Dodd-Frank Financial Reform Bill - Frequently Asked Questions

  1. How do I know if I should be SEC registered or State registered?
  2. I am currently registered with the SEC, but now I must register with the State of California.  What do I need to do?
  3. If I am switching from the SEC to State, do I just amend my Form ADV? 
  4. Should I withdraw my registration from the SEC, if I am now required to register with the State?
  5. How long does it take the Department to review an application?
  6. I have a few individuals who provide investment advice for my firm.  The Department’s letter states that they need to be reported and qualified.  How do I do that?
  7. I pay for solicitors to solicit my investment advisory business, must they also be registered.
  8. Can I submit my Form ADV even though my investment adviser representatives have not yet taken the exam to qualify?
  9. Besides the Form ADV application, what other types of information must I file with the State of California?
  10. Who is exempt from registration under Dodd-Frank?
  11. I have assets under management between $25 million and $100 million and now I will have to register with more than 15 states to do business.  Will I have to pay registration fees in all of these states, or can they be waived?
  12. I heard that there was a change to the SEC’s definition of an accredited investor standard.  What was the change?
  13. Was there a change to the SEC’s qualified client standard?

1. How do I know if I should be SEC registered or State registered?

If you provide investment advice and manage assets under $100 million, you must register with the state or states in which you conduct business.  If you manage above $100 million, you must register with the SEC. 

 

2. I am currently registered with the SEC, but now I must register with the State of California.  What do I need to do?

Please go to the Department of Corporations (Department) website at www.dbo.ca.gov to review the filing instructions to register as a state investment adviser. 

 

3. If I am switching from the SEC to State, do I just amend my Form ADV? 

No you must go through the application process. Please see the Department website for instructions.

 

4. Should I withdraw my registration from the SEC, if I am now required to register with the State?

No, please do not withdraw your SEC registration until your state application has been reviewed and approved. 

 

5. How long does it take the Department to review an application?

It currently takes about 30-40 days after filing the Form ADV for an examiner to review your application.  The Department strongly recommends that you review the filing instructions on the website and ensure that all additional documentation is provided at the time of filing.  To avoid delays the Department recommends that you switch from SEC to State as soon as possible.

 

6. I have a few individuals who provide investment advice for my firm.  The Department’s letter states that they need to be reported and qualified.  How do I do that?

A Form U-4 for each individual must be filed on the WEBCRD system along with the State of California’s $25 reporting fee.  In addition, each representative must meet the qualification requirements under CCR Section 260.236.  Also see the Department website under Investment Adviser Representative for a State Licensed Investment Adviser where you will find this information.

 

7. I pay for solicitors to solicit my investment advisory business, must they also be registered.

In California you may not pay solicitors unless they are registered as investment adviser representative or they are independently licensed as investment advisers.  To register an individual as an investment adviser representative you need to file a Form U-4 for that individual.  Those investment adviser representatives who only solicit do not need to meet the qualification requirements.

To verify if they are independently Licensed as investment adviser, you may visit the Department’s website or call (866) 275-2677.

 

8. Can I submit my Form ADV even though my investment adviser representatives have not yet taken the exam to qualify?

Yes, you may file your Form ADV through the Investment Adviser Registration Depository (IARD) system.  However, please note that the exam deficiency may cause a delay of the registration process.

 

9. Besides the Form ADV application, what other types of information must I file with the State of California?

Please see the Department website for the Investment Adviser Application checklist for any additional items that may be required.

 

10. Who is exempt from registration under Dodd-Frank?

The following entities are exempt: 

  • Venture capital fund advisers
  • Certain private fund advisers
  • Foreign private advisers
  • Family Offices 

Venture Capital Fund Advisers:  Section 407 of the Act provides an exemption for investment advisers whose clients consist solely of one or more “venture capital funds.”  However the Act does not define what will constitute a venture capital fund, but the SEC has one year from the enactment of the law to define the term.

Private Fund Advisers:  Section 408 of the Act provides an exemption for investment advisers whose clients consist solely of “private funds,” and whose assets under management in the United States are less than $150,000,000 in the aggregate.  A private fund is defined as an issuer of securities that would be an investment company within the meaning of the Investment Company Act of 1940, but for the provisions of Section 3(c(1) or 3(c(7) of the 1940 Act.

Foreign Private Advisers:  Section 403 of the Act defines a foreign private adviser as an adviser that

  • has no place of business in the United States,
  • has, in total, fewer than 15 clients and investors in private funds managed by the adviser who are domiciled in or residents of the United States,
  • has aggregate assets under management attributable to clients in the United States and investors from the United States which are invested in private funds advised by the adviser of less than $25,000,000 or such higher amount as the SEC may deem appropriate, and
  • does not hold itself out generally to the public in the United States as an investment adviser.

Family Offices:  Section 409 of the Act provides an exemption for any “family office” and such term will be defined by the SEC.  Section 409 also provides that the definition adopted by the SEC must be consistent with the SEC’s prior exemptive policies relating to family offices and details certain preexisting advisory relationships which, without further factors, should not result in an adviser being excluded from the definition of a family office.

 

11. I have assets under management between $25 million and $100 million and now I will have to register with more than 15 states to do business.  Will I have to pay registration fees in all of these states, or can they be waived?

The Act states that advisers, who are required to be registered with one or more state securities regulators, may register with the SEC only if the adviser (i) has assets under management of at least $100 million or (ii) has assets under management between $25million and $100 million and would otherwise be required to register with 15 or more state regulators.

 

12. I heard that there was a change to the SEC’s definition of an accredited investor standard.  What was the change?

Section 413 of the Act requires the SEC to revise the accredited investor standard for a natural person by requiring individual net worth of such person, or joint net worth with the spouse of that person, at the time of investment to be $1,000,000, excluding the value of the primary residence of such natural person.  This change increases the net worth requirement and the SEC will review the revised net worth amount at least every four years.

 

13. Was there a change to the SEC’s qualified client standard?

Yes.  The current regulations for the net worth test for a natural person is set at $1,500,000.  This dollar amount test (net worth) is used in determining clients that should be “qualified” for purposes of assessment of performance-based fees by an investment adviser.  Section 418 of the Act provides that the SEC shall adjust this dollar amount for inflation, within one year of enactment and at least every five years thereafter.