When Do You Need To Register As An Investment Advisor

General Information on the Regulation of Investment Directorate

March 11, 2011 [Update Currently in Progress]

Division of Investment Management

Introduction

The Securities and Substitution Commission (the "Committee" or "SEC") regulates investment advisers, primarily under the Investment Advisers Human activity of 1940 (the "Advisers Human action"), and the rules adopted under that statute (the "rules"). Ane of the key elements of the regulatory plan is the requirement that a person or firm coming together the definition of "investment adviser" under the Advisers Act register with the Commission, unless exempt or prohibited from registration.

By and large just larger advisers that take $25 million or more of assets under management or that provide communication to investment company clients are permitted to register with the Commission. Smaller advisers register under state law with state securities government. This document provides an overview of federal regulation, every bit applied to SEC-registered advisers. Many of the concepts discussed, however, as well are relevant with respect to land-registered directorate.

The data in this document briefly summarizes some of the more important provisions of federal investment adviser regulation. Boosted information on the mechanics of the registration procedure is independent in the document "How To Register as an Investment Adviser." The data in these documents should non be used as a substitute for the Advisers Deed, rules, forms, and instructions to the forms (see "Requesting Copies of the Directorate Deed, Rules, Forms, Letters, and Releases" for data on obtaining these documents) .

Sources of Regulation

The master sources of federal investment adviser regulation are the Advisers Act, xv UsaC. 80b-1 et seq., and the rules thereunder, Title 17, Part 275 of the Code of Federal Regulations. In addition, the Commission and its Division of Investment Management (the "Partitioning") provide interpretive guidance in: instructions to forms under the Advisers Human action, "no-activity letters," "interpretative letters," and "releases," all of which are publicly available. To request copies of the Directorate Human action, rules, forms, no-action and interpretative letters, or releases, refer to the instructions at the end of this certificate under "Requesting Copies of the Advisers Act, Rules, Forms, Letters, and Releases." The copies of the Advisers Human action, rules, and forms are current as of August 31, 1998.

Although state-registered advisers are governed primarily past country law, several provisions of the Advisers Human action and Committee rules apply to such advisers. For more information on the provisions of federal police that utilise to state-registered advisers, refer to the give-and-take below under "State-Registered Advisers."

Who Is Required To Annals?

A person or business firm is required to register with the Commission if he or information technology is:

an "investment adviser" nether Department 202(a)(11) of the Directorate Act;
not excepted from the definition of investment adviser past Section 202(a)(11)(A) through (Due east) of the Advisers Human activity;
not exempt from Commission registration under Section 203(b) of the Advisers Act; and
not prohibited from Commission registration by Section 203A of the Directorate Act.

Each of these elements is addressed below.

Who Is an Investment Adviser?

Subject to certain limited exclusions discussed below, Section 202(a)(eleven) of the Advisers Act generally defines an "investment adviser" equally any person or firm that: (ane) for compensation; (2) is engaged in the business organization of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications. A person or business firm must satisfy all iii elements to be regulated under the Advisers Human action.

The Division construes these elements broadly. For instance, with respect to "compensation," the receipt of any economic benefit suffices. To be deemed compensation, a fee demand not be separate from other fees charged, it demand not be designated equally an advisory fee, and it need not exist received directly from a client. With respect to the "business" element, an investment advisory business need not be the person'southward or house'due south sole or principal business concern action. Rather, this element is satisfied under whatever of the following circumstances: the person or business firm holds himself or itself out as an investment adviser or equally providing investment advice; the person or firm receives separate or additional compensation for providing communication about securities; or the person or business firm typically provides advice near specific securities or specific categories of securities. Finally, a person or firm satisfies the "communication about securities" element if the advice or reports relate to securities. The Division has stated that providing one or more of the following also could satisfy this element: advice about market place trends; communication in the form of statistical or historical data (unless the data is no more than than an objective report of facts on a non-selective basis); advice about the selection of an investment adviser; communication apropos the advantages of investing in securities instead of other types of investments; and a listing of securities from which a client can choose, even if the adviser does non make specific recommendations from the listing. An employee of an SEC-registered investment adviser does not need to register separately, so long equally all of the employee's investment informational activities are within the scope of his employment.

