adviser Survey on Friday, February 24, 2012 to obtain additional information from newer advisors and those not managing client assets. 


In discussions with the Securities Division, the intent of the survey is to be proactive in making sure the Securities Division not only has an understanding of all registrants in the state, but also to aid newer filers in understanding their regulatory responsibilities.


The 4-page questionnaire inquires about the RIA's registered and non-registered persons, the services offered by the firm and how the RIA is compensated for its services.


Advisors should complete the form and provide any supplemental information in a cover letter. For instance, if your firm was a new registrant in 2011, you may not have updated your assets under management. Although you do have assets and clients, the state would still like you to complete the form and indicate this in the cover letter.


A copy of the letter is below. Please contact us at support@advisorassist.com if you have any questions on compliance and regulatory responsibilities for your firm. Advisors participating in the AdvisorAssist Compliance Advantage Program will receive specific instruction from the AdvisorAssist Team.

From: Massachusetts Securities Division [mailto:MSD@sec.state.ma.us]
Sent: Friday, February 24, 2012 2:10 PM
Subject: 2012 IA Survey - response required

Dear Registrant:

The Massachusetts Securities Division (the “Division”) is currently conducting a survey of certain registered investment adviser firms located in Massachusetts that, according to its most recently Form ADV filings, discloses zero regulatory assets under management. This survey will be used to gauge the types of business being conducted and inquires as to the firm’s business practices within the last two years.

Please complete the attached survey and return this survey to:

Massachusetts Securities Division

Attn: 2012 Investment Adviser Survey

One Ashburton Place, 17th Floor

Boston, Massachusetts 02108-1552

or via e-mail to:

MSD@sec.state.ma.us

A response by your firm is required. This survey must be completed and returned by Wednesday, March 7, 2011.

Thank you in advance for your cooperation. If you have any questions, please contact the Division.

Sincerely,

Massachusetts Securities Division

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Changes to Form ADV Part 1

A new version of Form ADV Part 1 was released by FINRA on November 7, 2011.

The next time your firm logs onto the IARD system to file an amendment to your Form ADV Part 1, you will be prompted to answer several new questions and also confirm (re-answer) certain existing questions

Below we have listed the Items that have been updated and summarized many of the changes that were implemented (We focus on the significant changes here. To be certain that your RIA addresses all of the updates thoroughly, it would be best to review with your compliance consultant or attorney.).

Item 1
Item 1 specifically asks advisors to identify contact information for the firm’s Chief Compliance Officer and also provides an option to include one additional regulatory contact person.

Advisors are also now asked the following questions:

• Are you a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934? If "yes," provide your CIK number.
• Did you have $1 billion or more in assets on the last day of your most recent fiscal year?
• Provide your Legal Entity Identifier if you have one?

Item 5
ADV Part 1 Item 5 now asks that advisors specifically identify the exact number (as opposed to ranges) of employees that fall into each functional category. We believe that this was partially motivated by an interest in adding clarity to staffing levels among the increasingly large number of smaller RIAs.

This section also now asks advisors about the “percentage of clients that fall into various categories”. The previous version of ADV Part 1 asked only for the approximate percentage that each type of client comprised of the total number of clients. The new version requests the same breakdown but also asks for the approximate amount of regulatory assets under management (reported in Item 5.F. of ADV Part 1) attributable to each type of client.

Advisors should note that the list of client types was expanded and now includes “business development companies,” “other investment advisers”, and “insurance companies.” This higher level of granularity will likely reduce reliance on the "other" category, and improving transparency to investors.

Item 5 also asks advisors to disclose what percentage of their clients are non-United States persons.

Item 6 and Item 7
Working with our clients in the past, we have noticed frequent confusion around the differences between Item 6 and Item 7 of ADV Part 1, specifically regarding when a “business activity” impacts Item 6 versus Item 7.

The list of “business activities” in each of these sections has doubled. While this expansion will likely alleviate some confusion, advisors should carefully review this updated list (particularly the responses related to “broker-dealer” and “registered representatives”.

Item 8
While we’re on the topic, Item 8 now asks for some additional information about your broker-dealer relationships. Specifically, if you have client discretion for broker-dealer selection, Item 8.E. now asks if this broker-dealer a “related person.” This addition further helps identify and disclose potential conflicts of interest.

