Fund Advisers: Face New Registration Reporting Regs: SEC Rules, Implementing Dodd-Frank Requirements, Include" Family Office" Exclusions from Investment Advisers Act of 1940

By Gilman, Jeffrey | Journal of Accountancy, September 2011 | Go to article overview

Fund Advisers: Face New Registration Reporting Regs: SEC Rules, Implementing Dodd-Frank Requirements, Include" Family Office" Exclusions from Investment Advisers Act of 1940


Gilman, Jeffrey, Journal of Accountancy


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The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010 marked the onset of major changes for financial advisers. The SEC in June followed through with rulemaking responsibilities under the new law by releasing final rules that include new registration and reporting requirements for advisers to hedge funds and other private funds, and define "family offices" that are excluded from the Investment Advisers Act of 1940.

The rules could mean major new compliance responsibilities for CPAs who specialize in certain areas of personal financial planning.

The first set of rules requires advisers to hedge funds and other private funds to register with the SEC, establishes new exemptions from SEC registration and reporting requirements for certain advisers, and reallocates regulatory responsibility for advisers between the SEC and states. The other set of rules defines "family offices" that are to be excluded from the Investment Advisers Act.

The rules implementing the amendments to the Investment Advisers Act (tinyurl.com/6dqyydl) include a transitional exemption period so that private advisers, including hedge fund and private equity fund advisers, newly required to register do not have to do so until March 30, 2012. The rules regarding exemptions for venture capital fund and certain private fund advisers (tinyurl.com/5r69jye) became effective July 21, 2011. Family offices that do not meet the terms of the exclusion under the new rule (tinyurl.com/ 6888r5j) must register with the SEC or applicable state securities authorities by March 30, 2012.

INVESTMENT ADVISERS ACT AMENDMENTS

In the first set of rules, the SEC also amended rules to expand disclosure by investment advisers, particularly about the private funds they manage, and revised the commission's "pay-to-play" rule.

To enhance its ability to oversee investment advisers of private funds, such as hedge funds and private equity funds, and fulfill its responsibilities under Dodd-Frank, the SEC said in a press release that it is requiring advisers to provide additional information about the private funds they manage. The amended adviser registration form will require advisers of private funds to provide:

* Basic organizational and operational information about each fund they manage, such as the type of private fund that it is (for example, hedge fund, private equity fund or liquidity fund), general information about the size and ownership of the fund, general fund data, and the adviser's services to the fund.

* Identification of five categories of "gatekeepers" that perform critical roles for advisers and the private funds they manage (that is, auditors, prime brokers, custodians, administrators and marketers).

The SEC also adopted amendments that require all registered advisers to provide more information about their advisory business, including information about:

* The types of clients they advise, their employees, and their advisory activities.

* Their business practices that may present significant conflicts of interest (such as the use of affiliated brokers, soft-dollar arrangements and compensation for client referrals).

The rules also require advisers to provide additional information about their nonadvisory activities and their financial industry affiliations.

REPORTING REQUIREMENTS FOR EXEMPT ADVISERS

Under Dodd-Frank, private fund advisers may not need to register with the SEC if they are able to rely on one of three new exemptions, including for:

* Advisers solely to venture capital funds.

* Advisers solely to private funds with less than $150 million in assets under management (AUM) in the U.S.

* Certain foreign advisers without a place of business in the U.S.

But the SEC can still impose certain reporting requirements upon advisers relying upon either of the first two of these exemptions ("exempt reporting advisers").

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Fund Advisers: Face New Registration Reporting Regs: SEC Rules, Implementing Dodd-Frank Requirements, Include" Family Office" Exclusions from Investment Advisers Act of 1940
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