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Regulation and Compliance > State Regulation

The State Perspective: Issues for RIAs Switching to State Control

By Denise Crawford

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By signing the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, President Obama set in motion a change for many mid-sized investment advisor firms.

Under the law, approximately 4,000 IAs with assets under management of less than $100 million will switch from federal to state regulation by July 21, 2011. State securities regulators, who are members of the organization of which I currently serve as president, the North American Securities Administrators Association ,are not waiting until next summer to prepare for the added responsibilities of registering, examining, and regulating more advisors and their representatives….

By signing the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, President Obama set in motion a change for many mid-sized investment advisor firms.

Under the law, approximately 4,000 RIAs with assets under management of less than $100 million will switch from federal to state regulation by July 21, 2011. Firms expecting to fall under the new threshold don’t have to wait until next July and may consider switching to state regulation sooner.

State securities regulators are not waiting until next summer to prepare for the added responsibilities of registering, examining, and regulating more advisors and their representatives. We are preparing to handle the switch and are working diligently to ensure a seamless and effective process.

Working through the North American Securities Administrators Association (NASAA), state securities regulators began gearing up for this additional responsibility as the regulatory reform debate played out in Congress.

Earlier this summer, NASAA appointed an internal IA Switch team, which met in July to develop a comprehensive roadmap to handle the migration of investment advisors. Work is underway in several areas to help regulators and industry prepare for the switch.

Some firms have switched before when their assets rose above or fell below the previous threshold of $25 million, so switching between federal and state regulation is nothing new. Most advisors should find the switch to be a smooth process. State registration also is nothing new to firms that operated before 1996—when most RIAs were required to register with the SEC and in each state in which they did business.

Firms switching to state regulation for the first time can expect thorough inspections, generally on a more frequent basis, than they may have experienced before. Most advisors should find that thorough regulatory inspections and strong internal compliance benefit customer and firm alike.

State securities regulators are developing effective ways to deploy our resources through enhanced technology. We are also talking with the SEC in an effort to minimize any burdens associated with the switch.

Communication also will play a vital role. NASAA is committed to providing investment advisors with updated information. To that end, NASAA is developing an interactive IA Switch page on its Web site at www.nasaa.org. The page, which will be available later in September, will enable investment advisors to send questions to NASAA to help develop a series of responsive resources for advisors making the switch.

NASAA also encourages attendance at the Investment Adviser Forum at the NASAA Annual Conference in Baltimore scheduled for September 26-28 and will be devoted to the switch. We look forward to working with mid-sized advisors and are confident that we will be able to help firms make a smooth switch to state regulation.

Denise Voigt Crawford is president of the North American Securities Administrators Association (NASAA), and the Texas Securities Commissioner.

Organized in 1919, NASAA is a voluntary association whose membership consists of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico. In the U.S., NASAA is the voice of state securities agencies responsible for efficient capital formation and grass-roots investor protection.

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