New Financial Reforms Signed Into Law: Advisor Entities Face Possible Registration Requirement

PRESIDENT OBAMA SIGNS SWEEPING NEW FINANCIAL REFORMS INTO LAW

Advisor Entities Face Possible Registration Requirement; SEC to Study Imposing Fiduciary Standard on Broker-Dealers

Section 403 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 eliminates the “private adviser” or de minimis exemption from the registration requirements of the Investment Advisers Act. As a result, most if not all advisors to publicly-registered funds, including registered, non-listed REITs as well as registered, non-listed oil and gas programs, and private funds with more than $150 million in assets under management, that invest a portion of their funds’ assets in securities may be required to register with either the state (or states) of their principal place of business (if the advisor has less than $100 million in assets under management) or with the SEC (if the advisor has more than $100 million in assets under management). Such advisors must be registered within one year of enactment (by July 21, 2011). The SEC is expected to provide further guidance in the course of promulgating rules with respect to these new requirements.

In addition, the SEC is authorized to conduct a study with respect to the effectiveness of existing standards of care for broker-dealers and investment advisors to their retail customers, and to determine if there are any legal or regulatory gaps in the protection of retail customers relating to the differing standards of care. The SEC is specifically instructed to consider whether retail customers understand the differing standards of care, as well as the potential impact on retail customers and broker-dealers associated with imposing on broker-dealers the standards of care applicable under the Investment Advisers Act or eliminating the broker-dealer exclusion from the requirements of the Investment Advisers Act. The SEC is required to provide a report based on the results of the study to Congress within six months of enactment (by January 21, 2011).

For information concerning this release, contact Kevin Hogan, Executive Director, IPA at khogan@ipa.com or visit www.ipa.com for more information.