Effective as of July 21, 2011, the Dodd-Frank Act eliminated Section 203(b)(3) of the Advisers Act (commonly referred to as the “private adviser” exemption), which provided a federal registration exemption for any adviser that: (1) had fewer than 15 clients over the prior 12 months; (2) did not hold itself out to the public as an investment adviser; and (3) did not act as an investment adviser to a registered investment company or a business development company. In place of the private adviser exemption, the Dodd-Frank Act created several new exemptions. Effecting and implementing those new exemptions required the new SEC rules that were adopted last week in the Exemptive and Interpretive Releases (the “new rules”).
To provide advisers with additional time to comply with the new rules, the SEC adopted transition rules which generally provide that advisers have until March 30, 2012 to come into compliance with the revised Advisers Act registration and reporting requirements. Generally, these transition rules are most significant for: (1) advisers previously exempt from registration under the private adviser exemption that are no longer exempt under the new rules; (2) currently registered advisers (“RIAs”) that have new reporting obligations (particularly with respect to “private funds”); (3) advisers who require a period of time to meet one of the new registration exemptions adopted under Dodd-Frank; and (4) advisers no longer eligible to remain registered with the SEC.
- Previously Exempt Advisers. The transition rules permit an adviser relying on the legacy private adviser exemption on July 20, 2011, to delay registering with the SEC until March 30, 2012, so long as the adviser: (1) during the course of the preceding 12 months, had fewer than 15 “clients”; and (2) neither holds itself out generally to the public as an investment adviser, nor acts as an investment adviser to a registered investment company or a business development company. For these purposes, in accord with the 2006 decision in Goldstein v. Securities and Exchange Commission, each “private fund” is generally treated as a single “client.”
- Existing RIAs. As part of the transition process for the Dodd-Frank Act related changes to Advisers Act exemptions and the implementation of the new rules, all advisers registered on January 1, 2012, regardless of their fiscal year end, will be required to file an amendment to their Form ADV on revised Form ADV by March 30, 2012. After January 1, 2012, any adviser filing an amendment to Form ADV will be required to provide responses to revised Form ADV, which includes more detailed disclosures regarding private funds (as discussed here). After the online IARD registration system is updated to reflect the revised Form ADV (which is currently expected to occur in late 2011), all new registrants must complete the revised form.
- Exempt Reporting Advisers or ERAs. ERAs are not required to register as investment advisers with the SEC, but are required to file certain parts of Form ADV Part 1 each year. ERAs must file their initial reports on Form ADV Part 1 through the online IARD system between January 1 and March 30, 2012. The Exemptive Rules are effective July 21, 2011, and ERAs may begin relying on them as of such date.
- RIAs No Longer Eligible to Register with the SEC. Mid-sized RIAs (generally, RIAs with assets under management between $25 million and $100 million) must file their amendment to Form ADV no later than March 30, 2012 and, with certain limited exceptions, must withdraw their registration with the SEC by June 28, 2012 and transition their registration to the appropriate state securities authorities in accordance with applicable state laws.