Another year has come and gone but the regulators continue on.  2011 may go down as the year that “Investment Adviser” became a four letter word.  It’s amazing how many of you good, hard-working advisers are now deemed guilty until proven innocent in the eyes of the media, the regulators and your in-laws.  (Ok, in-laws may be a different matter).  The crazy thing is you are probably doing business as you have in the past.  You put your clients first, work long hours studying the markets, network and market to obtain new clients and run a business where the margins appear to be getting thinner but the work is getting harder.  It’s all part of your life as an Investment Adviser and you probably love it.  The question is, how can you survive it?  The good news is there’s hope.  And help.  As always, MGL stands ready to assist you with your compliance needs.  So let’s get started and see what you should be doing right now to ensure compliance.

SWITCH REGULATORS

While switching regulators may seem to be an appealing strategy, it is really not optional.  As of January 1, 2012, the Assets under Management (“AUM”) threshold for registration with the Securities and Exchange Commission (‘SEC”) has been raised from $25 million to $100 million.  What this means is that if you are currently registered with the SEC and your AUM is now below $90 million, you are no longer eligible to be registered with the SEC and must instead “switch” your registration to one of more state regulatory bodies.  
This switch must be accomplished by filing an updated ADV Parts 1 and 2A or 2A Appendix (if you offer WRAP Fee Programs) along with whatever additional documents required by the state(s) in which you have clients.  If you have clients in a number of states, this can get somewhat complicated but is not insurmountable.   The amendment and the accompanying documents that request the switch must be filed by March 30, 2012.  All advisers are supposed to have switched by June 28, 2012.  This should be easy, but state regulators are going to be overwhelmed by these new applicants and most states are encouraging Advisers to file as early as possible.  Please call MGL so that we can analyze your specific circumstances and chart a proper course of action.

ADV ANNUAL AMENDMENT

As always, if your fiscal year end is December 31st, you will need to update and upload your Form ADV no later than March 30th.  If you are SEC registered or registered with a state that required you to file the new ADV Part 2A or 2A Appendix, you will need to send a copy of the newest version of the 2A or 2A Appendix or a summary of all material changes to each client who received the prior version.  It is recommended that you send the complete version rather than the summary in case your regulator deems something as material that you did not include in the summary.  MGL can discuss this on a case by case basis to determine the best plan of distribution for your firm.

ANNUAL REVIEW

Investment Advisers registered with the SEC and many state regulators are required to review the adequacy of their compliance policies and procedures to determine if they are adequate and have been effectively implemented.  Therefore it is critical that each Investment Adviser review its procedures as outlined in its Compliance Manual and Code of Ethics to ensure that they have been updated and are being effectively implemented. 
As evidenced by the numerous SEC actions sanctioning Investment Advisers for poor or inadequate compliance procedures, this is a “hot topic” for regulators.  Your Compliance Manual should be reviewed and updated annually and you must maintain records of the previous versions of the manual for five years after updating.  So if your Compliance Manual has not been updated in the last year, you need to review your operations, compare the way you are doing things versus the way your manual says you will do things and make the appropriate amendments. If your Compliance Manual has not been updated in the last three years, you should consider having a new manual drafted.   
Since most Chief Compliance Officers are inundated with just keeping up with the day to day demands of the business, MGL can assist you by conducting the review and updating your manual accordingly.  Alternatively, MGL will work with you to provide a customized Compliance Manual that can be updated annually to keep you compliant. 

SUMMARY

Clients and markets are demanding more and more of your attention every day.  However, there doesn’t seem to be a single regulator out there who is willing to let you place business ahead of compliance.  The professionals at MGL stand ready to step in and help wherever needed.  All it takes to get started is a phone call or an email.  Whatever you do, don’t miss these deadlines. 
Please call Michael Koch at 281/367-0380 or email him at mkoch@mglconsulting.com to get started.  2012 is a year of transition for the industry.  Be on the forward edge and obtain peace of mind rather than worrying about what you forgot to do.  We look forward to working with you.