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Regulation and Compliance > State Regulation

Wheels of Progress Turn Slowly in 'Switching' of Advisors

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The implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive undertaking. It should come as little surprise that the ambitious date of July 21, 2011, for many of the Act’s provisions to take effect has become something of a moving target.

For example, last month, SEC staff notified me that the timeline for the switch from federal to state regulation of investment advisers with less than $100 million in assets under management would be extended. The SEC had initially proposed a target date of October 19, 2011 for the switch to be completed.

In his letter to me, Robert Plaze, associate director of the SEC’s Division of Investment Management, indicated that the necessary reprogramming of the Investment Adviser Registration Depository (IARD) system to facilitate the switch would not be completed until the end of this year.

Plaze said he expects that the Commission “will consider extending the date by which mid-sized advisers must transition to state regulation such that all SEC-registered advisers would be required to report their eligibility for registration with the Commission in the first quarter of 2012.”

He continued: “Those no longer eligible for Commission registration (i.e., mid-sized advisers) would have a grace period providing them time to register with the appropriate state regulators and come into compliance with state law before withdrawing their Commission registration.”

SEC staff also is proposing to delay the “private fund adviser” registration deadlines in a similar fashion. Section 403 of the Dodd-Frank Act repeals, as of July 21, 2011, the private adviser exemption in section 203(b)(3) of the Investment Advisers Act, and provides a new exemption for advisers to venture capital funds and advisers to private funds with less than $150 million in assets under management in the United States. Both of these exemptions require rulemaking by the Commission.

“Given the time needed for advisers to register and come fully into

compliance with the obligations applicable to them once they are registered, we expect that the Commission will consider extending the date by which these advisers must register and come into compliance with the obligations of a registered adviser until the first quarter of  2012,” Plaze wrote.

As expected, these developments have received a fair amount of media coverage and have raised a number of questions among investment advisers planning on switching from federal to state oversight.

NASAA is committed to implementing the switch in active coordination with the SEC. State securities regulators continue to plan to handle the mechanics of the transition in accordance with the schedule that the Commission ultimately adopts.

NASAA is recommending that advisers wait until the final rules are released by the SEC before taking steps to switch. For advisers, the extra time generally means those contemplating switching shouldn’t have to worry about making their filings until later in the year or early next year. Advisers should check with their state securities regulator for guidance.

While prepared to assume regulatory responsibility oversight for an additional 4,000 investment adviser firms this year, state securities regulators understand that the extension will give the SEC some breathing room to ensure that the implementation of the switch is handled correctly, rather than quickly.

NASAA members will use this additional time to prepare examiners for their added responsibilities. State securities regulators also will continue to reach out to investment advisers in their jurisdictions to brief them on state regulatory requirements.

I am pleased that this outreach effort has been given a positive reception by investment advisers. We anticipate that increasing numbers of workshops and seminars will be held later this year as the switch date nears.

While the wheels of progress turn slowly, let’s not lose sight of the fact that the wheels are turning.