Wyoming RIAs - Get Ready for Changes!

In March 2016, the State of Wyoming joined the ranks of other states by implementing the Wyoming Uniform Securities Act.

For years, Wyoming has been a sanctuary for registered investment advisors that sought registration with the U.S. Securities and Exchange Commission ("SEC"), but did not have the requisite $100 million in assets under management ("AUM").

In other states [excluding NY], an Advisor with less than $100 million in AUM was required to register with the state securities division of their home state and other states in which the advisor had a place of business or clients exceeding a de minimis level. As Wyoming did not have formalized securities regulations, those advisors became the jurisdiction of the SEC.

With the implementation of Wyoming’s Uniform Securities Act, Wyoming will require registered investment advisors to register with Wyoming state securities division if they have less than $100 million in AUM. The new legislation will take effect on July 1, 2017..

The SEC has begun contacting firms that may be affected by this change. If you are in need of assistance in updating your registration or transitioning from SEC to state registration, please contact us at advisors@advisorassist.com.

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Sample [redacted] notice from the SEC:

From: IARDLIVE [mailto:IARDLIVE@SEC.GOV]
Sent: 09 February 2017 22:01
To: [Advisor]
Subject: [Advisor - CRD######]

We are contacting you about your status as an SEC registered investment adviser with a principal office or place of business in Wyoming. As you may know, investment advisers with a principal office and place of business in Wyoming have been required to register with the SEC because the State of Wyoming has not previously regulated investment advisers. Advisers indicate this basis for SEC registration by checking the box for Item 2.A.(3) in Form ADV.

The State of Wyoming has recently adopted legislation to begin regulating investment advisers on July 1, 2017. See Wyoming Uniform Securities Act. After that date, SEC registered investment advisers will no longer be eligible for SEC registration solely on the basis of having a principal office and place of business in Wyoming. If you are an adviser with regulatory assets under management of over $100 million or you have another basis requiring you to remain registered with the SEC after the Wyoming legislation goes into effect on July 1, 2017, we encourage you to select the checkbox on Item 2 in Form ADV indicating that other basis for SEC registration as early as possible and uncheck the Item 2.A.(3) box. Additionally, if you are required to remain registered with the SEC after July 1, 2017, you should consider whether you will also be required to include Wyoming as a state in which you must provide a notice filing in Item 2.C.

If you are an adviser that does not have another basis requiring you to remain registered with the SEC after July 1, 2017, you may be required to become registered with the State of Wyoming or other states in which you conduct business. State regulator contact information may be found at the Contact Your Regulator - NASAA webpage. You may apply for state registration by filing a new Form ADV through the IARD system (select the "Apply for registration as an investment adviser with one or more States" option) and file a partial ADV-W withdrawing from SEC registration after your state registration has been approved. Advisers that are no longer eligible for SEC registration after the Wyoming state legislation goes into effect on July 1, 2017 and who have not applied for state registration may be subject to having their SEC registration cancelled.

You may reply to this email if you have questions or contact us at 202-551-6999.

Regards,

INVESTMENT ADVISER REGULATION OFFICE
Division of Investment Management
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-8549
P: (202) 551-6999
www.SEC.gov

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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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California ratchets up IAR fees

California increases IAR fees

California previously had one of the lowest fees for investment advisor representatives ("IARs") in the U.S. for years. With the financial condition of the state and the number of advisory persons conducting business there, it was always surprising that they did not seek to increase this fee earlier.

So the bad news is that fees are increasing for 2014. The silver lining is that they did not go the route of Texas soak IARs for nearly $300 per year!

California has increased its IAR fees from a one-time fee of $25 per IAR to an annual fee of $35.

Due to the timing of the implementation of this law, the California fee will be paid in January 2014. The full text of the notice is below:

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IMPORTANT NOTICE REGARDING RENEWAL FEES

November 22, 2013

Dear licensee,

This letter is to inform you that the California Legislature recently passed Senate Bill (“SB”) 538, authorizing the Department of Business Oversight (“Department”) to charge up to $35 in renewal fees annually for each registered Broker-Dealer Agent (“Agent”) and each registered Investment Adviser Representative (“IAR”). California is the second-to-last state to adopt a renewal fee and the proposed fee will be one of the lowest in the nation. Individuals who are dually registered will be assessed separately for each registration.

