Which Of The Following Persons Must Register As An Investment Adviser?

General Information on the Regulation of Investment Advisers

March eleven, 2011 [Update Currently in Progress]

Partition of Investment Management

Introduction

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

Mostly only larger advisers that have $25 million or more of avails under management or that provide advice to investment company clients are permitted to register with the Commission. Smaller advisers register under state constabulary 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, besides are relevant with respect to state-registered advisers.

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

Sources of Regulation

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

Although land-registered directorate are governed primarily past state constabulary, several provisions of the Advisers Deed and Commission rules apply to such advisers. For more information on the provisions of federal law that apply to land-registered advisers, refer to the discussion below nether "Country-Registered Advisers."

Who Is Required To Register?

A person or firm is required to register with the Commission if he or it is:

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

Each of these elements is addressed below.

Who Is an Investment Adviser?

Subject to certain express exclusions discussed beneath, Section 202(a)(11) of the Advisers Act generally defines an "investment adviser" every bit any person or firm that: (one) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either direct or through publications. A person or business firm must satisfy all 3 elements to be regulated nether the Advisers Human activity.

The Division construes these elements broadly. For example, with respect to "compensation," the receipt of whatever economic do good suffices. To be deemed compensation, a fee need not be separate from other fees charged, information technology need not be designated as an advisory fee, and information technology need not be received directly from a client. With respect to the "business" element, an investment advisory business organization need not be the person's or firm'southward sole or master business action. Rather, this element is satisfied under any of the following circumstances: the person or house holds himself or itself out as an investment adviser or every bit providing investment advice; the person or firm receives separate or additional compensation for providing advice about securities; or the person or firm typically provides communication about specific securities or specific categories of securities. Finally, a person or firm satisfies the "advice virtually securities" element if the advice or reports chronicle to securities. The Division has stated that providing 1 or more of the following also could satisfy this element: advice nigh marketplace trends; advice in the form of statistical or historical data (unless the information is no more than an objective study of facts on a non-selective ground); advice nigh the pick of an investment adviser; advice concerning the advantages of investing in securities instead of other types of investments; and a list of securities from which a customer tin cull, even if the adviser does not brand specific recommendations from the list. An employee of an SEC-registered investment adviser does not need to register separately, so long as all of the employee's investment advisory activities are inside the scope of his employment.

For additional guidance on the definition of "investment adviser" and the applicability of the Advisers Act to financial planners, pension consultants, and others, refer to Investment Advisers Deed Release No. 1092 (October 8, 1987) (part of the Investment Adviser Registration Parcel; see below).

Exclusions From the Definition

Department 202(a)(11)(A)-(Eastward) 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 not regulated by, the Advisers Deed. Excluded are:

Domestic banks (defined in Section 202(a)(2) of the Directorate Act) and bank holding companies (defined in the Banking company Belongings Company Act of 1956). Savings and loan institutions, federal savings banks, foreign banks, and credit unions do not fall inside this exclusion.
Lawyers, accountants, engineers, and teachers if their performance of advisory services is solely incidental to their professions.
Brokers and dealers if their performance of advisory services is solely incidental to the conduct of their business every bit brokers and dealers, and they do not receive any special bounty for their advisory services. This exclusion is not available to a registered representative acting as a financial planner outside the scope of his employment with the broker employer.
Publishers of bona fide newspapers, news magazines, and business or fiscal publications of general and regular circulation. Under a conclusion of the United States Supreme Courtroom, to enable a publisher to qualify for this exclusion, a publication must satisfy three elements: (i) the publication must offer only impersonal communication, i.eastward., advice not tailored to the individual needs of a specific client, group of clients, or portfolio; (2) the publication must be "bona fide," containing disinterested commentary and assay rather than promotional material disseminated by someone touting detail securities, advertised lists of stocks "certain to get up," or information distributed as an incident to personalized investment services; and (3) the publication must be of general and regular apportionment rather than issued from time to time in response to episodic market activeness or events affecting the securities industry. See Lowe v. Securities and Exchange Commission, 472 U.S. 181 (1985).
Persons and firms whose advice, analyses, or reports are related only to securities that are direct obligations of, or obligations guaranteed by, the United States, or by certain U.Due south. regime-sponsored corporations designated by the Secretary of the Treasury (eastward.g., FNMA, GNMA).

In addition to these exclusions, the Advisers Act gives the Commission the authorization to exclude, by order, other persons and firms not within the intent of the definition of investment adviser. Whatever person or firm seeking such an order should refer to Rules 0-iv and 0-v under the Advisers Act and Investment Advisers Act Release No. 969 (Apr 30, 1985).

