Investment Adviser Workshop 0 Navigating the Dodd-Frank Acts New - - PDF document
6/30/2011 Investment Adviser Workshop 0 Navigating the Dodd-Frank Acts New Regulatory Requirements for Investment Advisers Presented by Presented by Texas State Securities Board Benette L. Zivley, Securities Commissioner Patricia A.
Presented by Presented by Texas State Securities Board Benette L. Zivley, Securities Commissioner Patricia A. Loutherback, Director of Registration
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What Dodd-Frank Means for Investment Advisers IA Regulation in Texas What to Expect from State IA Inspections
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This seminar and the accompanying materials are presented as
an educational experience, covering some of the changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. You may be subject to all relevant laws, regulations, rules and y j , g ,
views expressed are those of the presenter, and the Texas State Securities Board reserves the right to change its position. Presenters believe all information is truthful and accurate; however, mistakes can occur.
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The Texas State Securities Board (TSSB) regulates:
Investment Advisers & Investment Adviser Representatives Broker-Dealers & their Agents Other responsibilities of the TSSB: E f t f th T S iti A t Enforcement of the Texas Securities Act Inspections Securities Registration Investor Education
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Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, state securities regulators will have greater responsibility for the regulation of investment advisers, by restoration
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Dodd-Frank establishes a threshold of $100 million assets under management (AUM) for federally covered advisers.
Law takes effect July 21, 2011. Approximately 4,000 advisers nationwide will be affected, including
about 1200 who will be seeking registration in Texas.
Eliminates the private adviser exemption.
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Private Fund Investment Advisers Registration Act of 2010 (Title 4 of Dodd-Frank) – Significant reforms to the regulation of
advisers to hedge funds and other private funds, including, but not limited to: Eliminating the private adviser exemption at 203 (b) (3) Requiring SEC registration for advisers to “private funds” with AUM of at least $150 million AUM of at least $150 million Requiring SEC reporting for advisers to “private funds” with AUM
funds”
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Private fund – An issuer that would be an investment company under the Investment Company Act, but for the exceptions contained in 3(c)(1) or 3(c)(7) of that Act.
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3(c)(1)
3(c)(1) securities are not publicly offered and are owned by not more than 100 persons Interests typically offered pursuant to Reg D, Rule 506. accredited investors 3(c)(7) Securities are not publicly offered and generally not owned by more than 499 persons Investors must be qualified purchasers (individuals with investments of $5,000,000/institutions with $25,000,000 of investments)
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Registration and Reporting Requirements
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Advisers solely to private funds with AUM of less than $150
million Exempt from registration with the SEC Reporting requirement with SEC No state preemption, subject to national de minimis
Advisers solely to private funds with AUM of $150 million or more Advisers solely to private funds with AUM of $150 million or more
Register with the SEC States are preempted – Notice Filing Requirement
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In Texas, all advisers with $100 million or less under management will b i d t i t ith th t t l
be required to register with the state unless: They fall between $25 million and $100 million and are required to be registered in 15 or more states, or The investment adviser qualifies for an exemption under Rule 203A-2
a pension consultant), or Qualifies for another exemption under Texas Rule 109.6
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Firms required to register with the TSSB:
Firms with AUM of $25 million or less (through July 21, 2011) Buffer between $25M & $30M – State or Federal Firms with AUM of $100 million or less (after July 21, 2011)
Firms with AUM of $25 million to $100 million may register with the
TSSB prior to July 21 2011 but must also remain registered with the TSSB prior to July 21, 2011, but must also remain registered with the SEC until July 21, 2011.
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Proposed New Rule 203A-5 of the Investment Advisors Act of 1940: Confirming SEC eligibility. Each IA registered with SEC on July 21, 2011 will file an amendment to ADV by August 20, 2011 to report AUM determined within 30 days of amendment filing. Terminating SEC registration. IAs no longer eligible for SEC registration must file ADV W by October 19 2011 must file ADV-W by October 19, 2011.
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States are preparing to handle the switch. State securities
regulators are working to ensure a seamless, comprehensive and effective switching process.
Switching is not new. Regulatory switches regularly happen when the
asset levels of IA firms rise above or fall below mandated thresholds.
States conduct a thorough review of adviser applications. State
reviews will not change with the migration of IAs with up to $100 million in assets under management.
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Firms switching to state regulation for the first time can expect
thorough inspections generally on a more frequent basis than they may have experienced before.
The goal of our inspections is to ensure compliance with the Texas
Securities Act and regulations.
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You now have two choices regarding the timing of your i t ti registration.
Move forward with dual registration with the SEC and your state
securities regulator between now and July 21, 2011 (proposed extension: August 20, 2011).
Submit documents for review to your state but request to remain in a
pending status. If all conditions of registration have been met by p g g y October 19, 2011, your application for registration will be approved.
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a uniform form and must be used to register and describe the details of the registrant with the TSSB. required to be filed electronically on the Investment Adviser Registration Depository (IARD) system IARD is an electronic filing system that facilitates investment adviser registration, regulatory review and public disclosure g g y p information of investment adviser firms. The beauty of the IARD system is the ability for firms to file one Form ADV simultaneously with multiple states.
