Registration Transition Issue
Many states require applicant for state registration to complete an affidavit of “no prior activity.” The choices are typically, no, you have not conducted advisory activities in this state or yes, you have conducted advisory activities in this state. If the answer is yes, they require you to list all clients and fees charges, provide copies of client agreements, etc. What these affidavits are trying to determine is whether the applicant has been providing investment advisory services absent registration. The problem is, that for transitioning advisers who have been providing services in the state under a notice filing, there is no right way to answer the question on the affidavit. You cannot answer “no” because you would be attesting to something that was not true, but if you answer “yes” you may need to provide years of information about clients and fees. Very onerous and no easy resolution in sight.
Registration Transition News – Fee Waivers
At least a little bit of good news for transitioning advisers . . .
The following states have waived registration fees for transitioning advisers that are currently notice filed in the state:
Alabama, Arkansas, Colorado, DC, Georgia, Idaho, Illinois, Iowa, Kentucky, Maryland, Michigan, Massachusetts, Minnesota, Mississippi, New Hampshire, New Jersey, New Mexico, Oregon, Puerto Rico, Rhode Island, Vermont and Washington.
Shame on the rest of the states for not doing the same.
Texas Reaching Out to Transitioning Advisers
The Texas State Securities Board is sending out the following email:
“The Registration Division of the Texas State Securities Board is aware that your investment adviser firm may be required to switch from SEC registration to state registration as a result of The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010.
We encourage you and your firm to consider switching to state-registration now to avoid the bottleneck of applications expected between January 1, 2012 and March 31, 2012. Beginning Monday, November 7, 2011, you may amend the Form ADV Part 1.B on the IARD system to begin the registration process.”
Transitioning from SEC to State – Helpful Tip #4
GET STARTED EARLY
The state process can be quite protracted under ordinary circumstances. There will be nothing ordinary when thousands of transitioning advisers begin to overwhelm limited state resources.
Transitioning from SEC to State – Helpful Tip #3
DOCUMENTS
Determine what documents must be filed as part of the state registration process, review and update those documents if you already have them and/or draft new documents if necessary. States have very specific rules about what should be in your documents – this is especially true of your advisory agreement. Make sure it conforms to state law.
Transitioning from SEC to State – Helpful Tip #2
DETERMINE STATES OF REGISTRATION
One of things you can do now to help ease your transition from SEC registration to registration with one or more states is determine the state(s) in which you must register.
Seems obvious, huh? Just wait. While a good rule of thumb is that you will need to register as a state investment adviser in the same states in which your advisory firm had previously noticed filed, some states may have more stringent rules for state registration than for notice filing.
I would suggest checking the state rules in each state where you maintain a branch office (even if that “office” is an advisory rep working out of their home); where you have any clients (remember, 3 states – TX, LA & NH – all require registration with just one client).
Transitioning from SEC to State – Helpful Tip #1
REGISTER FIRST – WITHDRAW SECOND
The most important thing to remember about transitioning from SEC to state registration (other than to actually do it if you have less than $90 million in AUM) is do not – repeat, do not – withdraw from your SEC registration until you have an effective registration with at least one state. If you withdraw prior to that, your advisory firm will not be registered in any jurisdiction and you will be in violation of numerous state and federal regulations (e.g., providing investment advisory services while not registered)