investment adviser

99 Pages·2013·6.28 MB·English

MEMORANDUM
TO: File No. S7 -45-10
FROM: Jessica Kane
Office ofMunicipal Securities
DATE: April 5, 2013
RE: Meeting with Representatives of the Investment Adviser Association
("IAA")
On Aprill, 2013, John J. Cross III, Dave Sanchez, and Jessica Kane (Office of
Municipal Securities), Jennifer Dodd and Yue Ding (Division ofTrading and Markets),
and Daniel Kahl, Melissa Roverts, and Vanessa Meeks (Division ofInvestment
Management) met with the following representatives from IAA: Monique Botkin (IAA);
Karen Barr (IAA); Victor Siclari (BNY Mellon); and Ed Papantonio (The Prudential
Insurance Company ofAmerica). The participants discussed the Commission's proposed
rules for the registration ofmunicipal advisors.
The attached materials were provided.
2012 ACTIVITY REPORT

.-------··~-.. ~-·--~-
INVESTMENT ADVISER
75~
ASSOCIATION
CONTENTS
3
Board of Governors
4
Advocacy
16
Compliance
22
Education
26
Membership
INVESTMENT ADVISER

ASSOCIATION
December 31, 2012
2012 marked the IAA's 75th anniversary. 2012 also represented one of the most
daunting legislative and regulatory environments in the Association's history. The
highest priority of the IAA's advocacy program was to oppose legislation that would
authorize the SEC to designate one or more self-regulatory organizations, likely the
Financial Industry Regulatory Authority (FINRA), for thousands of advisory firms.
Thanks to the IAA's persuasive advocacy and the hard work of many IAA members
and other like-minded groups, the legislation did not come to a vote this year. While
the threat of action still exists, we are pleased that our efforts made a difference in
this important debate.
In addition to its work on Capitol Hill, the IAA was actively involved in regulatory
initiatives of the Securities and Exchange Commission (SEC), Commodity Futures
Trading Commission (CFTC), Department of Labor (DOL), international regulators,
and other policy makers. The IAA also sponsored educational conferences,
workshops, and webinars and produced substantive reports and surveys to keep its
membership apprised of relevant issues and developments.
Moving forward, the IAA's role in representing investment advisers' interests is
critical. Further legislative and regulatory actions will have profound consequences
for the investment advisory community. We urge you to sustain the work of the IAA
to ensure that your views on relevant issues are heard and understood.
We truly appreciate your continued support of the IAA and look forward to working
with all members as we strive to build on the IAA's proud record of serving its
membership. As always, we welcome your suggestions and invite you to participate
in the various activities of your organization.
1
2012 ACTIVITY REPORT
INVESTMENT ADVISER ASSOCIATION
2
2012 ACTIVITY REPORT
INVESTMENT ADVISER ASSOCIATION
IAA BOARD OF GOVERNORS
Richard Adler
Michael C. Provine
Convergent Capital Management, LLC
Candor Wealth Advisors, LLC
Karen L. Barr Scott E. Richter
(IM Secretary) JPMorgan Investment Management
Investment Adviser Association
Jonathan Roberts, CFA, CIC
Peter J. Boyle, CFA, CIC Klingenstein, Fields & Co., LLC
Clifford Swan Investment Counsel
M. Gervase Rosenberger
Robert H. Bradley (/M Vice President)
(IM Treasurer) Tweedy, Browne Company, LLC
Bradley, Foster & Sargent, Inc.
Fausto Rotundo
Robert T. Burns
Edgewood Management, LLC
Putnam Investment Management, LLC

James P. Sarni, CFA, CIC
~·chriStfOe Carsman-- -----­ (IM Past President)
Affiliated Managers Group, Inc. Payden & Rygel Investment Management
I. Craig Hester, CFA, CIC
Burnie E. Sparks, CFA
Hester Capital Management, LLC
Bailard, Inc.
Richard R. Hough, Ill Pat H. Swanson, CFA, CIC
Silvercrest Asset Management Group King Investment Advisors, Inc.
Mark F. Kemper David G. Tittsworth
UBS Global Asset Management (IM Executive Vice President)
Investment Adviser Association
Clarence H. King, Ill, CFA, CIC