Exemptions From Registration

A person or firm meeting the definition of investment adviser in Section 202(a)(11) does not need to annals with the Commission if the person or business firm qualifies for one of the exemptions from registration set forth in Section 203(b) of the Directorate Act. Investment advisers exempt from registration under Section 203(b) are still subject to sure anti-fraud provisions included in Department 206 of the Advisers Act. For more data on anti-fraud provisions, refer to the word beneath under "Anti-Fraud Provisions."

Section 203(b) of the Advisers Deed provides five limited exemptions from registration. Department 203(b)(ane) exempts whatsoever adviser (1) all of whose clients are within the same state every bit the adviser's principal business office, and (two) that does not provide advice or issue reports nearly securities listed on any national securities exchange. Section 203(b)(2) exempts advisers whose only clients are insurance companies. Section 203(b)(3) exempts whatever adviser that: (one) during the previous twelve months has had fewer than fifteen clients; (2) does not concord itself out generally to the public as an investment adviser; and (3) does not human action as an investment adviser to a registered investment company or business development visitor. Dominion 203(b)(3)-1 under the Advisers Act provides guidance on how to count clients when determining eligibility for this exemption. In determining if a person or firm holds himself or itself out as an investment adviser within the significant of Section 203(b)(3), the Division looks at a number of factors, including, for example, whether the person or firm advertises; refers to himself or itself as an "investment adviser"; maintains a listing as an investment adviser in a phone, business, building, or other directory; expresses a willingness to accept new advisory clients; or uses letterhead indicating any investment advisory activity. Section 203(b)(4) generally exempts whatever adviser that (one) is a charitable system, or is employed by a charitable organization, and (two) provides advice, analyses, or reports merely to charitable organizations, or to funds operated for charitable purposes. Section 203(b)(5) exempts advisers to church building employee pension plans.

Prohibition on Commission Registration

A person or firm that does non run across whatsoever of the criteria in Section 203A of the Advisers Act or Rule 203A-ii thereunder is prohibited from registering with the Commission.

Only the following types of directorate are permitted to annals with the Commission (and therefore must annals with the Commission, unless exempt under Department 203(b)):

advisers that accept "assets under management" of $25 meg or more than;
advisers to registered investment companies;
advisers that take their principal office and place of business in a state that has non enacted an investment adviser statute (currently, only Wyoming), or that have their principal function and identify of business exterior the United States; or
advisers that are exempted from the prohibition past Commission dominion or order. The Commission has adopted a rule exempting five categories of investment advisers:
nationally recognized statistical rating organizations ("NRSROs") (Rule 203A-2(a));
pension consultants that provide investment advice with respect to $50 million or more of plan assets (Rule 203A-2(b));
investment advisers sharing the same main role and place of business with an affiliated investment adviser that is registered with the Commission (Rule 203A-2(c));
newly-formed investment directorate that take a reasonable expectation of being eligible for Commission registration within 120 days of germination (Rule 203A-2(d)); and
investment directorate that would otherwise be required to register as investment advisers with the securities regime of 30 or more than states (Dominion 203A-two(e)).

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 standing eligibility for Commission registration annually past amending Schedule I to Class ADV within 90 days of the end of their fiscal year. For boosted data on the prohibition on Commission registration, refer to Investment Directorate Human activity Release Nos. 1633 (May 15, 1997) and 1733 (July twenty, 1998).

Successors to SEC-Registered Investment Directorate

An unregistered firm that is acquiring or bold substantially all of the avails and liabilities of the investment informational business 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 Course ADV) within xxx days following the succession, it 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 result of a change in an adviser'southward structure or legal status (e.one thousand., course of organization or land of incorporation), and there is no applied change in control of the adviser, by and large the adviser may amend its predecessor's Form ADV within xxx days following the transaction, rather than file a new awarding. In responding to Office I, Item 9 of Form ADV, a successor is not required to report successions previously reported. For further information on the registration of successors, refer to Investment Directorate Deed Release No. 1357 (Dec 28, 1992). For more data on what constitutes a change of command, refer to the give-and-take beneath under "Prohibited Contractual and Fee Provisions, Assignment."

