On November 19, 2010, the SEC released two separate but related releases proposing new rules and rule amendments governing the registration of investment advisers with the SEC (and exemptions therefrom) to give effect to provisions of Title IV of the Dodd-Frank Act. The first release includes proposed amendments to various rules and forms in order to implement amendments to the Investment Advisers Act of 1940 (the “Implementing Release”) and is discussed below. The other release proposes new rules defining the scope of certain exemptions from the registration requirements under the Advisers Act including exemptions for advisers to “venture capital funds,” advisers solely to private funds with less than $150 million in assets under management, and foreign private advisers (the “Exemptions Release”). The Exemptions Release will be discussed in next week’s posting.
Notably, the Implementing Release includes a proposed amendment to the definition of “assets under management” for the purposes of determining eligibility to register with the SEC and the applicability of certain exemptions from registration. The SEC has proposed to relabel the term as “regulatory assets under management,” which includes all securities portfolios for which the adviser provides continuous and regular supervisory or management services, regardless of whether these assets are proprietary assets, assets managed without receiving compensation, or assets of foreign clients. In addition, advisers would not be permitted to subtract outstanding indebtedness and other accrued but unpaid liabilities, which remain in a client’s account and are managed by the adviser.
Amendments to Form ADV Part 1, if adopted, would significantly increase the amount of information advisers are required to provide to regulators in order to register (or remain registered) as an investment adviser. This includes additional information about (1) private funds they advise, (2) their advisory business and conflicts of interest, and (3) outside business activities and financial industry affiliations. Additionally, under the Implementing Release, even advisers exempt from the registration requirements would be required to complete and file certain portions of Form ADV for the purposes of reporting certain information to the SEC, and these filings would be publicly available to the same extent as the information filed by registered advisers.
Comments on the proposed rules and rule amendments contained in the Implementing Release may be submitted to the SEC using this online form. For additional information about the implications of the Implementing Release, please contact us as 619-278-0020.