Tag: investment adviser representative

Massachusetts Proposes New Regulations Related to Investment Adviser Representative Registration

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On March 15, 2013, the Massachusetts Securities Division started the process to amend the  regulations for investment adviser representative (“IAR”).

The proposal would require an IAR applicant to submit to a review of the Massachusetts Criminal Offender Record Information (CORI) of the applicant.

The Division believes that it is in the public interest and for the protection of investors to conduct criminal background checks of those individuals seeking IAR registration in order to ensure that the applicant is not subject to a statutory disqualification and has truthfully and accurately disclosed any criminal background required on Form U-4. The Registrations, Inspections, Compliance and Examinations (“RICE”) Section of the Division has recently been granted access to utilize the Massachusetts “iCORI system,” an electronic criminal history database, in order to conduct these reviews.

However, the CRD system for submitting Form ADV is not able to accept the required CORI acknowledgement. So Massachusetts registered investment advisers will have to send the form directly to the state regulators.

Also, Massachusetts is cleaning up its regulations as to Form ADV to comply with the SEC’s 2010 changes to the form. The proposed language is based upon the NASAA model brochure rule. Along with that ate a bunch of other small changes that clean up the Massachusetts investment adviser regulations.

The Request for Comment and the Proposed Regulations are available on the Division’s website at http://www.sec.state.ma.us/sct/sctidx.htm.

The comment period will end on Wednesday, May 15, 2013.  A public hearing on these proposed changes will be held at 10:00 a.m. on Wednesday, May 15 at One Ashburton Place, 17th Floor, Boston, MA 02108.

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Do You need State Licensing if You’re an SEC Registered Investment Adviser?

With Dodd-Frank‘s elimination of the 15 client exemption, thousands (my guess) of private fund managers will need to register with the Securities and Exchange Commission as investment advisers to their funds. For alternative investment funds, like real estate, you’ll need to look at whether you are giving advice regarding securities.

If you have less than $100 million you will be in the state registration system and may need to have individuals licensed with the state. If you have over $100 million, you be registering with SEC. The deadline is July 21, 2011.

That leaves the question of whether you need a state license for the firm or individuals in the firm, like the Series 65.

One benefit of SEC registration is that the Investment Advisers Act preempts some state licensing for private fund management companies. Section 203(A)(b) prohibits the states from licensing an investment adviser registered with the SEC (or exempt from definition of Section 202(a)(11)).

The exception is that a state may require licensing for an “investment adviser representative” who has a place of business in that state. For a private fund manager, you need to determine if any of the management company employees fit into the definition in Rule 203A-3.

“(a)(1) “Investment adviser representative” of an investment adviser means a supervised person of the investment adviser:

i. Who has more than five clients who are natural persons (other than excepted persons described in paragraph (a)(3)(i) of this section); and

ii. More than ten percent of whose clients are natural persons (other than excepted persons described in paragraph (a)(3)(i) of this section).”

For a private fund manager, the key part of the definition is whether they have any clients who are natural persons. The manager’s funds are the clients and those funds are not natural persons. Employees of the fund manager should fall outside the definition of “investment adviser representative” and therefore not need a license.

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