The year of "the switch" is upon us – regulators and investment advisers alike – and 2011 also promises to have other changes in store for IAs.
With the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, most investment advisers with assets under management (AUM) of less than $100 million will switch from federal to state oversight. The law becomes effective on July 21, 2011.
To help facilitate the regulatory switch of approximately 4,000 IAs, the Securities and Exchange Commission recently released its proposed transition schedule:
- Confirming SEC eligibility: Each IA registered with the SEC on July 21, 2011 will file an amendment to its ADV by August 20, 2011 to report its AUM as determined within 30 days of the amendment filing.
- Terminating SEC registration: IAs no longer eligible for SEC registration must file ADV-W by October 19, 2011.
The switch schedule is one of the many topics outlined in two recent releases issued by the SEC mapping out the changes required under Dodd-Frank for investment advisers. Both releases – IA 3110 and IA 3111 – can be found on the SEC's website here.
In addition to expanding the states' oversight of investment advisers, Dodd-Frank made substantial changes to the regulation of investment advisers to hedge funds and other private funds.
For example, Title IV of Dodd-Frank, known as the "Private Fund Investment Advisers Registration Act of 2010," eliminated the "private adviser exemption" previously found in Section 203(b)(3) of the IAA.
This exemption allowed investment advisers to private funds to operate without federal regulatory oversight. The elimination of this provision was accompanied by the creation of a new registration and reporting regime designed to bring transparency and oversight to private fund advisers.
Under this new regulatory framework, advisers to certain private funds will be subject to SEC registration while others will be exempt from registration but required to submit reports to the SEC. In some instances, private fund advisers may also be required to register with one or more states.
Specifically, Dodd-Frank amended the Investment Adviser Act and added Section 202(a)(29) to include a definition of "private fund." Under this provision, a private fund is defined as an issuer that would be an investment company under Section 3 of the Investment Company Act of 1940 (ICA) but for the exceptions contained in Sections Section 3(c)(1) or 3(c)(7) of the ICA.
