Advisory Releases

Advisory Release AR-12-03:

Commissioner’s Proposed Amendment to Missouri’s Private Fund Adviser Exemption

The Commissioner of Securities is issuing this advisory release to alert Missouri’s investment advisers to a proposed rule that would allow certain Missouri private fund advisers to continue operating in this state in compliance with recently-enacted Federal statutory and regulatory changes.

Currently, Rule 15 CSR 30-51.180(6) (the “Private Fund Adviser Exemption”) exempts from registration certain investment advisers in the State of Missouri. The Private Fund Adviser Exemption exempts an advisers if:

1. the adviser provides advice to 15 or fewer clients;

2. those clients are funds qualify for exemptions found at section 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940; and

3. the adviser is exempt under section 203(b)(3) of the Investment Advisers Act of 1940

However, recent Federal legislation makes it impossible for previously-exempt advisers in Missouri to comply with Private Fund Adviser Exemption. The Dodd-Frank Wall Street Reform and Consumer Protection Act¹ (the “Dodd-Frank Act”) repealed section 203(b)(3). The elimination of section 203(b)(3) not only impacts federal securities laws, but Missouri securities laws as well. Because section 203(b)(3) is no longer effective, the third prong of the Private Fund Adviser Exemption is no longer available, and the Private Fund Adviser Exemption is no longer viable. As a result, investment advisers relying on that exemption from state registration—that is, advisers to 3(c)(1) and 3(c)(7) funds—are required to either register or find another exemption to operate under. Subsequent Federal rulemaking implemented the Dodd-Frank Act’s changes and promulgated different exemptions for private fund advisers (the “Federal private fund adviser exemptions”).

As explained in previous advisory release, the Commissioner has been preparing for the Dodd-Frank Act’s impact on the regulation of Missouri’s investment advisers. For instance, on July 20, 2011, the Commissioner issued a no-action determination to a Missouri private fund adviser. The no-action determination asserted that the Commissioner would take no action against the adviser if it continued its advisory business consistent with the representations made in its request, prior to the sooner of June 28, 2012, or the promulgation of a state regulation similar to the Private Fund Adviser Exemption and available to the adviser.

With this advisory release, the Commissioner is informing the public of a proposed amendment to the Private Fund Adviser Exemption that will allow those advisers who had relied on it to continue operating. The proposed amendment, filed by the Commissioner on April 26, 2012, changes the Private Fund Adviser Exemption to exempt Missouri private advisers from the State’s registration requirements when that adviser (1) qualifies for the Federal private fund adviser exemptions and (2) was previously exempt. You can read the proposed amendment here.

If you have any questions, please contact the Securities Division at (573) 751-4136, or for more information on the impact of Dodd-Frank on securities regulation in Missouri, visit: http://www.sos.mo.gov/iaswitch/

April 26, 2012

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