Securities Advisory Releases

Advisory Release AR-11-02:

Possible Delays in Investment Adviser Transition to State Registration

The Commissioner of Securities for the State of Missouri is issuing this advisory release to alert Missouri’s investment advisers and investors about a recent development in the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). ¹

In an April 8, 2011 letter (the “April 8 letter”) to David Massey, president of the North American Securities Administrators Association, the United States Securities and Exchange Commission’s (“SEC”) Division of Investment Management made an important announcement for transitioning investment advisers and advisers to private funds. According to the April 8 letter, the SEC is reportedly considering changing or extending previously-identified dates for investment advisers to comply with proposed rules implementing the Dodd-Frank Act’s changes. Specifically, the SEC Division of Investment Management expects that the SEC will consider extending the dates by which:

1. all SEC-registered investment advisers must report their eligibility based upon a current calculation of assets under management;
2. mid-sized advisers must withdraw from federal registration and complete their transition to state registration; and
3. private advisers must comply with new requirements imposed by the Dodd-Frank Act and rules promulgated thereunder.

Extending the Date for All SEC-Registered Investment Advisers
Under previously-proposed rules, all SEC-registered investment advisers must report their eligibility for continued federal registration by August 20, 2011.² However, according to the SEC Division of Investment Management, the Dodd-Frank Act’s changes to investment adviser registration require that the Investment Adviser Registration Depository be reprogrammed to accommodate the transitioning advisers’ registrations. The SEC Division of Investment Management expects that this reprogramming will take until the end of 2011. Because of this delay, the SEC Division of Investment Management has now stated that the SEC is contemplating postponing the deadline for eligibility reporting into “the first quarter of 2012.” At this time, there is no further specific information on calculation, withdrawal, or transition dates.

Mid-Sized Advisers’ Transition Date
This possible extension has implications for mid-sized advisers, i.e., investment advisers with between $25 and $100 million in assets under management. In previous releases of proposed rules implementing the Dodd-Frank Act’s requirements, the SEC suggested requiring mid-sized investment advisers to withdraw their federal registration, thus necessitating completion of their transition to state registration, by October 19, 2011.³ In its April 8 letter, the SEC Division of Investment Management has now indicated its expectation that the SEC will provide an unspecified “grace period” for mid-sized advisers to complete their transition from federal to state registration—that is, finish withdrawing their SEC-registration and register with the appropriate state regulator(s).

Private Advisers’ Compliance Date
The April 8 letter also stated that the SEC is considering extending the date by which investment advisers relying on Advisers Act section 203(b)(3) must “come into compliance with the obligations of a registered adviser.”

Because the Dodd-Frank Act repealed section 203(b)(3) and its federal registration exemption,⁴ some investment advisers will have to register with the SEC. In its April 8 letter, the SEC Division of Investment Management recognizes the effort involved with becoming SEC registered and complying with those requirements. Consequently, the SEC Division of Investment Management has stated that it expects the SEC to consider extending the date for investment advisers to become fully registered and compliant “until the first quarter of 2012.”

Please note: the April 8 letter makes clear that the SEC still intends to enact applicable final rules before July 21, 2011. You can read the SEC Division of Investment Management’s April 8 letter here.

The Commissioner of Securities and the Missouri Securities Division will continue to work in collaboration with the SEC and the other states on the developing timetable to implement the Dodd-Frank Act’s changes to investment adviser registration in Missouri.

This release is for informational purposes only and does not offer analysis on or applicability to any particular set of facts. If you have any questions, please contact the Securities Division at (573) 751-4136.

April 13, 2011