For additional guidance on the definition of "investment adviser" and the applicability of the Advisers Human activity to financial planners, pension consultants, and others, refer to Investment Directorate Deed Release No. 1092 (October viii, 1987) (part of the Investment Adviser Registration Package; see below).

Exclusions From the Definition

Section 202(a)(11)(A)-(Due east) of the Advisers Act expressly excludes certain persons or firms from the definition of an investment adviser. These persons or firms need not annals under, and generally are non regulated by, the Directorate Act. Excluded are:

Domestic banks (defined in Section 202(a)(2) of the Directorate Act) and banking concern holding companies (defined in the Depository financial institution Holding Company Human action of 1956). Savings and loan institutions, federal savings banks, foreign banks, and credit unions do not autumn within this exclusion.
Lawyers, accountants, engineers, and teachers if their performance of informational services is solely incidental to their professions.
Brokers and dealers if their performance of advisory services is solely incidental to the bear of their business as brokers and dealers, and they do non receive any special compensation for their advisory services. This exclusion is non available to a registered representative interim every bit a financial planner outside the scope of his employment with the broker employer.
Publishers of bona fide newspapers, news magazines, and business or financial publications of general and regular apportionment. Under a decision of the United states Supreme Court, to enable a publisher to qualify for this exclusion, a publication must satisfy iii elements: (1) the publication must offer only impersonal advice, i.east., communication not tailored to the individual needs of a specific client, group of clients, or portfolio; (two) the publication must be "bona fide," containing disinterested commentary and analysis rather than promotional material disseminated by someone touting particular securities, advertised lists of stocks "sure to go upward," or information distributed as an incident to personalized investment services; and (3) the publication must exist of general and regular apportionment rather than issued from time to time in response to episodic market action or events affecting the securities industry. See Lowe v. Securities and Exchange Committee, 472 U.Due south. 181 (1985).
Persons and firms whose advice, analyses, or reports are related only to securities that are straight obligations of, or obligations guaranteed by, the Usa, or past certain U.S. government-sponsored corporations designated past the Secretarial assistant of the Treasury (e.g., FNMA, GNMA).

In addition to these exclusions, the Advisers Deed gives the Commission the potency to exclude, by order, other persons and firms not within the intent of the definition of investment adviser. Any person or firm seeking such an order should refer to Rules 0-4 and 0-5 under the Directorate Act and Investment Advisers Act Release No. 969 (April thirty, 1985).

Exemptions From Registration

A person or house meeting the definition of investment adviser in Section 202(a)(11) does not need to annals with the Commission if the person or firm qualifies for 1 of the exemptions from registration set forth in Section 203(b) of the Advisers Deed. Investment advisers exempt from registration under Section 203(b) are still discipline to certain anti-fraud provisions included in Section 206 of the Advisers Human action. For more than data on anti-fraud provisions, refer to the word below under "Anti-Fraud Provisions."

Department 203(b) of the Directorate Act provides five express exemptions from registration. Section 203(b)(1) exempts whatsoever adviser (1) all of whose clients are within the same state as the adviser's principal business office, and (ii) that does not provide advice or effect reports nearly securities listed on whatever national securities commutation. Department 203(b)(2) exempts advisers whose simply clients are insurance companies. Section 203(b)(3) exempts any adviser that: (1) during the previous twelve months has had fewer than fifteen clients; (2) does non hold itself out mostly to the public equally an investment adviser; and (three) does not act as an investment adviser to a registered investment company or business concern development company. Rule 203(b)(3)-one under the Directorate Deed provides guidance on how to count clients when determining eligibility for this exemption. In determining if a person or business firm holds himself or itself out equally an investment adviser within the meaning of Department 203(b)(3), the Partition looks at a number of factors, including, for example, whether the person or business firm advertises; refers to himself or itself every bit an "investment adviser"; maintains a list as an investment adviser in a telephone, business, edifice, or other directory; expresses a willingness to take new advisory clients; or uses letterhead indicating any investment advisory activeness. Section 203(b)(4) generally exempts any adviser that (one) is a charitable organization, or is employed by a charitable arrangement, and (2) provides communication, analyses, or reports merely to charitable organizations, or to funds operated for charitable purposes. Department 203(b)(five) exempts advisers to church employee pension plans.

