More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Recently, the SEC indicated that two previously identified deadlines may be extended. The first is the date by which affected SEC-registered advisors must transition from SEC to state registration; and the other is the date by which general partners/managing members of certain private investment funds would be required to register as investment advisors with the SEC.
As I referenced in my last column, the SEC will put into place, on or before July 21, 2011 (as expected), rules requiring SEC-registered investment advisors with less than $100 million in “qualifying” assets under management to “switch” from SEC to state registration. While the rules will be put into place by July 21, it appears that the time for investment advisors to transition from SEC to state registration will be significantly extended.
The SEC originally proposed a 60-day period (from July 21) for SEC-registered investment advisors to make the transition from SEC to state registration. Under that proposal, all SEC-registered investment advisors would have been required to file a Form ADV amendment by Aug. 20, 2011 reflecting the firm’s assets under management. Subsequent to the amendment filing, all SEC-registered investment advisors with less than $100 million in assets under management would have been required to file a Form ADV-W no later than Oct. 19, 2011, withdrawing from SEC registration.
However, in an April 8, 2011 letter, Robert Plaze, associate director of the SEC’s Division of Investment Management, explained that once the final transition rules are implemented, the Investment Adviser Registration Depository system (IARD) will need to be reprogrammed to accept the transition filings. Because the SEC expects that the IARD reprogramming will take a significant amount of time, Plaze “expects that the Commission will consider extending the date by which [SEC-registered] midsized advisors [a term yet to be defined by the SEC] must transition to state regulation such that all SEC-registered advisors would be required to report their eligibility for SEC registration with the Commission in the first quarter of 2012.” After that time, those advisors who are no longer eligible for SEC registration (having less than $100 million in assets under management) will have a grace period with which to de-register with the SEC and become registered with the appropriate state authorities.
The second potential extension pertains to required registration of general partners/managing members to certain private investment funds as SEC investment advisors. Pursuant to the Dodd-Frank Act, by July 21, 2011, the general partner or managing member of any private investment fund must register as a registered investment advisor unless the general partner or managing member is already a registered investment advisor; or has aggregate assets under management in private funds of less than $150 million. However, while no change has yet been made, the SEC recently wrote a letter to the North American Securities Administrators Association stating that it was considering an extension of the deadline until sometime in the first quarter of 2012. Accordingly, while all firms should be preparing to meet the July 21, 2011 deadline, be aware that there is the possibility that additional time to meet these requirements either for registration or to change registration will be in the offing.