New Investment Adviser Requirements of the Dodd-Frank Act: What CPAs Should Know: More Changes and Clarifications to Come as Rulemaking Commences

By Nissen, Wesley G.; Buckingham, Milton K. | Journal of Accountancy, January 2011 | Go to article overview

New Investment Adviser Requirements of the Dodd-Frank Act: What CPAs Should Know: More Changes and Clarifications to Come as Rulemaking Commences


Nissen, Wesley G., Buckingham, Milton K., Journal of Accountancy


EXECUTIVE SUMMARY

* Among the changes the Dodd-Frank Wall Street Reform and Consumer Protection Act, PL 111-203, (Reform Act) brings are laws affecting CPA financial advisers. These laws will be implemented by various regulations that the SEC will write in the coming months. CPA advisers should monitor the SEC's rulemaking activities and assess the impact of these laws and regulations on their practices. Chief among such provisions is the shifting of registration of many registered investment advisers from the SEC to the states.

* While the details await the results of a study, the SEC may establish a fiduciary duty for broker-dealers similar to that for investment advisers.

* CPAs who have relied upon the exclusion from registration for services "solely incidental" to accountancy may continue to do so, and "family offices" generally are not required to register as investment advisers. Also, CPAs generally are exempted from oversight by the Bureau of Consumer Financial Protection established by the Reform Act.

* Advisers to venture capital funds likewise are not required to register, but most advisers to private equity and hedge funds will be. The definition of "accredited investor" for purposes of private offerings of securities has been revised and will be updated periodically.

* The SEC will examine whether investment advisers should be subject to additional oversight by an existing or new organization. Regulations on broader financial planning services offered by CPAs could result from a study the Reform Act directs the Government Accountability Office to conduct.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act, PL 111-203 (Reform Act, tinyurl.com/26zalzn), which was signed into law by President Barack Obama in July 2010, will require sweeping changes to virtually all areas of the financial services industry in the United States and will affect a wide variety of businesses and professions, including CPAs, investment advisers and financial planners. One area of particular importance to CPAs is new requirements regarding the registration of investment advisers under the Investment Advisers Act of 1940 (Advisers Act) and related matters.

This article provides an overview of the top provisions of the Reform Act relating to investment advisers and financial planners of which all CPAs should be aware (Title IV of the Reform Act), as well as other relevant provisions of the Reform Act, both for themselves and their clients. Many aspects of the Reform Act will not take effect until July 2011, and its full implications will not be known until the SEC and other regulatory agencies complete the many rulemakings, studies and reports the Reform Act requires. (A timetable of planned guidance releases and other mandated governmental actions is at tinyurl.com/2dw28df.) However, CPAs would be well-served to familiarize themselves with the following aspects of the Reform Act now, so that they may position themselves and their clients for the brave new regulatory world that is fast approaching, if not already here.

FEDERAL VS, STATE INVESTMENT ADVISER REGISTRATION

The eligibility threshold for SEC registration has been raised, requiring many registrants to switch to state registration. One of the most significant changes for CPA financial advisers wrought by the Reform Act is its new eligibility requirements for registering as an investment adviser with the SEC under the Advisers Act (federal registration) as opposed to registration with one or more state securities regulatory authorities under state law. Under the investment adviser regulatory scheme in the United States, an investment adviser registers either with the SEC or the states but not both. The Reform Act shifts to the states the regulatory responsibility for monitoring many smaller advisers so that the SEC may concentrate its examination resources on larger advisers. …

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