New Legislation Means Some Relief for Investment Advisers

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On October 11, 1996, President Clinton signed the Securities Reform Bill into law. Title IlI of this bill, the Investment Advisers Supervision Coordination Act "IASCA" or the "act," provides regulatory relief for investment advisers and increases uniformity in state regulation. The act makes long awaited amendments to the Investment Advisers Act of 1940 and will be of great est benefit to smaller investment advisers.

Basically, IASCA divides responsibility for regulation of investment advisers between the various state regulatory authorities and the Federal government. Under the act, an investment adviser with less than $25 million of assets under management is exempt from Federal regulation. Thus, such an investment adviser is required to comply with the investment adviser regulations of any state wherein it maintains its principal place of business. If the adviser is located in a state that does not require registration, the SEC will continue to be the regulatory authority. An investment adviser with more than $25 million of assets under management and advisers of investment companies are regulated solely by the Federal government and must register with the SEC.

Changes were also made to the Employee Retirement Income Security Act of 1974 to allow advisers of ERISA plans to continue as such in situations where the adviser is now regulated by a state and not by the SEC. The changes regarding ERISA plans expire two years after the date of the act's enactment, giving Congress a chance to review them.

Although investment advisers with more than $25 million of "assets under management" are exempt from state registration, states may continue to enforce issues of fraud against them and to require them to file documents for notice purposes. States can also collect filing or registration fees from otherwise preempted investment advisers. Furthermore, to help ensure that states receive payment, the act gives any state the authority to require registration of an exempted investment adviser that fails to pay the required state fees within three years of enactment. …