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June 14, 2011 at 07:03 AM
Next week, on June 22, at 10:00 AM, SEC Commissioners will gather at their hearing room—in the big building next to Union Station in Washington, D.C., and within shouting distance of the U.S. Capitol—to vote on rules that literally will re-shape the profile of the investment advisory universe.
The so-called “Sunshine Act” notice announcing the meeting states the SEC will consider rules “to give effect to provisions of Title IV of the Dodd-Frank Act that…increase the statutory threshold for registration of investment advisers with the Commission [and] require advisers to hedge funds and other private funds to register with the Commission…”
So what does this mean in plain English? Why should investment advisory firms care?
When implemented, the new rules will dramatically alter the composition of investment advisory firms under SEC jurisdiction. Thousands of smaller advisors will switch from SEC to state registration. At the same time, a significant number of unregistered “private fund advisors” (hedge fund and private equity advisors) will register with the SEC.
As it stands now, there are about 11,500 SEC-registered investment advisors. By and large, these are firms that manage at least $25 million in assets. Firms with less than $25 million in AUM are regulated by the states.
The $25 million AUM dividing line was first established by Congress in 1996 and had never been adjusted until the Dodd-Frank Act came along. Dodd-Frank increased the threshold for SEC registration to $100 million in assets. In January, the SEC staff issued a report estimating that this change in the law will require about 4,000 SEC-registered advisors—those with between $25 and $100 million AUM—to “switch” from SEC to state registration and regulation.
In addition, so-called private fund advisors that manage at least $150 million in AUM will be required to register with the SEC under the Investment Advisers Act. The SEC staff estimated that this will add about 750 investment advisors to the SEC’s registration list.