Anti-Fraud Provisions

Section 206 of the Advisers Act prohibits misstatements or misleading omissions of cloth facts and other fraudulent acts and practices in connectedness with the conduct of an investment advisory business organization. As a fiduciary, an investment adviser owes its clients undivided loyalty, and may not appoint in activeness that conflicts with a client's interest without the customer's consent. In S.East.C. v. Capital Gains Research Agency, Inc., 375 U.Southward. 180 (1963), the United States Supreme Court held that, under Department 206, advisers have an affirmative obligation of utmost good religion and full and off-white disclosure of all textile facts to their clients, equally well as a duty to avert misleading them. Section 206 applies to all firms and persons meeting the Advisers Act's definition of investment adviser, whether registered with the Commission, a land securities authorization, or not at all.

In addition to the full general anti-fraud prohibition of Section 206, Rules 206(four)-one, 206(4)-ii, 206(four)-3, and 206(4)-4 under the Directorate Human activity regulate, respectively: investment adviser ad; custody or possession of client funds or securities; the payment of fees by advisers to tertiary parties for client referrals; and disclosure of investment directorate' financial and disciplinary backgrounds. These rules are discussed in greater detail beneath.

Disclosure Obligations

The Brochure Dominion

Rule 204-3 under the Advisers Act, commonly referred to every bit the "brochure rule," generally requires every SEC-registered investment adviser to deliver to each client or prospective customer a Form ADV Office 2A (brochure) and Office 2B (brochure supplement) describing the adviser's business practices, conflicts of interest and background of the investment adviser and its informational personnel. An adviser must deliver the brochure to a client before or at the time the adviser enters into an investment advisory contract with a client. The rule likewise requires an adviser, if there are material changes in the brochure since the adviser's last almanac updating amendment, to evangelize annually, without charge, to each client inside 120 days subsequently the cease of the adviser's fiscal year either (i) a current brochure or (two) a summary of material changes to the brochure every bit required by Item two of the brochure that offers to provide the adviser'south electric current brochure without charge, accompanied past the Spider web site accost (if available) and an e-mail address (if available) and telephone number by which a client may obtain the current brochure from the adviser, and the Web site address for obtaining data virtually the adviser through the Investment Adviser Public Disclosure arrangement. An adviser must deliver to each client or prospective client a electric current brochure supplement for a supervised person before or at the time that supervised person begins to provide advisory services to the client.

SEC-registered advisers are non required to evangelize a brochure to either (i) clients that are SEC-registered investment companies or business organisation evolution companies; or (ii) clients who receive only impersonal investment communication 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 non required to evangelize a brochure, (ii) who receives only impersonal investment advice, or (3) sure officers, and employees of the adviser.

Other Disclosure Requirements

Rule 206(4)-four under the Advisers Act requires every SEC-registered investment adviser that has custody or discretionary authority over customer funds or securities, or that requires prepayment six months or more than in advance of more than $500 of advisory fees, to disclose promptly to clients and prospective clients (collectively, "clients") any financial conditions of the adviser that are reasonably likely to impair the ability of the adviser to meet contractual commitments to clients. The dominion too 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 fabric to an evaluation of the adviser's integrity or ability to run across 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 cloth fifty-fifty if information technology is not on the listing).

The Division takes the position that an investment adviser must disembalm to clients all material information regarding its bounty, such as if the adviser's fee is higher than the fee typically charged past other advisers for similar services (in nigh cases, this disclosure is necessary if the annual fee is three percent of assets or higher). An investment adviser must disclose all potential conflicts of interest between the adviser and its clients, even if the adviser believes that a conflict has not affected and will not affect 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 tertiary parties as a issue of its recommendations to clients.

An investment adviser (even if unregistered) may be subject field to disclosure obligations not merely under the Advisers Deed, but also under other federal statutes, including the Securities Exchange Act of 1934 (the "Exchange Human action"). For example, Section 13(f) of the Exchange Act, and Dominion 13f-i thereunder, mostly require an investment adviser exercising investment discretion, or sharing investment discretion with others, over disinterestedness securities (which would include convertible debt and options) having a fair market value in the amass of at to the lowest degree $100 million to file, on a quarterly footing, a Form 13F disclosing the holdings that information technology manages on its own behalf and on behalf of clients.

Books and Records To Be Retained

Section 204 of the Directorate Act and Rule 204-2 thereunder require that SEC-registered investment advisers maintain and preserve specified books and records, and make them available to Committee examiners for inspection. Rule 204-2 permits investment advisers, under certain conditions, to maintain books and records on microfilm and magnetic disk, tape, or other figurer 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, straight or indirectly, to ten or more persons (excluding persons connected with the adviser). More often than not, the adviser also must create and retain all documents necessary to substantiate any performance information independent in advertisements. With respect to the advertisement of functioning information for managed accounts, an adviser need retain only (ane) all account statements, if they reflect all debits, credits, and other transactions in a customer's account for the period of the statement, and (2) all worksheets necessary to demonstrate the calculation of the functioning or rate of render of all managed accounts.

