An Update on the 'Switch' and a Brief History Lesson

More On Legal & Compliance

from The Advisor's Professional Library

This month, state securities regulators throughout the United States are observing 100 years of protecting investors.

A century ago, Kansas Banking Commissioner Joseph Dolley took a stand against stock speculators running rampant in Kansas and urged state legislators to act.

In his 1910 report to state legislators, Dolley recommended lawmakers pass a law requiring “all parties who offer stocks and bonds for sale in Kansas to register with some department of state, setting forth in detail their securities, and requiring them to furnish any other information that said department may demand of them, and to submit to a full examination of their affairs if said department should deem it advisable.”

The legislature responded and on March 10, 1911, what became known as the Kansas Blue Sky law went into effect. And with that, the past century of state securities regulation was born.

I hope you can join us for a centennial celebration this September at our annual conference in Wichita, Kansas.

Yesterday and Today

A lot has changed in the last century. Reforms are now taking shape at the national level to give new authority to state securities regulators to address the challenges facing 21st century investors.

The Dodd-Frank Act recognized the strong investor protection role of state securities regulators by raising the threshold for state-registered investment advisers from $25 million to $100 million. By the time this provision goes into effect, state securities regulators will oversee 75 percent of all IA firms.

With this “IA Switch” on the horizon, state and federal securities regulators continue working to ensure that the transition goes as seamlessly as possible.

Switch Update

Advisers are telling NASAA members and the SEC that they are concerned that they might be required to register with the SEC and then within a short time frame be required to withdraw their SEC registration because of the statutory asset under management (AUM) threshold increase required by Dodd-Frank.

To address this concern, NASAA has supported an SEC proposal to allow advisers currently registered with one or more states – and that are approaching the current $30 million AUM threshold – to remain with the states. This relief also would extend to newly registered advisers.

The proposed plan contemplates that the SEC will not object if a state-registered or newly registered adviser is not registered with the SEC if, on or after January 1, 2011 until October 19, 2011, the adviser reports on its ADV that it has between $30 million and $100 million in assets under management, provided that the adviser is properly registered with the appropriate state and that it has a reasonable belief that it is required to be registered.

To help advisers avoid switching registrations multiple times because of fluctuating AUM, NASAA has opposed the SEC’s plan to eliminate the current “$5 million buffer” that presently allows an adviser whose AUM has topped $25 Million to delay registration with the SEC until the AUM rises to $30 Million. This buffer provides an element of regulatory flexibility important to advisers as they determine when they should move their registration from one or more states to the SEC or vice versa.

Since the AUM threshold increased from $25 million to $100 million, NASAA suggested that the buffer should increase from $5 million to $20 million. As a result, advisers with AUM of $100 million to $120 million would have the option of registering with the SEC or one or more states.

Reprints Discuss this story
This is where the comments go.