Emerson Investment Management, Inc.
Julie VanderWeele
Mesirow Financial, Inc.
David Oestreicher
T. Rowe Price Associates, Inc. Jane H. Williams
Sand Hill Global Advisors, LLC
Vivian Pan, Ph.D., CFA, CIC
(IM President) Linda J. Wondrack
Hamlin Capital Management, LLC Fidelity Investments
3
2012 ACTIVITY REPORT
INVESTMENT ADVISER ASSOCIATION
ADVOCACY

-
The Investment Adviser Association is the leading organization solely
dedicated to representing the interests of SEC-registered investment
adviser firms. The IAA serves as the voice of the investment advisory
profession on the key policy and regulatory issues affecting our members.
As the legislative and regulatory landscape has become more challenging
and complex, IAA members and staff have engaged in constructive
dialogue with the U.S. Congress, the SEC, the DOL, the CFTC, the
Department of Treasury, international regulators, and other industry
organizations regarding a broad spectrum of legislative and regulatory
initiatives of critical importance to investment advisers.
4
2012 ACTIVITY REPORT
INVESTMENT ADVISER ASSOCIATION
Legislative Advocacy dually registered as both broker-dealers
and investment advisers. On July 25,
Working closely with its members, the IAA Rep. Maxine Waters (D-Calif.) introduced
successfully represented investment advis­ H.R. 6204, the "Investment Adviser
ers' interests before Congress. As a result Examination Improvement Act of 2012,"
of effective legislative advocacy before that-consistent with the SEC staff report's
Congress, the IAA successfully opposed first alternative-would authorize the SEC
FINRA's concerted lobbying effort to gain to impose user fees on SEC-registered
\ regulatory, examination, and enforcement advisory firms to fund an enhanced
jurisdiction over thousands of investment examination program for advisers by the
i advisers. The IAA and its members led a agency.
I
broad-based campaign to oppose H.R. 4624,
~ the "Investment Adviser Oversight Act At a June 6 hearing before the House
;
i of 2012," sponsored by House Financial Financial Services Committee, the IAA
'
Services Committee Chairman Spencer testified in opposition to the SRO
Bachus (R-Aia.), that would have authorized legislation and, in lieu of an SRO, in favor
the SEC to designate one or more self-regu­ of adviser user fees in order to provide
I
latory organizations (SROs) for advisers. The the SEC with the resources necessary
I IAA's efforts led to the Chairman's decision, to allow for more frequent inspections of
announced on July 25, not_ to consider this investment advisory firms. On the following
I
legislation in his committee. day, IAA members from 15 states came to
Washington, D.C. to attend meetings with
The Bachus legislation, introduced on April their Senators, Representatives, and their
I
25 with FINRA's strong support, echoed staffs during IAA's Fifth Annual Lobbying
one of the options cited in a January 2011 Day on Capitol Hill. Schwab Advisory
SEC staff report to Congress mandated Services and TD Ameritrade Institutional
I
by the Dodd-Frank Act on "enhancing also participated in this event and were
I investment adviser examinations." The instrumental in opposing efforts to enact
I
SEC staff report listed three legislative H.R. 4624.
I
options to enhance oversight of investment
advisers: (1) enact legislation to authorize The IAA met regtilarly withiawrnakers·
~ the SEC to impose "user fees" on advisory on the Senate Banking Committee and
l
firms to fund SEC examinations; (2) enact the House Financial Services Committee
!l
legislation to authorize the SEC to designate throughout the year and worked closely
one or more SROs to oversee investment with consumer groups, state securities
i
advisers; or (3) enact legislation to expand regulators, and other industry groups to
FINRA's jurisdiction to firms that are maintain the SEC's primary role as the
1937 1940

