Deadline for state registration may have shifted; SEC's Robert Plaze offers clarity

Confused yet?

The SEC has released on its web site a letter suggesting that the Commissioners are likely to decide on a new schedule for the switch to state oversight. Advisors with AUM of between $25 and $100 million may have until sometime next year to change registrations.

Regulators and compliance experts alike use words like “fluid” and “amorphous” to describe the pronouncements that have been forthcoming from the SEC.

“Right now, there is nobody to my knowledge that can say with precision what the deadline is going to be,” said David Massey, president of the North American State Securities Administrators and deputy securities administrator for North Carolina. (RIABiz maintains contact information for state securities regulators here.)

The deadline contained in Dodd-Frank financial reform was July 21 – but the SEC seemed to have moved off that date in some proposals issued earlier this year. The SEC is in charge of developing a mechanism for the switch to state oversight of about 4,000 advisors with between $25 and $100 million of AUM.

What to make of the letter

Last evening, I reached Robert Plaze, the SEC’s associate director of the Division of Investment Management. I asked him to be as concrete and practical as possible for advisors. This is what he told me (all of this is subject to the Commissioners’ approval, but there’s no reason to think they’d say no to this plan):

• The date is being postponed as a practical matter, because making the switch requires reprogramming the IARD system that registers advisors.

• All advisors will need to submit their AUM for purposes of determining where they should be registered. That filing can be satisfied by the annual updating requirement, which for most firms is March 31.

• Firms that fall within the $25 – $100 million range will then have a grace period to switch their registrations to all the states in which they operate. One proposed grace period is 60 days, but it may be longer. As has always been understood, firms operating in more than 14 states can maintain their registration with the SEC.

• During this period of transition, new advisors with less than $100 million of AUM are allowed to go ahead and file with their respective states.

• The Commission will decide before July on what the length of the grace period will be.

Not a done deal yet

Observers said the letter was helpful – but they’re still keeping a close eye on the situation.

“This letter is nice, but it’s not a rule,” said Todd Schwartz of the Schwartz Law Group LLC in Lake Oswego, Oregon. “We are trying to take a sensible approach to this very amorphous approach by the SEC.”

He said he is going to have his clients go ahead to switch their registrations by June, and maintain dual registrations until it becomes clear when the switch is actually official.

Massey said the dual registration approach is an option for advisors.

It’s clear the situation is frustrating for advisors and state regulators. Schwartz gave Massey and NASSA credit for being persistent with the SEC to develop rules.

“It was helpful news, which is unusual,” Massey said dryly of the letter, which was addressed to him. “I’m glad they called me up and sent me a copy … I have a lot of things to do, and I have a limited amount of time to search the SEC web site.”

Here are some of RIABiz’s previous stories about the switch: Wondering whether to register with the states or the SEC? It’s a moving target. and What advisors should know about the next sweeping change: the switch from SEC oversight to state regulation and It’s looking official: Advisors switching to state oversight to face many more audits.