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

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.