The new version of the ADV drills down deeper into the benefits that advisors receive from broker-dealers, asking specifically about "soft-dollar benefits." If the advisor does receive "soft-dollar benefits," they are asked to affirm that the service(s) received are eligible under 28(e) of the Exchange Act. This change seems to bifurcate benefits received by participating on an institutional wealth platform and benefits received via soft-dollars.

In addition to asking advisors if they compensate individuals for referrals, the new Item 8 also asks if the advisors themselves are compensated for referrals.

Item 9
For advisors that do have custody of some assets, the new Item 9 drills down into those assets and asks: “If you or your related persons have custody, how many persons, including, but not limited to, you and your related persons, act as qualified custodians for your clients in connection with advisory services?

Item 11
Item 11 relates to disciplinary events. The new version first asks advisors if any of the events described in the disciplinary questions involve you or any of your supervised persons specifically. This broadens the scope of the questions to anyone you supervise.

Item 11 generally requires advisors to describe disciplinary events that involve advisory affiliates, which include:

(1) all current employees (excluding employees performing only clerical, administrative, support or similar functions);

(2) officers, partners, or directors (or any person performing similar functions); and

(3) all persons directly or indirectly controlling you or controlled by you.

If you have any questions about how these changes impact you firm, please do not hesitate to reach out to AdvisorAssist.

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FINRA Updates IARD - 11/8/11

Effective on 11/7/11, FINRA released enhancements to the 

Investment Adviser Registration Depository ("IARD") system to prepare for SEC to State

transitions for mid-sized Advisors. For Advisors participating in AdvisorAssist's Annual Compliance services, you will be receiving an annual renewal questionnaire that will address these items.

Here's the copy of the SEC Email Distribution:

SEC-Registered Investment Advisers: The revised Form ADV is now programmed into IARD. Between January 1, 2012 and March 30, 2012, all SEC-registered advisers are required to file a Form ADV amendment (annual amendment or other-than-annual amendment), completing all items on the revised form and indicating with which regulator they should be registered. A registered adviser that files an other-than-annual amendment to its Form ADV prior to January 1, 2012 will not be required to complete all of the new items on the revised form (see General Instructions, Instruction 4 for when certain items are required to be updatedhttp://www.sec.gov/about/forms/formadv-instructions.pdf). Please see SEC adopted rules for more information (IA-3221 and IA-3222, June 22, 2011, on http://www.sec.gov/rules/final.shtml). You cannot reply to this email. If you have questions, please email IARDLIVE@SEC.GOV.

http://www.sec.gov/rules/final.shtml

THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communication is not the intended recipient (or the employee or agent responsible for delivering to the intended recipient), you are hereby notified that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please disregard and delete this communication, and do not disseminate or retain any copy of this communication.


Open questions on SEC to State Transition?
If you still have open questions regarding your options, timing, securities rules or other aspects of transition to state registration, please schedule a call with us. Please send an email to Support@AdvisorAssist.com. 

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Hedge Fund Regulation: A Clear Landscape

The regulatory landscape for hedge fund managers got a little bit clearer this summer.  With the Dodd-Frank ink (relatively) dry, we now have a much better sense of which hedge fund advisors will be subject to SEC or state regulation and what requirements will come with this additional oversight.

Here is a review of how Dodd-Frank extends regulatory oversight to the alternative investment industry:

• For many hedge fund managers, registration as an Investment Adviser will be required by March 30, 2012.  To meet this deadline, registrants should file Form ADV by mid-February, 2012.
• Certain hedge funds that are currently registered with the SEC will need to transition to State registration in early 2012.
• Determining your firm’s regulatory requirements depends on whether you qualify as an “exempt reporting adviser” (ERA).  An ERA is an adviser that is exempt from SEC registration but must file a "truncated" Form ADV.  To be eligible for this exemption, an advisor must:
• Act only as an advisor to private funds and have “regulatory AUM”* in the US of less than $150MM; or;
• Advise solely to one or more “venture capital funds” (See Advisers Act Section 203(l) for specifics here).
• “Regulatory AUM” is a new defined term that will be used going forward and includes leverage (i.e. gross assets) and uncalled capital commitments (which is typically limited to VC or private equity advisors).
• Family offices that meet the specific criteria set forth in Release IA-3220 are also exempt from registration.