Prohibition on Commission Registration

A person or firm that does not meet any of the criteria in Section 203A of the Directorate Act or Dominion 203A-2 thereunder is prohibited from registering with the Commission.

Only the following types of advisers are permitted to register with the Commission (and therefore must annals with the Commission, unless exempt nether Section 203(b)):

advisers that take "assets under management" of $25 million or more;
directorate to registered investment companies;
directorate that accept their principal office and place of business in a state that has not enacted an investment adviser statute (currently, only Wyoming), or that accept their principal office and place of business outside the United states; or
advisers that are exempted from the prohibition by Committee dominion or order. The Commission has adopted a dominion exempting v categories of investment advisers:
nationally recognized statistical rating organizations ("NRSROs") (Rule 203A-2(a));
alimony consultants that provide investment communication with respect to $fifty one thousand thousand or more of plan assets (Dominion 203A-ii(b));
investment advisers sharing the aforementioned principal part and identify of business with an affiliated investment adviser that is registered with the Commission (Rule 203A-ii(c));
newly-formed investment directorate that accept a reasonable expectation of being eligible for Committee registration within 120 days of germination (Dominion 203A-ii(d)); and
investment advisers that would otherwise be required to register as investment advisers with the securities authorities of 30 or more states (Rule 203A-2(east)).

Advisers are required to study their eligibility for Commission registration on Schedule I to Form ADV upon initial registration. Additionally, directorate are required to report their continuing eligibility for Commission registration annually by alteration Schedule I to Form ADV within ninety days of the end of their fiscal year. For additional data on the prohibition on Commission registration, refer to Investment Directorate Act Release Nos. 1633 (May fifteen, 1997) and 1733 (July twenty, 1998).

Successors to SEC-Registered Investment Advisers

An unregistered firm that is acquiring or assuming substantially all of the assets and liabilities of the investment advisory concern of an SEC-registered investment adviser may rely on special registration provisions for "successors" to SEC-registered advisers. Specifically, if an unregistered successor files an application for registration as an investment adviser (on Grade ADV) within thirty days following the succession, information technology may rely on the registration of its predecessor until its registration is declared effective by the Commission. If a new investment adviser is formed solely as a upshot of a change in an adviser's structure or legal status (due east.g., form of system or country of incorporation), and at that place is no practical modify in control of the adviser, generally the adviser may amend its predecessor'southward Grade ADV within xxx days following the transaction, rather than file a new awarding. In responding to Part I, Item 9 of Course ADV, a successor is not required to report successions previously reported. For further data on the registration of successors, refer to Investment Advisers Human activity Release No. 1357 (December 28, 1992). For more information on what constitutes a change of control, refer to the word below under "Prohibited Contractual and Fee Provisions, Consignment."

Anti-Fraud Provisions

Section 206 of the Directorate Act prohibits misstatements or misleading omissions of material facts and other fraudulent acts and practices in connection with the conduct of an investment advisory business. Equally a fiduciary, an investment adviser owes its clients undivided loyalty, and may not engage in activity that conflicts with a customer'due south interest without the customer's consent. In Due south.E.C. 5. Upper-case letter Gains Inquiry Agency, Inc., 375 U.S. 180 (1963), the Usa Supreme Court held that, under Department 206, directorate take an affirmative obligation of utmost good religion and total and off-white disclosure of all material facts to their clients, as well equally a duty to avoid misleading them. Section 206 applies to all firms and persons meeting the Directorate Act'southward definition of investment adviser, whether registered with the Commission, a state securities authority, or not at all.

In addition to the general anti-fraud prohibition of Section 206, Rules 206(4)-1, 206(4)-ii, 206(4)-3, and 206(4)-4 under the Advisers Human action regulate, respectively: investment adviser advertising; custody or possession of client funds or securities; the payment of fees past advisers to third parties for customer referrals; and disclosure of investment advisers' financial and disciplinary backgrounds. These rules are discussed in greater detail below.

