The Securities Commissioner is issuing this advisory release to alert investment advisers about new federal rules became effective July 21, 2011. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") increases states' authority in the area of investment adviser regulation by raising the threshold from $25 million to $100 million assets under management. Generally speaking, this affects investment advisers registered with the Securities and Exchange Commission ("SEC") with less than $100 million of assets under management; they must switch from SEC oversight to state registration.

On June 22, 2011, the SEC issued final rules implementing the Dodd-Frank Act's required changes. A complete copy of the rules was published in the Federal Register at http://www.gpo.gov/fdsys/pkg/FR-2011-07-19/pdf/2011-16318.pdf. In order to provide a smooth transition to state registration, the SEC postponed the switch deadline to March 30, 2012, from July 21, 2011. This extended deadline provides additional time for investment advisers to determine whether they are still eligible for SEC registration and, if they are still eligible, to submit their amended Form ADVs to the SEC .

Advisers registered with the SEC as of July 21, 2011, must remain registered with the SEC until January 1, 2012 (unless an exemption from SEC registration is available). Each adviser registered with the SEC on January 1, 2012, must file an amendment to its Form ADV no later than March 30, 2012, which for most advisers will be their annual updating amendment.

For advisers no longer eligible for SEC registration, the rules provide an additional 90 days to make the switch. Those advisers are required to register with the appropriate state(s) and to withdraw their SEC registrations by June 28, 2012.

Although the SEC extended the switch deadline for state registration, the Texas State Securities Board ("TSSB") is moving forward with its plans to accommodate investment advisers wishing to pursue state registration before the June 28, 2012 deadline.

After July 21, 2011, new investment adviser applicants with less than $100 million in assets under management are prohibited from registering with the SEC and must register with the appropriate state securities authorities.

The TSSB encourages all investment advisers with less than $100 million under management who are currently notice-filed in Texas to consider dual registration. Dual registration allows the investment adviser and its representatives to continue providing investment advisory services under the authority of the SEC while the TSSB reviews the investment adviser's application for registration. Only after receiving TSSB approval of the investment adviser registration should the investment adviser consider withdrawing its SEC registration.

FAQs

Q.1: What does it mean to be a state-registered investment adviser?

A: Investment advisers and their representatives who are subject to state registration are required to meet the minimum qualifications standards under Chapter 116 of the Rules and Regulations of the Texas State Securities Board (Board Rules). For example, a state-registered investment adviser must submit its disclosure brochure and investment advisory agreement for review. In addition, state-registered investment advisers will be subject to the state's books and records requirements and routine field examinations.

Q.2: Should investment advisers begin registering with states now?

A: Advisers can initiate registration with the states now. The TSSB allows investment advisers to be dually registered with the SEC and the state during the switching process from SEC oversight to state regulation. However, advisers may want to wait until after January 1, 2011, to start registering with states in order to avoid paying multiple renewal fees. For more information, check the North American Securities Administrators Association ("NASAA") IA Switch Resource Center at: http://www.nasaa.org/1719/ia-switch-resource-center/. NASAA is in regular communication with the SEC and expects that the SEC will issue guidance for advisers who will be switching from SEC registration to state registration.

Q.3: Can an investment adviser register in more than one state using IARD?

A: Yes. All states use Form ADV for the registration of investment advisers. However, advisers should check with the states in which they are registering to determine what other materials, if any, a state may require to complete registration.

Q.4: How do I switch from a federal-covered to Texas-registered investment adviser?

A: Go to the IARD System and amend Form ADV Part 1B to request "Texas" registration. Import into the IARD System a copy of the new Form ADV Part 2 and any brochure(s) or disclosure document(s) delivered to clients. Since we do not prohibit firms from being dually-registered with the SEC and the TSSB, please maintain your SEC registration until the firm has received notice from the TSSB that registration has been approved. In addition to the electronic filings on the IARD System, please file the following documents in paper form with the Securities Commissioner:

1. A copy of investment adviser's standard advisory contract, which complies with Board Rule 116.12;
2. A copy of the investment adviser's fee schedule;
3. For corporations, a file-stamped copy from the appropriate state agency of the articles of incorporation or other document that indicates the form of organization and a copy of the bylaws. For partnerships, a copy of the partnership agreement, certified by a partner of the partnership, and a copy of the operating or management agreement, if any; and
4. A balance sheet, prepared in accordance with generally accepted accounting practices, reflecting the applicant's financial condition as of a date not more than 90 days prior to the date of filing. Sole proprietor applicants provide a personal balance sheet. The balance sheet should either be audited by an independent certified accountant or be attested to by executing and filing the Certification of Balance Sheet Form located at http://www.ssb.state.tx.us/Forms/Certification of Balance Sheet.pdf.

Q.5: Where can I find the instructions for the new Form ADV Part 2?

A: You can find the instructions for the Form ADV Part 2 on the following SEC website: http://www.sec.gov/divisions/investment/iard/iastuff.shtml

Q.6. Will I have to pay additional fees because of the switch?

A: Each state is governed by their statutes and rules regarding fees. If your investment adviser is currently notice-filed in Texas, you will be charged a $25 amendment fee when you amend Form ADV Part 1B to switch from SEC oversight to state regulation. The Registration Division will review the application for registration and contact you about deficiencies or comments. During the application process, we strongly encourage you to maintain your SEC registration until your application for registration with Texas has been approved.

Q.7: Will I have to file a Form U4 for each investment adviser representative if the individual expects to render investment advisory services, for compensation, in Texas?

A: If the investment adviser representative who will provide services on behalf of the investment adviser hasn't already filed a Form U4 with the TSSB, the firm must file electronically on the IARD system the Form U4 to apply for registration in Texas. The application fee is $285, and the renewal fee is $275. To qualify for registration, the TSSB requires, among other things, a passing score on a competency examination for each individual acting as an investment adviser or investment adviser representative.

Q.8: Will I have to file Form U4 amendments for my investment adviser representatives?

A: No. Because the firm's CRD number associated with the investment adviser representative does not change, there should be no effect on the existing U4 filings. However, some investment adviser representatives that may have been exempt from registration with a federal covered investment adviser may now need to be registered and qualify by examination with state securities regulators.

Q.9: Are there any exemptions from registration that may apply to an investment adviser not located in Texas and having less than $100 million of assets under management?

A: Yes, but there is still a notice-filing requirement for the firm and each investment adviser representative rendering services, for compensation, in our state. The provisions under §116.1(b)(2)(A)(iv) of the Board Rules exempt an investment adviser and its investment adviser representatives if the investment adviser does not have a place of business located within this state and, during the preceding 12-month period, has had fewer than six clients who are Texas residents.

To claim the exemption from registration, the investment adviser and its representatives are subject to the notice-filing requirements under §116.1(b)(2)(C), which require electronic filings on the IARD and fees of $275 for the firm and $285 for each investment adviser representative. To make these notice filings in Texas, please file electronically through the IARD System:

1. Form ADV Part 1B; and
2. Form U4 for each investment adviser representative who will render services, for compensation, on behalf of the adviser.

In addition to the electronic notices, the investment adviser must send written confirmation explaining the basis for eligibility of the exemption for the firm and its representatives. Please send the written confirmation to:

Texas State Securities Board
Registration Division
P.O. Box 13167
Austin, TX 78711-3167
Fax: (512) 305-8340

Q.10: Where can I get help completing the various registration forms?

A: For technical questions about IARD and for payment information, please call the Gateway Call Center at (240) 386-4848.

Q.11: If I have any general questions about the IA Switch, who may I call?

A: You may call a Staff member of the Registration Division at (512) 305-8300.

^{(Revised January 4, 2012)}