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Securities Advisory Releases
Advisory Release AR-11-03:
SEC Rules and Schedules Finalized for Mid-Sized Investment Advisers Switching to State Registration
The Commissioner of Securities for the State of Missouri is issuing this advisory release to alert Missouri’s investment advisers and investors about new federal rules that will become effective July 21, 2011. These rules affect how certain investment advisers are regulated at both the federal and state levels.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)1 made significant changes to the regulation of investment advisers and their funds. The Dodd-Frank Act also instructed the U.S. Securities and Exchange Commission (“SEC”) to promulgate rules to implement those changes. On November 19, 2010, the SEC proposed certain rules to carry out those changes.
On Wednesday, June 22, 2011, the SEC issued final rules implementing the Dodd-Frank Act’s required changes. Among other things, these rules address the new registration requirements for “mid-sized investment advisers,” i.e., those investment advisers with assets under management between $25 million and $100 million.2 Generally, midsized investment advisers in Missouri will be prohibited from registering with the SEC, and consequently, will have to register with the appropriate state securities regulator(s) or otherwise identify a registration exemption.
The final rules also detail the deadlines for investment advisers to submit their Form ADV and, as applicable, deregister with the SEC. These rules establish March 30, 2012, as the date by which each adviser must: 1) determine whether it is eligible for SEC registration; and 2) file an amended FORM ADV. The rules also provide an additional ninety days for advisers no longer eligible for SEC registration to register with the appropriate state(s) and withdraw SEC registration. This state registration and SEC withdrawal deadline will be June 28, 2012. The SEC has posted the final rules on its website and those rules can be found by clicking here.
With the new rules, the SEC also adopted a federal registration “buffer” for a narrow category of mid-sized investment advisers. This buffer is to allow for market fluctuations and their influences on the value of an adviser’s assets under management, ideally reducing an adviser’s need to frequently register and/or deregister with the various regulators. Thus, under the final rules, an investment adviser with assets under management between $100 million and $110 million may remain registered with the SEC even if its later assets under management total falls below the $100 million threshhold. If that adviser’s assets under management drop below $90 million, however, the adviser must withdraw its registration and either register with the state(s) or find an exemption.
Additionally, the final rules adopt new definitions and rules for investment advisers to “private funds,” that is, investment funds that are exempt from the definition of an investment company under federal law.3 These rules establish new reporting requirements for investment advisers to newly-defined venture capital funds and private funds with less than $150 million in assets under management. The rules also explain the new requirements for extranational investment advisers who advise private funds in the United States. These rules can be found here.
Importantly, the Dodd-Frank Act repeals federal registration exemptions—and, in doing so, effectively repeals corresponding state registration exemptions—for certain investment advisers in Missouri and other states. In place of those exemptions, the Dodd-Frank Act and the recently-released SEC rules establish different federal registration exemptions for investment advisers. In order to ensure business continuity for Missouri’s investment advisers, the Commissioner of Securities is reviewing these new federal exemptions and the possibility of new correlating state registration exemptions similar to those available under the pre-Dodd-Frank Act regulatory structure.
Finally, the Dodd-Frank Act exempted from the definition of “investment adviser” those advisers who limit their services only to certain family clients. The SEC’s new rules implementing this exclusion for such “family offices” 4 can be found here.
The Commissioner of Securities and the Missouri Securities Division will continue to work in collaboration with the SEC and the other states on implementing the Dodd-Frank Act’s changes to investment adviser registration in Missouri. To that end, Missouri’s investment advisers and their clients are encouraged to check the Commissioner’s website dedicated to investment adviser registration matters for future developments.
This release is for informational purposes only and does not offer analysis on or applicability to any particular set of facts. If you have any questions, please contact the Securities Division at (573) 751-4136.
July 7, 2011
 Dodd-Frank Wall Street Reform and Consumer Protection Act, section 410, Pub. L. No. 111-203, 124 Stat. 1376 (2010) .
 Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers Release No. 3321 (June 22, 2011) (to be codified at 17 C.F.R. 275 and 279).
 Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers, Investment Advisers Release No. 3222 (June 22, 2011) (to be codified at 17 C.F.R. 275).
 Family Offices, Investment Advisers Release No. 3235 (June 22, 2011) (to be codified at 17 C.F.R. 275).