Disclosure Obligations

The Brochure Dominion

Rule 204-3 under the Advisers Human activity, commonly referred to every bit the "brochure rule," more often than not requires every SEC-registered investment adviser to deliver to each customer or prospective customer a Form ADV Part 2A (brochure) and Part 2B (brochure supplement) describing the adviser's business practices, conflicts of interest and background of the investment adviser and its advisory personnel. An adviser must deliver the brochure to a client before or at the time the adviser enters into an investment informational contract with a client. The rule also requires an adviser, if there are cloth changes in the brochure since the adviser's final annual updating amendment, to deliver annually, without accuse, to each client within 120 days after the stop of the adviser's fiscal twelvemonth either (i) a current brochure or (2) a summary of material changes to the brochure as required by Particular 2 of the brochure that offers to provide the adviser's current brochure without charge, accompanied by the Web site address (if available) and an e-mail address (if available) and telephone number by which a customer may obtain the current brochure from the adviser, and the Web site address for obtaining information nearly the adviser through the Investment Adviser Public Disclosure arrangement. An adviser must deliver to each client or prospective client a current brochure supplement for a supervised person earlier or at the time that supervised person begins to provide advisory services to the customer.

SEC-registered directorate are not required to evangelize a brochure to either (i) clients that are SEC-registered investment companies or business development companies; or (ii) clients who receive merely impersonal investment advice from the adviser and who will pay the adviser less than $500 per year. An SEC-registered adviser is not required to deliver a brochure supplement to a client (i) to whom it is not required to evangelize a brochure, (ii) who receives only impersonal investment advice, or (three) certain officers, and employees of the adviser.

Other Disclosure Requirements

Rule 206(4)-4 under the Directorate Act requires every SEC-registered investment adviser that has custody or discretionary authorization over customer funds or securities, or that requires prepayment 6 months or more in accelerate of more than $500 of advisory fees, to disclose promptly to clients and prospective clients (collectively, "clients") any financial weather of the adviser that are reasonably probable to impair the ability of the adviser to meet contractual commitments to clients. The rule also requires advisers (regardless of whether the adviser has custody or requires prepayment of fees) to disembalm promptly to clients legal or disciplinary events that are material to an evaluation of the adviser's integrity or power to meet its commitments to clients. The rule lists a number of legal and disciplinary events for which at that place is a rebuttable presumption of materiality for these purposes (although an event may still be material even if information technology is not on the list).

The Sectionalization takes the position that an investment adviser must disclose to clients all material information regarding its compensation, such equally if the adviser's fee is higher than the fee typically charged by other advisers for similar services (in most cases, this disclosure is necessary if the annual fee is 3 pct of assets or higher). An investment adviser must disclose all potential conflicts of involvement between the adviser and its clients, even if the adviser believes that a conflict has not afflicted and will not bear upon the adviser's recommendations to its clients. This obligation to disclose conflicts of interest includes the obligation to disclose any benefits the adviser may receive from third parties as a issue of its recommendations to clients.

An investment adviser (fifty-fifty if unregistered) may be subject to disclosure obligations not just under the Advisers Act, merely besides under other federal statutes, including the Securities Exchange Human action of 1934 (the "Exchange Act"). For example, Department xiii(f) of the Exchange Act, and Rule 13f-1 thereunder, mostly require an investment adviser exercising investment discretion, or sharing investment discretion with others, over equity securities (which would include convertible debt and options) having a fair market place value in the aggregate of at least $100 million to file, on a quarterly footing, a Grade 13F disclosing the holdings that it manages on its own behalf and on behalf of clients.

Books and Records To Exist Retained

Section 204 of the Directorate Act and Rule 204-2 thereunder crave that SEC-registered investment advisers maintain and preserve specified books and records, and make them available to Commission examiners for inspection. Rule 204-ii permits investment advisers, under certain conditions, to maintain books and records on microfilm and magnetic disk, tape, or other computer recordkeeping devices.

