WMO Atlanta Law WMO Atlanta Law The Investment Advisers Supervision Coordination Act (the "Act") was enacted in October of 1996, as Title III of the National Securities Markets Improvement Act of 1996. Originally scheduled to take effect April 9, 1997, the Act is now effective as of July 8, 1997 due to an extension by Congress. As of the enactment date of the Act, more than 22,500 investment advisers were registered with the SEC, a number increasingly difficult for the SEC to effectively handle with its limited resources and examiners. In addition, all but four states had legislation regulating investment advisers which was largely duplicative of the federal regulations.
Reverse Preemption - Shifting Regulation Back to the States
The primary effect of the Act is to shift responsibility for regulating approximately 70% of all investment advisers away from the SEC and to state regulators exclusively. Under the new law, investment advisers with more than $25 million in assets under management or who function as an adviser to a federally registered investment company will remain eligible for registration with the SEC. In addition, those investment advisers with a principal office in a state which does not currently regulate investment advisers (i.e. Colorado, Iowa, Ohio or Wyoming) will also remain eligible for SEC registration.
Windows and Harbors
One of the rules promulgated under the Act provides a choice between state and federal registration for investment advisers with assets under management between $25 million and $30 million which are regulated or required to be regulated by a state. Under the rule, SEC registration is optional for those investment advisers who fall into the $5 million "window" (having between $25 million and $30 million in assets under management). The provision is designed to relieve an investment adviser that has close to $25 million of assets under management from having to register with the SEC only to de-register and re-register with a state shortly thereafter as a result of a small decrease in the value of client assets.
Another rule under the Act provides a "safe harbor" from SEC registration for advisers who are registered with the state securities commission in the state in which they have their principal office and principal place of business, if they reasonably believe that they are prohibited from registering with the SEC because they have insufficient assets under management.
SEC-Registered Advisers: What Law Applies?
Upon the effective date of the Act, federal law relating to the regulation of investment advisers preempts all state law with three main exceptions. First, a state may continue to investigate and bring enforcement actions with respect to fraud and deceit against any investment adviser or person associated with any investment adviser. Second, a state may require "notice filings" by SEC-registered advisers which would otherwise be subject to state regulation. Notice filings may consist of the filing of any documents filed with the Commission and/or a consent to service of legal process within that state. Finally, a state may still require the payment of filing, registration, or licensing fees by SEC-registered advisers who would otherwise be subject to state regulation.
State-Registered Advisers: What Law Applies?
Once an investment adviser is automatically de-registered with the SEC, federal law generally does not apply to a state-registered investment adviser until the federal registration criteria are met again by such adviser. State-registered advisers do not have to make any federal filings after the Form ADV-T (see below), nor do they have to file any federal disclosure statements or follow the federal rules regarding cash payments for client solicitations. For the most part, state-registered advisers are subject only to state regulation with the exception that federal anti-fraud and insider trading rules continue to apply regardless of ineligibility for SEC registration.
All Investment Advisers Must File Form ADV-T by July 8, 1997
SEC Form ADV-S has been suspended by the SEC. The SEC has sent its new form, Form ADV-T, to all registered investment advisers. All investment advisers must file a Form ADV-T with the SEC by July 8, 1997. Those investment advisers with continuing eligibility for SEC registration under the Act must declare the grounds therefor. Advisers who are ineligible for SEC registration under the Act must still file a Form ADV-T, which will effect an ineligible adviser's de-registration from the SEC. Investment advisers which are currently registered in a state and which remain eligible for SEC registration should check with their state securities regulators to find out how to de-register with that state, if necessary. The State of Georgia has, so far, retained its requirements of notice filings and fees so that SEC-eligible advisers with a principal office or principal place of business in Georgia must still make notice filings and pay a $250.00 filing fee. Because of these rules and regulations, no de-registration is necessary in Georgia.
Related Web Sites
You can visit the following sites for more information about the Investment Advisers Supervision Coordination Act:
1. An SEC article summarizing the Act;
2. Frequently asked questions and answers from the SEC about the Act and its effects;
3. The full text of the final rules implementing the Act;
4. The SEC's new Form ADV-T.
Please send any comments about this web site to wmo@atl.mindspring.com, or contact
Scott Withrow at 404-814-0200, fax 404-814-0009.
Last updated by Scott Withrow on July 21, 1997