Because SB 538 becomes effective on January 1, 2014, the 2014 Agent and IAR renewal fee cannot be assessed through the CRD/IARD Renewal Program. Therefore, for the first renewal fee only, a supplementary assessment will occur in January 2014. The Department will send an invoice to each firm stating the number of Agents and/or IARs and the total amount to be remitted to the Department. The Department will use the December 31, 2013, Regulator Renewal Report generated by CRD/IARD to determine the number of Agents and/or IARs registered with your firm. The payments may be remitted via your CRD/IARD account or sent directly to the Department via check. Additional information regarding your payment will be provided with your invoice.

If your firm intends to reduce the number of individuals registered to conduct business in California as a way to reduce your renewal fee obligation, you will need to file a Form U5. The U5 can be dated on or prior to the date of filing or postdated to December 31, 2013 to permit registered activity to continue through the end of the year. Please note that web CRD will not be available on December 25, 2013, and from December 27, 2013 through January 1, 2014. The last day to file a Form U5 will be December 26, 2013.

Future annual renewals will be made through the annual renewal process handled in December by CRD/IARD.

Should you have any questions please contact the Department at (866) 275-2677.

Jan Lynn Owen
Commissioner
Department of Business Oversight

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New Jersey Releases Annual 2013 Adviser Examination

It's that time again. The New Jersey Bureau of Securities recently released its annual investment adviser examination questionnaire.

The questionnaire must be completed and submitted by May 9, 2013.

New this year, the 2013 NJ Questionnaire must be submitted electronically through the division's website. No mailed or emailed submissions will be accepted and will be considered deficient.

Instructions and a link to the examination can be found here: 2013 New Jersey Adviser Examination Instructions.

NOTE: Advisers are cautioned that they will be unable to save modified web forms, and are therefore urged to first print and complete by hand a copy of the sample examination found in Addendum A of the instructions. Documents that must be attached to the application should likewise be prepared in advance.

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A Regulatory AUM Primer for RIAs

The SEC and states are aggressively reviewing the reported regulatory AUM of advisors. Calculating your regulatory AUM (“RAUM”) under this new definition often requires a close inspection of the service you are providing, the role you play for clients, and how you receive compensation

The SEC (and states) define “regulatory assets under management” as assets where the advisor provides “continuous and regular supervisory or management services.” Here are some guidelines to help you determine which of your clients’ assets should be counted towards your RAUM under this new definition.

1. How do you describe your services in advisory agreements?
If your advisory agreement for a particular client indicates that you provide ongoing management services, this suggests that these assets should be counted towards “regulatory AUM.” But before doing so, advisors should read on to be certain.
2. How are you compensated for your advisory services?
If your advisory fees are calculated based on your client’s average market value over a specific time period, this suggests continuous and regular supervisory or management services. Other advisory fee arrangements, however, would suggest otherwise. For example:
• Time-based. If your advisory fee is based on the amount of time spent with a client
• Project-based. If you charge a one-time financial planning fee based on the assets covered under a plan
3. How do you manage your clients’ assets?
In the following instances you would likely count these assets as regulatory AUM:
• If you have discretionary authority to allocate client assets among third-party asset managers
• If you allocate client assets to other managers (as a “manager of managers”), but only if you have discretion to hire and fire these managers and/or reallocate among these managers or if you recommend that clients hire/fire or reallocate among managers.
• If you do not have discretionary authority (but otherwise satisfy the definition of “continuous and regular supervisory or management services”) and provide recommendations to your clients on their holdings, you should count these assets as regulatory AUM if you are responsible for arranging or effecting transactions after your client accepts your recommendations.

The key here is the extent to which you monitor your client’s portfolios, needs and objectives. Infrequent rebalancing or trading (in and of itself) does not necessarily mean that your advisory services are not “continuous and regular.” According to the SEC, you do not provide continuous and regular supervisory or management services for clients where you provide:

• Market timing recommendations (but have no ongoing management responsibilities)
• Impersonal investment advice (like a newsletter)
• Guidance on an initial asset allocation (without continuous and regular monitoring and reallocation)
• Advice on an intermittent or periodic basis (i.e. upon client request, in response to a market event, or just at pre-specified points in time, like quarterly or annual reviews, or employee education seminars for defined contribution plans)

What about “held away” accounts?
Accounts that are “held away” follow the same logic. If you provide “continuous and ongoing” services for these accounts (and your advisory agreements and services are consistent with the tests noted here) then they may be counted towards regulatory AUM. This includes situations where you serve as a 3(21) or 3(38) fiduciary on ERISA (e.g. 401(k) or other defined contribution plans) assets. If you provide plan-level recommendations or are charged with implementing changes to the plan, you should count these towards your regulatory AUM.

Brian Lauzon

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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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