Rule 204-2 requires every SEC-registered investment adviser to retain copies of all advertisements and other communications (collectively, "advertisements") that the adviser has circulated, directly or indirectly, to 10 or more than persons (excluding persons connected with the adviser). Generally, the adviser also must create and retain all documents necessary to substantiate any performance information contained in advertisements. With respect to the advert of performance information for managed accounts, an adviser need retain only (i) all account statements, if they reflect all debits, credits, and other transactions in a client's account for the period of the statement, and (2) all worksheets necessary to demonstrate the calculation of the operation or charge per unit of return of all managed accounts.

Prohibited Contractual and Fee Provisions

Assignment

Section 205(a)(2) of the Advisers Act requires each investment advisory contract entered into past an investment adviser (whether SEC-registered or not, unless exempt from registration under Section 203(b)) to provide that the contract may not be assigned without the client's consent. Department 202(a)(1) of the Advisers Human action defines "assignment" more often than not to include any directly or indirect transfer of an investment advisory contract by an adviser or any transfer of a decision-making block of an adviser's outstanding voting securities. Rule 202(a)(1)-1 under the Advisers Act, notwithstanding, provides that a transaction that does not upshot in a change of actual command or management of the adviser (e.g., a reorganization for purposes of changing an adviser'due south state of incorporation) would not be accounted to be an consignment for these purposes. Section 205(a)(three) of the Advisers Act provides that if an investment adviser is organized as a partnership, each of its advisory contracts must provide that the adviser volition notify the client of a change in its membership.

Performance Fees

Section 205(a)(one) of the Directorate Act prohibits an investment adviser (whether SEC-registered or not, unless exempt from registration under Section 203(b)) from receiving whatever type of informational fee calculated as a percentage of capital letter gains or appreciation in the client'southward account ("operation fee system"). The Advisers Act contains exceptions from this prohibition for contracts with: (1) registered investment companies and clients having more than $1 million in managed assets, if specific conditions are met; (two) private investment companies excepted from the Investment Company Act under Department 3(c)(7) of that Human activity; and (3) clients that are not U.Southward. residents. In add-on Rule 205-three under the Advisers Human action permits investment advisers to charge operation fees to: (1) clients with at least $750,000 under management with the adviser or more than $1,500,000 of net worth; (ii) clients who are "qualified purchasers" nether department 2(a)(51)(A) of the Investment Company Act; and (iii) certain knowledgeable employees of the investment adviser.

Advertising Restrictions

Rule 206(4)-1 under the Advisers Act prohibits SEC-registered investment advisers from using any advertisement that contains any untrue argument of material fact or that is otherwise misleading. The rule broadly defines "advertisement" to include any discover, round, letter, or other written advice addressed to more than one person, or any detect or other announcement in any publication or past radio or television, that offers whatever investment advisory service.

In add-on, an advertisement may not:

use or refer to testimonials (which include any statement of a customer'due south experience or endorsement);
refer to past, specific recommendations made by the adviser that were profitable, unless the advertisement sets out a listing of all recommendations made by the adviser inside the preceding menstruum of not less than 1 year, and complies with other, specified conditions;
represent that whatever graph, chart, formula, or other device can, in and of itself, be used to decide which securities to buy or sell, or when to purchase or sell such securities, or can assist persons in making those decisions, unless the advertisement prominently discloses the limitations thereof and the difficulties regarding its use; and
stand for that any written report, assay, or other service volition be provided without accuse unless the study, assay, or other service will be provided without any obligation whatsoever.

The Partitioning takes the position that an adviser may annunciate its past functioning (both actual performance and hypothetical or model results) merely if the advert meets sure conditions and restrictions. An advertising using performance data must disclose all material facts necessary to avoid any unwarranted inference. Among other things, an investment adviser may non advertise its operation data if the adviser: (1) fails to disembalm the result of material market or economic weather condition on the results advertised; (two) fails to disclose whether and to what extent the advertised results reflect the reinvestment of dividends or other earnings; or (3) suggests or makes claims almost the potential for profit without also disclosing the potential for loss.

