We all know by now that the assets under management threshold to remain registered with the Securities and Exchange Commission will be raised to $100 million. This registration hurdle has created great consternation for advisors throughout the country. The effective date is most probably July 1, 2011, but the details, including parameters for transition from SEC to state registration, have not yet been finalized or published by the Commission. A Commission release should be forthcoming in the next month or so. Based upon current SEC guidelines, do you have $100 million of “assets under management” to remain SEC registered? It depends on whether you have “qualifying” assets under management.
The most often overlooked (and misunderstood) determination of qualifying assets is if the advisor provides “continuous and regular supervision or management services” (i.e., the advisor has discretionary authority or has ongoing responsibility to recommend and arrange purchases and sales of securities for a client) for the securities portfolio.
Generally, advisory accounts that are managed by an investment advisor on a discretionary basis qualify for SEC registration purposes. However, what about non-discretionary assets or assets that are allocated by the advisor among separate account managers? Do these assets qualify for “continuous and regular supervision or management services?” Do these advisors have qualifying assets for SEC registration purposes? Fortunately, the SEC has previously provided (which could potentially be subject to modification by the SEC in its anticipated pending release) the following guidance:
1. Non-Discretionary Assets Will Qualify IF: (a) the advisor has an ongoing responsibility to make recommendations, based upon the needs of the client, as to specific securities or other investments the account may purchase or sell; and (b) if such recommendations are accepted by the client, the advisor is responsible for arranging or effecting the purchase or sale; and (c) at least quarterly, the advisor provides continuous and regular supervision of the underlying assets thereafter.