A little hard to follow, right?  Here is a grid that helps lay this out:

* Non-US Managers” that must either register with the SEC or seek ERA exemption are those who have a place of business in the US and have US clients (either directly or as investors in a private fund).

To avoid unnecessary switching between SEC and state registration, regulators have created a $20 million “buffer” around $100M (i.e. 90M to 110M), where advisors will not have to modify their registration status.

For hedge fund managers that fall into this new regime, adherence to regulatory requirements will certainly bring additional complexity and change to their day- to-day operations.  That said, with the appropriate resources, Investment Advisor compliance is certainly manageable by all but the most resource constrained hedge fund managers. And with the right partners, compliance will likely not be as expensive or time consuming as you may be expecting.

Here are a few “high priority” areas to think about.  We will be posting future blogs with additional details on a number of these topics.

1)  Conduct a thorough review your staff, including their specific roles and their access to information regarding clients or your investment process.  The Adviser Act requires that you identify a Chief Compliance Officer (CCO) to administer and enforce your compliance program. Requirements also include identifying “Supervised Persons”, “Access Persons” and “Investment Adviser Representatives”.  Each of your employees (and potentially others outside your firm) will likely be identified as one or more of these based on their access to information related to your clients and investment decisions.

2)  Prepare for data requirements. Dodd-Frank introduced a new reporting requirement which is intended to help the SEC and the newly formed Financial Stability Oversight Council (FSOC) monitor the stability of financial markets.  Form PF must be filed quarterly (for advisers with more than $1B in regulatory AUM) or annually (for advisors with less than $1B) by managers that are or are required to be registered with SEC and advise 3(C)1 or 3(c)7 funds.  Form PF has five Sections:Section One must be filed by all advisors.  Sections Two through Four are required by quarterly filers only.  (Section Five covers hardship exemptions in the event you cannot report on time.) There are a large number of new defined terms in Form PF and the required data is very detailed and, in some cases, may be open to interpretation.  The data includes regulatory AUM, leverage, counterparty risk, trading/holdings and performance.  We will be posting additional blogs that go through Form PF in more detail.

3)  Conduct a review of your firm’s processes and controls.  A key aspect of advisor regulation is the maintenance and monitoring of the processes that you follow to manage your fund and client relationships.  The objective of these processes should be to understand the flow and access of information related to clients or your investment process.  A review of information flow and access within your firm should focus on identifying risks or potential conflicts of interest.

4)  Identify resources or partners to guide you.  Reactions from industry participants and mainstream media have placed a lot of focus on the “increased compliance costs” that come with hedge fund oversight.  Depending on your firm’s specific circumstances, many of the estimates that we have seen look extremely high and most likely assume hiring a full time compliance professional or significant reliance on your attorneys.  Many of the federal and state regulations in existence today have been in place for over 50 years.  The regulatory knowledge base within our industry is very deep.  Highly experienced external resources are available to support your registration and compliance program without a six-figure outlay.

To cover this topic in adequate detail, we will post additional information on various aspects that specifically apply to hedge funds advisors.  If there is a topic that you are interested in learning more about, let us know and we will be happy to include in future posts.

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A Few States Extend the ADV2 Deadline

Most SEC and State registered advisors were required to file their new ADV2 in plain English format along with their annual updating amendment due March 31, 2011. 


A few states recognized the strain this change has put on advisors, regulators and others. The following states have extended their deadlines:

• Michigan (4/30/11)
• Connecticut (6/01/11)
• Colorado (6/30/11)
• Kentucky (7/01/11)
• Pennsylvania (9/30/11)
• Texas (3/31/11)

For those required to file March 31st, remember that you must deliver your new ADV2 by May 1, 2011. 


If you would like a sample client letter, please email us at Advisors@AdvisorAssist.com.


For more information on the ADV2, please visit the compliance section of AdvisorAssist.com at http://www.advisorassist.com/adv2.

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