New Rules May Require Some Investment Advisers to Register with the SEC for the First Time
September 19, 2005
Changes Will Affect Some Family Offices; Compliance Deadline is February 1, 2006
In December 2004 the Securities and Exchange Commission (SEC) adopted new regulations and related interpretive positions that will require certain investment advisers to register with the SEC for the first time under the Investment Advisers Act of 1940 (the Advisers Act). The Advisers Act definition of “investment adviser” includes any person who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing or selling securities. Family offices and their principals may be considered to be “investment advisers” for purposes of the Advisers Act. Those primarily affected will be investment advisers previously exempt from SEC registration because they serve fewer than 15 clients. Investment advisers that have advised fewer than 15 clients during the preceding 12 months are not required to register with the SEC (although they may be required to register with a state securities commission) as long as they do not “hold themselves out” to the public as offering investment advisory services (a very broad concept that can include no more than word-of-mouth “marketing”). The new rules will require advisers to certain private investment funds, which have been treated as single clients, to “look through” the funds to the underlying investors in “counting to 15.” The compliance deadline for those investment advisers who now must register is February 1, 2006. We recommend, however, that covered advisers begin the registration process no later than October 2005.