Prohibited Contractual and Fee Provisions

Assignment

Section 205(a)(two) of the Advisers Act requires each investment advisory contract entered into by an investment adviser (whether SEC-registered or non, unless exempt from registration under Section 203(b)) to provide that the contract may not exist assigned without the client's consent. Section 202(a)(1) of the Advisers Act defines "assignment" generally to include any direct or indirect transfer of an investment advisory contract by an adviser or any transfer of a controlling block of an adviser's outstanding voting securities. Rule 202(a)(ane)-1 nether the Advisers Human action, however, provides that a transaction that does not effect in a modify of actual control or management of the adviser (e.chiliad., a reorganization for purposes of changing an adviser's country of incorporation) would non be deemed to be an assignment for these purposes. Department 205(a)(3) of the Advisers Human action provides that if an investment adviser is organized every bit a partnership, each of its advisory contracts must provide that the adviser will notify the client of a change in its membership.

Performance Fees

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

Advertising Restrictions

Rule 206(four)-1 under the Advisers Act prohibits SEC-registered investment advisers from using any advertisement that contains any untrue statement of material fact or that is otherwise misleading. The dominion broadly defines "advertisement" to include any detect, circular, letter of the alphabet, or other written communication addressed to more than than i person, or any observe or other announcement in any publication or by radio or boob tube, that offers any investment advisory service.

In addition, an ad may non:

use or refer to testimonials (which include whatever statement of a client's experience or endorsement);
refer to past, specific recommendations made by the adviser that were profitable, unless the advertisement sets out a list of all recommendations made by the adviser inside the preceding menses of not less than one year, and complies with other, specified conditions;
represent that any graph, chart, formula, or other device tin, in and of itself, be used to decide which securities to purchase or sell, or when to buy or sell such securities, or tin 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 report, assay, or other service will be provided without charge unless the report, assay, or other service will exist provided without any obligation whatever.

The Partition takes the position that an adviser may advertise its past performance (both actual operation and hypothetical or model results) only if the advert meets certain conditions and restrictions. An advertisement using performance data must disclose all textile facts necessary to avert any unwarranted inference. Among other things, an investment adviser may not annunciate its operation data if the adviser: (1) fails to disclose the effect of textile market place or economic conditions on the results advertised; (2) fails to disclose whether and to what extent the advertised results reflect the reinvestment of dividends or other earnings; or (iii) suggests or makes claims about the potential for profit without also disclosing the potential for loss.

In addition, generally an adviser may non annunciate gross performance information (i.eastward., operation information that does not reverberate the deduction of various fees, commissions, and expenses that a client would pay) unless the adviser also includes net functioning information in an as prominent manner. The staff has taken the position, still, that an adviser may provide gross functioning information, accompanied by appropriate disclosure regarding the impact of fees and expenses, in certain express circumstances that present minimal adventure that the customer will not understand the impact of fees and expenses, such every bit when the client is a sophisticated institution, and the adviser presents the data to the client "ane-on-ane." Neither the Commission nor the Division will pre-approve advertisements for compliance with the in a higher place requirements, although advertisements are subject to review during Committee inspections.

Suitability Requirements

Every bit fiduciaries, investment directorate owe their clients a duty to provide only suitable investment advice. This duty generally requires an investment adviser to make up one's mind that the investment communication it gives to a client is suitable for the client, taking into consideration the client'southward financial situation, investment experience, and investment objectives. Investment Advisers Human action Release No. 1406 (March 16, 1994).

Custody Requirements

Rule 206(4)-two nether the Advisers Act details how customer 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 will be deemed to have custody if it direct or indirectly holds client funds or securities, has any authorisation to obtain possession of them, or has the power to appropriate them.

