Advisory Releases

Advisory Release AR-12-06:

Commissioner of Securities Issues Report on the Investment Adviser Registration "Switch"

The Commissioner of Securities is issuing this advisory release to alert Missouri’s investment advisers and others to a recently issued report by the Commissioner and the Missouri Securities Division (the “Division”) regarding the transition of certain investment advisers from federal to state registration. The report can be found here: http://www.sos.mo.gov/securities/listserv/docs/iaswitchreport_2012.pdf

Enacted in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated significant changes to the regulation of the financial services industry. Prominent among those mandated changes was the requirement that investment advisers with $25 million to $100 million in assets under management (“mid-sized investment advisers”), previously registered with the U.S. Securities & Exchange Commission (“SEC”), switch to state registration (commonly referred to as the “IA Switch”) by June 28, 2012.

In preparation for the IA Switch, the Commissioner and the Division commenced a two-year outreach campaign to keep the investment adviser community informed on issued related to the transition to state registration. That campaign continued into 2012 as mid-sized investment advisers began applying for Missouri registration, and ultimately facilitated the transition to Missouri registration for 62 mid-sized investment advisers.

After the registration transition of those mid-sized investment advisers was complete, the Division compiled and analyzed the information gathered during the IA Switch to evaluate the effectiveness of the Division’s efforts. The findings of that analysis were then issued in a report (the “IA Switch Report”) summarizing the Divisions outreach leading up to the transition, providing data about the mid-sized investment advisers new to state registration, and outlining the Division’s audit schedule for mid-sized investment advisers that transitioned to Missouri registration. The IA Switch Report in its entirety can be found at: http://www.sos.mo.gov/securities/listserv/docs/iaswitchreport_2012.pdf

Highlights of the Division’s IA Switch Report include:

• Outreach:




• From 2010 to 2012, the Commissioner issued eight IA Switch-related advisory releases.


• In 2010, the Division implemented a Pre-Registration Examination program designed to properly vet mid-sized investment advisers applying for Missouri registration.


• In the Spring of 2011, the Commissioner conducted listening sessions about the IA Switch with investment advisers, attorneys and consultants in Kansas City and St. Louis.


• On April 26, 2011, the Division launched a website devoted entirely to the IA Switch, containing guidance for mid-sized investment advisers switching from federal to state registration.




• Form ADV Data:




• With the addition of switching investment advisers, the total value of assets managed by Missouri’s registered investment advisers jumped from $3.9 billion to almost $7 billion, a 78% increase.


• In comparison to smaller investment advisers, mid-sized investment advisers more frequently receive soft-dollar benefits, directly deduct fees from client accounts, and have been the subject of a regulatory enforcement action.




• IA Switch Audits:




• The Division’s Audit Unit is scheduled to conduct a routine field audit of each Missouri-based mid-sized investment adviser within the next ten months.


• The Audit Unit will prioritize its audits based on a variety of factors, including, among others: the disciplinary history of the investment adviser; whether the investment adviser has custody of client funds or securities; the outside business activities of the firm’s representatives; and the date of the firm’s last regulatory examination.

September 6, 2012