In addition, generally an adviser may not advertise gross operation information (i.e., performance data that does non reflect the deduction of various fees, commissions, and expenses that a client would pay) unless the adviser also includes net performance information in an equally prominent manner. The staff has taken the position, however, that an adviser may provide gross performance information, accompanied by appropriate disclosure regarding the impact of fees and expenses, in certain limited circumstances that present minimal gamble that the client volition not understand the impact of fees and expenses, such every bit when the customer is a sophisticated establishment, and the adviser presents the information to the customer "ane-on-one." Neither the Commission nor the Partition will pre-approve advertisements for compliance with the above requirements, although advertisements are subject to review during Commission inspections.

Suitability Requirements

Equally fiduciaries, investment advisers owe their clients a duty to provide only suitable investment advice. This duty mostly requires an investment adviser to make up one's mind that the investment advice it gives to a customer is suitable for the client, taking into consideration the client'due south financial situation, investment feel, and investment objectives. Investment Advisers Act Release No. 1406 (March 16, 1994).

Custody Requirements

Rule 206(4)-two under the Advisers Human action details how client funds and securities in the custody of the adviser must be held, and requires an SEC-registered adviser with "custody" to provide specified information to clients. An adviser volition be accounted to accept custody if it directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to advisable them.

Restriction on Payment of Referral Fees

Rule 206(four)-iii under the Advisers Act generally prohibits an SEC-registered investment adviser from paying a greenbacks fee, directly or indirectly, to a third party (a "solicitor") for referring clients to the adviser unless the organization complies with a number of conditions. Amongst other things, the rule requires that: (1)be a written understanding between the adviser and the solicitor (a copy of which the adviser must retain) detailing the referral organisation; (2) at the fourth dimension of whatever solicitation activities, the solicitor provide the prospective client with a copy of the investment adviser's brochure pursuant to Rule 204-3, and a separate, written disclosure document that discloses, amid other things, that the solicitor is being compensated for referring or recommending the adviser, and the terms of the bounty (including any additional amounts the client will be charged by the adviser every bit a effect of the referral organization); and (three) the adviser receives from the customer, prior to, or at the fourth dimension of, entering into whatever written or oral investment advisory understanding with the client, a signed and dated acknowledgment that the client received the investment adviser'due south brochure and the solicitor's written disclosure document. Solicitors more often than not volition non be required to register separately as directorate with the Commission if they comply with the conditions of the rule. Failure to comply with these conditions, nonetheless, could result in liability to the adviser under the Directorate Act's anti-fraud provisions, and could event in the solicitor being deemed an unregistered investment adviser.

Wrap Fee Programs

Many directorate participate in wrap fee programs. Dominion 204-three(f) under the Advisers Human action requires a sponsor of a wrap fee program to ready a "wrap fee brochure" that provides, in narrative form, a full caption of the program and its sponsor, and to deliver the wrap fee brochure to wrap fee clients. A "wrap fee program" for purposes of the dominion is a program nether which investment advisory and brokerage execution services are provided for a single "wrapped" fee that is not based on the transactions in a client'southward account. An investment advisory program nether which all clients pay traditional, transaction-based commissions is not a wrap fee program. Similarly, a programme under which client assets are allocated among mutual funds is not a wrap fee plan because usually at that place is no payment for brokerage execution.

Schedule H to Course ADV sets along the information required in the wrap fee brochure. The wrap fee brochure must exist prepared by the "sponsor" of the wrap fee program, i.e., the person that, for a portion of the fee, sponsors, organizes, or administers the programme or recommends portfolio managers under the program. Some wrap fee programs will have more than 1 sponsor, in which case only ane of the sponsors, as selected by the sponsors, needs to prepare the wrap fee brochure. An investment adviser providing portfolio management services to wrap fee clients is not a sponsor unless it performs other duties that would cause it to autumn within the definition.

Wrap fee programs and other discretionary informational programs that provide similar advice to a number of clients should be structured in a manner designed to avert the creation of an unregistered investment company. The Commission has adopted Rule 3a-four under the Investment Company Act of 1940 to provide a non-exclusive safe harbor from the definition of an investment visitor for advisory programs that come across certain requirements. Encounter Investment Company Act Release No. 22579 (March 24, 1997).

