An SEC official indicated the agency might delay transferring to state regulators those financial advisors with less than $100 million in assets.
As part of the Dodd-Frank financial services reform bill passed last summer, advisors with between $25 million and $100 million in assets under management would withdraw their SEC registration and instead register with state securities regulators. The deadline was originally slated for July 21, 2011.
But in a letter dated April 8, Robert Plaze, the associate director of the SEC's Division of Investment Management, said he anticipates the agency will finish implementing rulemaking on the matter by July 21, 2011. After that's done, the SEC must reprogram the Investment Adviser Registration Depository system to accept advisors' transition filings. Plaze said that process might not be finished until year-end.
As a result, Plaze wrote in his letter to David Massey, North Carolina's deputy securities administrator and current president of the North American Securities Administrators Association (Nasaa), the SEC is considering extending the deadline for transferring affected advisors from the SEC to the states until first quarter 2012.
These advisors would have a grace period to register with the appropriate state regulators and come into compliance with state laws before withdrawing their SEC registration, Plaze wrote.
According to Nasaa, 4,000 investment advisors would make the switch from the SEC to the states.
Bryan Hill, president of RIA Compliance Consultants in Omaha, Neb., says registration costs can vary depending on the state, but generally range between $200 to $500.
Despite a possible extension to transfer registrations, Hill says advisors shouldn't kick back and wait too long to get their filings in order because consultants, attorneys or other professionals that can help them navigate the process might be booked up as the deadline approaches.
"It would be smart to file in the fall, or at least have all of the relevant work done in the fall so you can file in early January," Hill says.
Failure to make the mandated switch on time could conceivably result in revoking an advisor's registration, meaning they couldn't legally do their job. "I don't think that would happen, but they [SEC] might be less flexible because they're granting this extension and would figure people had more time to prepare for this," Hill says.
It's thought that transferring regulatory oversight of advisors within the $25 million to $100 million asset range will increase the examination rate of RIAs. As it stands, RIAs on average are examined by the SEC roughly once a decade. Switching a sizable number of advisors to state regulators aims to lighten the SEC's workload by enabling it to focus its human and financial resources on larger firms. In turn, it's thought that state regulators--who are geographically closer to the advisors in their states--will be able to examine smaller-sized firms more frequently.
Nasaa says its members are up to the task of increased oversight responsibility. But it remains uncertain how many states have the resources to handle the expected rise in workload.