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Material changes must be filed within 30 days. C ll d “ th th l d t”
Called an “other than annual amendment” Do not file hard copy changes with our office – Online ONLY What is a material change that requires an other than annual amendment? Change of name, address, contact information, form of
Texas recently adopted a rule that requires state registered advisers to file an Annual Amendment within 90 days of the end of fiscal year. The effective date is expected to be March 24, 2011.
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July 28, 2010: SEC adopted a new Form ADV Part 2 replacing the old Part II effective October 12 2010
Part II, effective October 12, 2010. As of Jan. 1, 2011: All new and current SEC advisers are required to use the new Form ADV Part 2 and uploaded onto the IARD system. Part 2 will be available for viewing through Investment Advisor Public Disclosure System (IAPD) available from the SEC website t at: http://www.adviserinfo.sec.gov
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The new Part 2 consists of three parts: Part 2A, the Firm Brochure – 19 Items Includes all firm details written in plain English to promote effective communication between you and your clients. Part 2A Appendix 1, Wrap Fee Program Brochure - 10 Items If you sponsor a wrap fee program.
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y p p p g Part 2B Brochure Supplement - 7 Items For supervised persons who formulate investment advice for clients and have direct client contact.
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Key Points of Form ADV Part 2
Provides new and prospective clients with a brochure written in plain
Describes business practices and investment strategies; Provides meaningful disclosure regarding material or potential conflicts Provides meaningful disclosure regarding material or potential conflicts
Describes the background of the investment adviser and its advisory
personnel.
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The following implementation schedule has been recommended by NASAA:
Beginning January 1, 2011: New Applicants applying for IA registration for the first time should submit the new Form ADV Part 2 through the IARD. IAs Swiching to State registration should incorporate the new Part 2 ith th i F ADV P t 1 B b i i ki St t i t ti with their Form ADV Part 1.B submission seeking State registration. Under the current regime, SEC registered advisers with a fiscal year end of December 31, 2010 are required to file an annual updating amendment in IARD no later than March 31, 2011.
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To begin the registration process, check “Texas” under Item 1 of Form ADV Part 1B, upload Part 2A, and file Form U4 for each supervised
, p , p person who intends to provide services in this state. The fee to amend the Form ADV is $25, if you are switching from SEC to state registration The fee is $275 if a newly-formed investment adviser seeking registration for the first time. The fee for each Form U4 is $285 The fee for each Form U4 is $285. Upload the Form ADV Part 2
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The TSSB will be notified electronically of your Form ADV filing within 48
hours with details of the filing and payment of the fees. At that time, the
TSSB will communicate directly with you requesting additional documents required for registration.
List of documents that must be submitted in paper form for initial
registration in Texas.
Articles of incorporation/Bylaws Financial statements Advisory contract Private Placement Memorandum and subscription documents, if an
adviser to a hedge fund
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Once all information is received, your file is reviewed for compliance
with Section 12 of the Texas Securities Act and Chapter 116 of the Rules and Regulations of the Texas Securities Board Rules and Regulations of the Texas Securities Board.
The goal is to ensure that your firm is in compliance before
conducting business. You will receive a deficiency letter if:
passed the Series 65); or
rules/statutes/orders.
Must respond to deficiency letters to continue with the application
process.
Once you have resolved all the deficiencies, the Agency will approve
your registration
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g g g protect investors and ensure the advisers are in compliance with the statutes and regulations Generally, there are two types of Inspections Routine ► generally a standard comprehensive exam For Cause ► there for a reason, sometimes a focused exam Typically, examinations are unannounced.
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State IA examinations generally include the following areas:
Books and records Financials Registration – Form ADV Part I and 2 Investment Activities Complaints Advertising and Marketing C fli t f i t t Conflicts of interest Custody Supervisory/Compliance Procedures Business Practices
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On-Site Inspection Post-Exam Resolution
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Identify contact/point person for the examiner. Initial interview conducted by examiner. Tour of the office
Where are your records? Where is the copier? Where can I work?
Interview: Questions about your practice
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Try to have key personnel available. Exit interview (optional). The examiner explains what comes next. May be done onsite or may come after the actual visit, but not required.
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Most of exam is done at the regulator’s office and frequently additional documents or information is requested. May take one to several weeks depending on several factors.
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Once post-exam work is complete, a deficiency letter may be sent via certified mail. Registrant must respond to the deficiency letter in writing, usually within a set amount of time. Once all deficiencies have been satisfactorily addressed exam is Once all deficiencies have been satisfactorily addressed, exam is closed. Certain issues may be referred to the legal section of the Inspections and Compliance Division.
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Inaccurate or incomplete Forms ADV Part 1 & 2 Incomplete, inadequate, or no contract with clients Failing to maintain current suitability information regarding clients
Non-compliance with privacy requirements Incomplete or no written supervisory/compliance procedures
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Non-compliance with advertising rules Failing to maintain applicable books and records Not sending invoice of fees if auto-deducting fee
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North American Securities Administrators Association
Investment Adviser Resources Investment Adviser Resources Uniform Forms IA Switch Resource Center
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The new Part 2 of Form ADV is posted on the websites of the SEC and the North American Securities Administrators Association (NASAA).
NASAA has posted guidance for investment advisers filing the new
Form ADV Part 2 in IARD. Visit the NASAA website, look in “Industry & Regulatory Resources” www.nasaa.org
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The North American Securities Administrators Association (NASAA)
NASAA’s online IA Switch Resource Center includes an FAQ,
Advisers can use the resource center to submit questions about the
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