Duty of Best Execution

As a fiduciary, an adviser has an obligation to obtain "best execution" of clients' transactions. In meeting this obligation, an adviser must execute securities transactions for clients in such a manner that the clients' total cost or proceeds in each transaction is the well-nigh favorable under the circumstances. In assessing whether this standard is met, an adviser should consider the full range and quality of a broker'south services when placing brokerage, including, among other things, execution capability, commission charge per unit, financial responsibility, responsiveness to the adviser, and the value of whatever research services provided. See Substitution Act Release No. 23170 (April 23, 1986).

Assemblage of Customer Orders

In directing orders for the purchase or auction of securities to a broker-dealer for execution, an adviser may aggregate or "agglomeration" those orders on behalf of two or more of its accounts, so long as the bunching is done for purposes of achieving all-time execution, and no client is systematically advantaged or disadvantaged by the bunching. An adviser may include accounts in which it or its officers or employees take an interest in a bunched gild. Advisers must have procedures in place that are designed to ensure that the trades are allocated in such a fashion that all clients are treated adequately and equitably.

Principal Transactions and Agency Cantankerous Transactions

Section 206(3) of the Advisers Deed prohibits an adviser (whether SEC-registered or non), acting as master for its ain account, from knowingly selling whatsoever security to or purchasing any security from a customer ("principal transaction"), without notifying the client in writing, and obtaining the client'south consent before the completion of the transaction. Notification and consent for principal transactions must be obtained separately for each transaction. Rule 206(3)-2 under the Advisers Act permits an adviser to human activity as broker for both its advisory client and the political party on the other side of the brokerage transaction ("agency cross transaction") without obtaining the customer's prior consent to each transaction, provided that the adviser obtains a prior consent for these types of transactions from the client, and complies with other, enumerated conditions. The rule does not relieve directorate of their duties to obtain best execution and all-time price for any transaction. A main or bureau cross transaction executed by an affiliate of an adviser is deemed to have been executed by the adviser for purposes of Section 206(3) and Rule 206(iii)-2.

Insider Trading Procedures and Duty of Supervision

Section 204A of the Advisers Act requires investment advisers (whether SEC-registered or not) to institute, maintain, and enforce written policies and procedures reasonably designed to forestall the misuse of textile, nonpublic information past the investment adviser or any of its associated persons. Investment advisers also have a duty to supervise persons associated with the investment adviser with respect to activities performed on the adviser's behalf.

Withdrawal and Counterfoil of Registration

Equally noted above, all SEC-registered investment advisers are required to report their standing eligibility for Committee registration by alteration Schedule I to Form ADV within 90 days of the end of the adviser's fiscal twelvemonth. If an adviser reports on Schedule I that information technology is no longer eligible to maintain its Commission registration, it must withdraw its registration past filing a Grade ADV-Due west Notice of Withdrawal from Registration inside 180 days after the end of its financial yr. Additionally, if an SEC-registered investment adviser ceases to conduct business equally an investment adviser, the adviser must withdraw its registration past filing a Grade ADV-W.

All information provided on Form ADV-W must be accurate and complete; failure to provide accurate and complete information could subject the adviser to liability under Section 207 of the Advisers Act. If the Committee finds that an SEC-registered investment adviser is no longer eligible to maintain its Committee registration or has ceased to conduct business as an investment adviser, the Committee will seek to cancel the adviser's registration. The Commission annually seeks to cancel the registrations of investment advisers that have failed to update Form ADV by alteration Schedule I or that otherwise no longer announced to be engaged in business as an investment adviser.

State-Registered Advisers

Investment directorate that are prohibited from registering with the Committee (e.thousand. directorate that do not accept assets under management of $25 million) generally must register with the state(s) in which they transact informational business concern (eastward.g., take informational clients or accept a place of business organisation), unless they are exempt from investment adviser regulation under state law. These advisers will be regulated primarily nether state law administered by country securities authorities, rather than federal law administered by the SEC.

An adviser should check with each state in which it proposes to transact business, non but the country in which the adviser is located, for data most investment adviser regulation. The names and addresses of the advisable regulating official for each state tin be obtained by contacting the North American Securities Administrators Association, Inc., I Massachusetts Ave., North.Westward., Washington, D.C. 20001, telephone (202) 737-0900.