Restriction on Payment of Referral Fees

Rule 206(4)-3 under the Advisers Act generally prohibits an SEC-registered investment adviser from paying a greenbacks fee, directly or indirectly, to a 3rd party (a "solicitor") for referring clients to the adviser unless the arrangement complies with a number of atmospheric condition. Among other things, the rule requires that: (ane)exist a written understanding between the adviser and the solicitor (a re-create of which the adviser must retain) detailing the referral arrangement; (two) at the time of any solicitation activities, the solicitor provide the prospective client with a re-create of the investment adviser's brochure pursuant to Rule 204-3, and a separate, written disclosure document that discloses, amongst 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 exist charged by the adviser every bit a result of the referral arrangement); and (3) the adviser receives from the client, prior to, or at the fourth dimension of, inbound into any written or oral investment informational agreement with the client, a signed and dated acknowledgment that the client received the investment adviser'southward brochure and the solicitor'south written disclosure document. Solicitors generally will non be required to annals separately as directorate with the Commission if they comply with the conditions of the rule. Failure to comply with these conditions, notwithstanding, could event in liability to the adviser under the Advisers Act's anti-fraud provisions, and could consequence in the solicitor existence accounted an unregistered investment adviser.

Wrap Fee Programs

Many advisers participate in wrap fee programs. Rule 204-iii(f) under the Advisers Act requires a sponsor of a wrap fee program to fix a "wrap fee brochure" that provides, in narrative grade, a full caption of the program and its sponsor, and to evangelize the wrap fee brochure to wrap fee clients. A "wrap fee plan" for purposes of the rule is a plan under which investment informational and brokerage execution services are provided for a single "wrapped" fee that is non based on the transactions in a client'south account. An investment advisory plan nether which all clients pay traditional, transaction-based commissions is not a wrap fee programme. Similarly, a program under which client assets are allocated among mutual funds is non a wrap fee program because normally there is no payment for brokerage execution.

Schedule H to Form ADV sets forth the data required in the wrap fee brochure. The wrap fee brochure must be 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 program or recommends portfolio managers under the plan. Some wrap fee programs will have more one sponsor, in which case only one of the sponsors, as selected past 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 fall inside the definition.

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

Duty of Best Execution

Every bit a fiduciary, an adviser has an obligation to obtain "all-time execution" of clients' transactions. In meeting this obligation, an adviser must execute securities transactions for clients in such a mode that the clients' total cost or gain in each transaction is the almost favorable under the circumstances. In assessing whether this standard is met, an adviser should consider the total range and quality of a broker'due south services when placing brokerage, including, among other things, execution capability, commission rate, fiscal responsibility, responsiveness to the adviser, and the value of any inquiry services provided. See Commutation Deed Release No. 23170 (April 23, 1986).

Assemblage of Client Orders

In directing orders for the purchase or sale of securities to a broker-dealer for execution, an adviser may amass or "agglomeration" those orders on behalf of two or more of its accounts, so long as the bunching is done for purposes of achieving best execution, and no customer is systematically advantaged or disadvantaged by the bunching. An adviser may include accounts in which it or its officers or employees accept an involvement in a bunched society. 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 fairly and equitably.

Chief Transactions and Agency Cantankerous Transactions

Section 206(3) of the Directorate Human action prohibits an adviser (whether SEC-registered or not), interim as principal for its own account, from knowingly selling any security to or purchasing any security from a client ("principal transaction"), without notifying the customer in writing, and obtaining the customer's 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 act as broker for both its advisory client and the party on the other side of the brokerage transaction ("agency cross transaction") without obtaining the client's prior consent to each transaction, provided that the adviser obtains a prior consent for these types of transactions from the customer, and complies with other, enumerated conditions. The rule does not relieve advisers of their duties to obtain best execution and best price for any transaction. A principal 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(3)-2.

Insider Trading Procedures and Duty of Supervision

Section 204A of the Directorate Act requires investment directorate (whether SEC-registered or not) to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of textile, nonpublic information by the investment adviser or whatever of its associated persons. Investment advisers likewise have a duty to supervise persons associated with the investment adviser with respect to activities performed on the adviser'south behalf.

Withdrawal and Counterfoil of Registration

Every bit noted to a higher place, all SEC-registered investment advisers are required to report their continuing eligibility for Commission registration by amending Schedule I to Course ADV within ninety days of the end of the adviser's fiscal twelvemonth. If an adviser reports on Schedule I that it is no longer eligible to maintain its Committee registration, information technology must withdraw its registration past filing a Form ADV-W Detect of Withdrawal from Registration within 180 days afterward the end of its fiscal year. Additionally, if an SEC-registered investment adviser ceases to conduct business as an investment adviser, the adviser must withdraw its registration by filing a Grade ADV-Due west.

All information provided on Form ADV-W must be accurate and complete; failure to provide accurate and complete information could discipline the adviser to liability under Section 207 of the Advisers Act. If the Commission 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 Commission volition seek to cancel the adviser's registration. The Commission annually seeks to cancel the registrations of investment advisers that have failed to update Class ADV by amending Schedule I or that otherwise no longer appear to be engaged in business as an investment adviser.

