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Regulation and Compliance > Federal Regulation > SEC

SEC Approves New 'Switch' Rules for Advisors

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Under rules approved at an SEC open meeting on Wednesday, some 3,200 advisors will find themselves “switched” to state, rather than SEC, regulation because of a change in the way they are classified as mandated by Title IV of the Dodd-Frank Act. The new rule takes effect June 28, 2012.

Investment advisors had been classed by AUM. Those with more than $25 million AUM had been required to register with the SEC, while those with less than $25 million had been subject to state regulation. The AUM value was set in 1996 by Congress and had not changed since its inception.

However, under the new rules, designed to lessen the load on the SEC, advisors with between $25 million and $100 million AUM will find themselves no longer under the jurisdiction of the SEC. They will instead be subject to state jurisdiction, unless their states do not consider advisors subject to examination.

According to testimony at the meeting, all states were canvassed to determine whether they treated advisors under their jurisdiction as subject to examination. Wyoming, Minnesota and New York said they will not regulate midsize advisors. Advisors from those states will still be required to register with the SEC.

David Tittsworth, executive director of the Investment Advisers Association, said he had spoken with SEC senior staff who told him the SEC is “revising its estimate on the number of SEC-registered RIAs that will switch to state registration,” to about 3,200 advisors.

In a blog for AdvisorOne on the June 22 SEC open meeting on the “big switch,” Tittsworth wrote that about 4,000 advisors would be affected by the rule. The lower estimate, Tittsworth said the SEC officials had informed him, was because New York and Minnesota “have indicated they will not be part of the switch.”


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