Most provisions of the Directorate Act and Commission rules apply solely to SEC-registered advisers, and therefore are not applicable to state-registered directorate. Thus, land-registered advisers are non required to file and improve Class ADV with the Committee nether Rule 204-1; comply with the SEC'south books and recordkeeping requirements nether Rule 204-2; or deliver a brochure to clients nether Rule 204-3. State investment adviser laws, however, may impose essentially the aforementioned requirements. For example, many country laws require advisers to annals by filing Form ADV with the state.

State-registered advisers are bailiwick to Section 206 of the Directorate Act, which prohibits fraudulent comport. The Commission has authority to bring enforcement actions against state-registered advisers for fraud. Other provisions of the Advisers Act that apply to country-registered advisers include:

Section 204A, which requires directorate to establish, maintain, and enforce written procedures reasonably designed to preclude the misuse of material nonpublic data;
Section 205, which contains prohibitions on advisory contracts that (i) contain certain operation fee arrangements, (ii) permit an consignment of the advisory contract to exist made without the consent of the client, and (iii) neglect to crave an adviser that is a partnership to notify clients of a change in the membership of the partnership. (The exemption provided in Rule 205-iii for sure performance fee arrangements, even so, is available to all advisers, including country-registered advisers); and
Section 206(3), which makes information technology unlawful for whatsoever investment adviser interim as main for its own business relationship to knowingly sell any security to, or buy any security from, a customer, without disclosing to the customer in writing before the completion of the transaction the capacity in which the adviser is acting and obtaining the client's consent. (The exemption provided in Rule 206(3)-2 from the prohibitions of Section 206(3), however, is bachelor to all advisers, including country-registered advisers.)

Requesting Copies of the Directorate Act, Rules, Forms, Letters, and Releases

Paper copies of the Advisers Act, the rules, the forms, no-activeness and interpretative messages, and releases may exist obtained as follows:

The Directorate Act and the Forms. Request a copy of the "Investment Directorate Act of 1940," Forms ADV (which includes Schedule I), Forms ADV-E and ADV-West, and additional copies of this Investment Adviser Registration Parcel, by calling the Publications Unit of the Committee at (202) 942-4046, or by sending a written request to: Publications Unit, U.S. Securities and Exchange Commission, 450 fifth Street, Northward.West., Mail Stop C-eleven, Washington, D.C. 20549. There is no accuse. When requesting Form ADV or the Investment Adviser Registration Package, advisers that are not U.S. residents should specifically inquire for Forms 4-R, 5-R, 6-R, and 7-R concerning consent to service of process.
The Rules. Request a copy of the "Code of Federal Regulations (CFR), Championship 17, Function 240 to terminate," Stock No. 869-026-00056-5, by calling the Superintendent of Documents, Authorities Printing Part, at (202) 512-1800, or by faxing a request to (202) 512-2250. There is a charge. If requesting by telephone or fax, payment must be made by Visa or MasterCard. Copies of the rules also may be obtained by writing to the Superintendent of Documents, Government Press Role, P.O. Box 371954, Pittsburgh, PA 15250-7954. When requesting by mail, payment may be fabricated by Visa, MasterCard, personal check, or money order.
No-Action and Interpretative Letters and Releases. Request a copy of a item no-action or interpretative letter or release from the Office of Filings and Data Services, Public Reference Branch, past faxing a request to (202) 777-1030, past calling (202) 551-8090, or past writing to the Office of Filings and Information Services, Public Reference Branch, U.South. Securities and Exchange Commission, Room 1024, Mail Stop i-ii, 450 5th Street, N.West., Washington, D.C. 20549. There is a charge. Each asking must provide the name and date of the letter, or the number and date of the release being requested, and include: the proper noun and address to which the cloth is to be mailed (the Commission volition not fax whatever textile); the requester's telephone number; and a statement that the requester will exist responsible for all charges. For additional information, please contact the Public Reference Branch of the Commission at (202) 551-8090.

In add-on, electronic copies of the Advisers Act, the rules, and the forms are available.

http://world wide web.sec.gov/divisions/investment/iaregulation/memoia.htm