Advisor Assist Webinar: SEC to State Transition Planning for Mid-size RIAs

AdvisorAssist Webinar Series SEC to State Transition: Challenges and Solutions March 8, 2012

TODAYS PRESENTERS ● Specializes in registration and compliance solutions ● Nine years of industry experience ● Prior experience includes: ○ Compliance consultant ○ SEC staff experience Greg Brown Principal AdvisorAssist ● Specializes in practice management solutions ● Eighteen years of industry experience ● Prior experience includes: ○ Chief Operating Officer ○ Director of Marketing & Client Service ○ Advisory firm founder Brian Lauzon Managing Principal AdvisorAssist

ABOUT ADVISORASSISTWe are a management consulting firm focused on serving investment advisoryfirms. We provide actionable advice and implementation support to help advisorsBuild, Grow, Protect and Optimize their firm.From concept through launch, we partner with our clients to assist in building world-class advisory practices.For established firms, we provide the ongoing business,strategy and risk management support to enableadvisors to focus on growing their practice.Our services include:● Advisor Transition Services● Turn-Key RIA Setup and Registration● Compliance Program Design & Ongoing Support● Web and Social Media Risk Management● Strategic Planning & Practice Management● COO and CCO Outsourcing

AGENDA ● Overview of SEC to State Transition ● Four Key Challenges & Solutions ○ Calculating "regulatory AUM" ○ Ensuring Consistency Among Documents ○ Understanding State-specific Requirements ○ Coordinating Review Process ● Q&A

Who will transition? Transition to State Remain with SEC Advisors may remain SEC registered if All SEC-registered "mid- "exempt" or excluded in size" RIAs with state where principal regulatory AUM office is located. between $25M to <$90M Advisors registered in New York and Wyoming Advisors who "ARE" registered in 15 or more states The official SEC asset level is $100M. However, the SEC has defined a "buffer" of +/- $10M to mitigate frequent switching between SEC and State registration.

CRITICAL DATES Existing mid-size SEC advisors may Research state-specific select any date in this range for requirements; prepare documentation calculation of "regulatory assets". for State filing(s) and SEC withdrawal Jan Feb Mar Apr May Jun June 28 January 1 January 3 March 30 Deadline for New advisors Existing mid- Qualifying date withdrawal from filing in 2012 size advisors for AUM; SEC; prepare must have at can begin their deadline for for exams least $100 million SEC to State ADV within 120 days. Transition amendment for all advisors (SEC, State or transitioning)

WHEN TO TRANSITION? ● Don’t wait until the last minute ● Make every attempt to minimize deficiency comments on filing ● Submitting without review will simply create delay and frustration ● Reach out to state regulators and ask for guidance

CHALLENGE #1: CALCULATING REGULATORY AUM Going forward, the assets that advisors report to regulators will be based on a new definition of "Regulatory AUM". ● Regulatory AUM include all assets for which the advisor provides “continuous and regular supervisory or management services”. ● For many advisors, this new definition will impact the total asset value reported to regulators. Key questions to ask when determining your firms "regulatory AUM": ● How do you describe your services in advisory agreements? ● How are you compensated for your services? ● How do you manage your client accounts? ● Held-away accounts? Managed accounts?

CHALLENGE #2: CONSISTENCY AMONG DOCUMENTATION The state(s) will review your documents and cross-reference for consistency and accuracy. ● State reviews Form ADV Part 1, 2, advisory agreements and other documents to ensure consistency and accuracy ● Each state where you apply will send you a deficiency letter identifying inconsistencies and errors. You must address each deficiency and correct where applicable. To streamline the application process: ● Perform a comprehensive review of your ADV Part 1 and 2, your advisory agreements and your compliance program documents. ● Respond to regulator deficiencies timely. Your response should address each deficiency and detail the action taken by you. ● If you disagree with the comment, be diplomatic and respond with support.

CHALLENGE #3: UNDERSTANDING STATE REQUIREMENTS The state registration process is more complex than the SEC process. ● In addition to existing requirements, you must also complete ADV Part 1B, Item 19 of ADV Part 2A and Item 7 of ADV Part 2B ● Most states require supplemental documentation, e.g. financial statements, affidavits, advisory agreements and other documents ● States may require specific language in ADV Part 2, advisory agreements, and other disclosures. ● Application process will be similar to a "lite" exam. To streamline the application process: ● Research each state(s) specific requirements ● Include cover letter with application outlining the documents included and summary of changes made to filings ● Submit all required documentation in original submission to avoid delays (may not review application until everything is received).

CHALLENGE #4: COORDINATING THE REVIEW PROCESS Each state will have its own separate and distinct set of comments. ● States have different requirements. In some instances, a state regulator may disagree with a comment from another regulator. ● You may receive deficiency letters from more than one state during this process and need to address and respond to multiple sets of comments. ● Your application is on hold while you are responding to the regulators comments. To streamline the application process: ● Communicate. When responding to multiple states, document which states require specific changes. If they contradict one another, discuss directly with the state regulators. ● Give priority to comments from your primary regulator. Other regulators may default to your primary regulator. In some instance you will need to accommodate both. ● Carefully review the regulator comments and ensure each is addressed.

Questions? Please submit any questions in the GoToWebinar control panel on your screen. As some questions may require more context to provide a thoughtful response, we will make every effort to address your questions. Visit our SEC to State Portal at: SEC2State.AdvisorAssist.com

AdvisorAssist Webinar Series Strategic Planning for RIAs Date: April 26, 2012 Time: 2:00PM Presenters: Chris Winn and Brian Lauzon

Stay Connected If you have additional questions that were not answered during this webinar, please feel free to connect with us. Email us at: info@advisorassist.com Subscribe to our blog at blog.AdvisorAssist.com Join the AdvisorAssist Linkedin Group Follow @AdvisorAssist on Twitter Visit us at Facebook.com/AdvisorAssist

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Advisor Assist Webinar: SEC to State Transition Planning for Mid-size RIAs

by AdvisorAssist, LLC on Mar 09, 2012

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Advisor Assist Webinar: SEC to State Transition Planning for Mid-size RIAs Presentation Transcript