State-Registered Advisers

Investment directorate that are prohibited from registering with the Commission (e.g. advisers that do not have avails under direction of $25 million) by and large must register with the state(s) in which they transact informational business (e.g., have advisory clients or have a place of concern), unless they are exempt from investment adviser regulation under state constabulary. These advisers will be regulated primarily under land constabulary administered by state securities government, rather than federal law administered past the SEC.

An adviser should check with each country in which it proposes to transact concern, not just the state in which the adviser is located, for information almost investment adviser regulation. The names and addresses of the appropriate regulating official for each state can exist obtained by contacting the North American Securities Administrators Association, Inc., 1 Massachusetts Ave., Northward.Due west., Washington, D.C. 20001, telephone (202) 737-0900.

Most provisions of the Advisers Act and Commission rules utilize solely to SEC-registered directorate, and therefore are non applicable to state-registered advisers. Thus, state-registered advisers are not required to file and amend Form ADV with the Commission nether Rule 204-1; comply with the SEC's books and recordkeeping requirements nether Rule 204-two; or evangelize a brochure to clients under Dominion 204-iii. Country investment adviser laws, however, may impose substantially the same requirements. For example, many state laws require advisers to register by filing Grade ADV with the state.

State-registered advisers are subject to Section 206 of the Directorate Deed, which prohibits fraudulent conduct. The Committee has authority to bring enforcement deportment confronting state-registered advisers for fraud. Other provisions of the Advisers Deed that apply to state-registered directorate include:

Section 204A, which requires advisers to establish, maintain, and enforce written procedures reasonably designed to prevent the misuse of material nonpublic information;
Section 205, which contains prohibitions on advisory contracts that (i) incorporate certain performance fee arrangements, (two) allow an assignment of the advisory contract to exist fabricated without the consent of the client, and (three) fail 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-three for certain functioning fee arrangements, nevertheless, is bachelor to all directorate, including state-registered advisers); and
Section 206(3), which makes it unlawful for any investment adviser acting equally chief for its own account to knowingly sell any security to, or purchase any security from, a client, without disclosing to the client in writing before the completion of the transaction the chapters in which the adviser is acting and obtaining the client's consent. (The exemption provided in Dominion 206(3)-2 from the prohibitions of Section 206(iii), however, is available to all advisers, including land-registered advisers.)

Requesting Copies of the Advisers Deed, Rules, Forms, Letters, and Releases

Paper copies of the Advisers Act, the rules, the forms, no-action and interpretative letters, and releases may be obtained equally follows:

The Directorate Act and the Forms. Asking a copy of the "Investment Advisers Act of 1940," Forms ADV (which includes Schedule I), Forms ADV-East and ADV-W, and additional copies of this Investment Adviser Registration Package, 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 Substitution Commission, 450 5th Street, N.Westward., Mail service Terminate 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 enquire for Forms four-R, 5-R, 6-R, and 7-R concerning consent to service of procedure.
The Rules. Request a re-create of the "Lawmaking of Federal Regulations (CFR), Title 17, Office 240 to finish," Stock No. 869-026-00056-v, past calling the Superintendent of Documents, Regime Printing Office, at (202) 512-1800, or past faxing a asking to (202) 512-2250. There is a charge. If requesting past phone or fax, payment must be made by Visa or MasterCard. Copies of the rules too may be obtained by writing to the Superintendent of Documents, Government Printing Part, P.O. Box 371954, Pittsburgh, PA 15250-7954. When requesting past mail, payment may be made past Visa, MasterCard, personal cheque, or coin society.
No-Action and Interpretative Letters and Releases. Request a copy of a item no-action or interpretative letter or release from the Function of Filings and Data Services, Public Reference Co-operative, by faxing a asking to (202) 777-1030, by calling (202) 551-8090, or by writing to the Office of Filings and Data Services, Public Reference Branch, U.S. Securities and Substitution Commission, Room 1024, Mail Stop 1-2, 450 5th Street, N.W., Washington, D.C. 20549. There is a charge. Each request must provide the name and date of the letter, or the number and date of the release beingness requested, and include: the name and address to which the material is to be mailed (the Commission will not fax whatsoever material); the requester's phone number; and a statement that the requester volition exist responsible for all charges. For additional data, 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 bachelor.

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

Source: https://www.sec.gov/divisions/investment/iaregulation/memoia.htm

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