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Securities Advisory Releases
Advisory Release AR-12-01:
Timeline for Switching Advisers
The Commissioner of Securities is issuing this advisory release to provide guidance on the registration timeline for investment advisers required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) to switch from federal to state registration. The Dodd-Frank Act mandates that investment advisers with assets under management (“AUM”) between $25 million and $100 million (“mid-sized investment advisers”), previously registered with the SEC, register with the states. The deadline for reporting AUM, and the beginning of the period in which most switching advisers will begin the process, is fast approaching. Investment advisers should consider applying for Missouri registration earlier in the registration period, rather than later, to allow for timely processing of their applications and business continuity.
To determine which advisers qualify as mid-sized investment advisers, all investment advisers registered with the Securities and Exchange Commission (“SEC”) are required to file an ADV amendment by March 30, 2012, regarding the market value of the adviser’s AUM.
If an investment adviser’s AUM is more than $100 million, it must continue registration with the SEC. If its AUM is equal to or less than $100 million, the investment adviser is prohibited from continuing SEC registration and must withdraw from SEC registration by June 28, 2012. Before withdrawing from SEC registration, mid-sized investment advisers should be approved for registration with the states.
Because mid-sized investment advisers should be approved for state registration before withdrawing from SEC registration, those advisers need to be aware of the registration requirements and application process in the states where they will apply.
Missouri’s Pre-Registration Examination Program
As part of the investment adviser registration process, the Missouri Securities Division (the “Division”) conducts a Pre-Registration Examination of each applicant. During that Pre-Registration Examination, Division auditors analyze the application materials of investment advisers and evaluate the applicant’s advisory business. If deficiencies are found during the examination, the applicant must cure those deficiencies before the applicant’s registration application is approved.
The duration of each Pre-Registration Examination varies based on a few factors, including: (1) the responsiveness of the applicant, (2) the content of the application, and (3) the number of pending Pre-Registration Exams. For mid-sized investment advisers, the number of pending Pre-Registration Exams will significantly influence the duration of the Pre-Registration Exam.
Based on IARD filings, the Division anticipates receiving approximately 120 registration applications from mid-sized investment advisers between March 30, 2012 and June 28, 2012 (the “relevant period”). This is a significant increase in the customary number of applications over such a period, and will likely extend the duration of the Pre-Registration Examination process for all applicants during the relevant period. Consequently, mid-sized investment advisers applying for registration in Missouri late in or at the end of the relevant period risk being forced to withdraw from SEC registration before being approved for registration in Missouri.
Applying for Registration
To avoid delays that may result in potential gaps in registration, mid-sized investment advisers should consider applying for registration in Missouri soon after filing their AUM amendment with the SEC. Mid-sized investment advisers who have already filed their AUM amendment with the SEC should apply for state registration immediately. By applying early in the relevant period, mid-sized investment advisers can ensure Division auditors have ample time to evaluate their application, resulting in an expedited Pre-Registration Exam process.
Switching advisers applying in 4-14 states may also benefit from participating in NASAA’s Coordinated Review Program.
For more information on the IA Switch, visit the Division’s IA Switch website or the IA Switch Resource Center on NASAA’s website.
March 23, 2012