Investment Counsel Association of America (ICAA) founded in ICAA members help draft and ultimately
New York by a group of fifteen investment counselors, led by support compromise legislation
Dwight C. Rose (Brundage, Story & Rose), in response to the subsequently enacted as the Investment
SEC's investigation of investment trusts ordered by Congress. Advisers Act of 1940.
2012 ACTIVITY RE
INVESTMENT ADVISER ASSOCI,
In these uncertain times, the IAA seeks to understand how various
proposed changes may affect members and communicates that
to Congress and the SEC. The IAA staff is a knowledgeable group
of professionals who are dedicated to being advocates for the
investment advisory profession."
most appropriate regulator for investment a new Form ADV, Part 1 by March 30, 2012
advisers. Through Member Alerts, email to indicate whether they were eligible to
and phone calls, IAA also successfully remain registered with the SEC. They were
engaged its membership in grassroots also required to provide their "regulatory
advocacy in opposition to the SRO bill. assets under management" and respond to
IAA communications regarding the additional questions regarding their employ­
proposal resulted in almost 700 written ees, clients, advisory services, affiliations,
communications to members of Congress. custody, and soft dollar arrangements. In
addition, advisers to private funds, such
as hedge funds, were required to provide
Regulatory Advocacy
information about their business operations,
as well as information about their conflicts of
During 2012, the IAA effectively
interest, investment strategies, and service
represented the shared interests of the
providers (including auditors, prime brokers,
investment advisory profession in a wide
custodians, administrators, and marketers).
range of regulatory activities that affect
In the first quarter of 2012, the IAA and its
investment advisers.
members continued to discuss issues with
the SEC staff pertaining to the transition to
SEC and Dodd-Frank
the new filing requirements as well as the
Advocacy numerous interpretive issues raised by the
revised form.
The SEC adopted final amendments to Form
ADV, Part 1 in 2011 to be implemented In the ta-nof2U12; th-eGovernmentAc- _...;....
during 2012. The IAA submitted substantial countability Office (GAO) invited the IAA
comments to the proposed amendments to provide data and cost information about
to Part 1 of Form ADV and raised concerns complying with the Advisers Act custody
with the SEC staff about various aspects rule and related recordkeeping rule require­
of the proposal. The final rule responded ments. Section 412 of the Dodd-Frank Act
to a number of IAA comments. Under the required the GAO to study the custody
revised rule, all advisers were required to file rule costs and issue a report to Congress
1946 1948
1953

ICAA changes from an The SEC, identified as a non-essential The New York Curb
association of individuals to agency during WWII, moves its offices back Exchange changes its
6 one of member firms. to Washington, D.C., following its temporary name to the American
relocation to Philadelphia in 1942. Stock Exchange.
2012 ACTIVITY REPORT
INVESTMENT ADVISER ASSOCIATION
by July 2013. Under the statute, the GAO and records requirements. During the year,
must evaluate the costs to SEC-registered the IAA and other organizations met again
investment advisers with custody of funds with the SEC Task Force responsible for
or ~ecurities of clients to comply with the the study to ensure that the fiduciary duty
Advisers Act custody and related record­ for advisers is not diluted by the creation
keeping rules, as well as the additional costs of a new uniform fiduciary duty for broker­
that advisers would incur if the audit ex­ dealers. In addition, in March 2012, the IAA
emption from the surprise exam for pooled and other organizations submitted a letter to
investment vehicles were eliminated. In the SEC to outline the critical characteristics
connection with the study, the IAA provided of a framework for rulemaking that would
initial information to the GAO regarding the achieve the goal of enhancing investor
costs of the custody rule and will continue protection and to respond to a proposed
to provide information regarding initial and framework for rulemaking submitted by
ongoing operational costs, auditing fees to broker-dealer representatives.
conduct the surprise exam and the internal
control report, and legal fees to help inter­ In April 2012, President Obama signed
pret and apply the custody rule. the Jumpstart Our Business Startups
Act (JOBS Act) into law, which required
In January 2011, the SEC staff delivered to the SEC to adopt a rule eliminating the
Congress its "Study on Investment Advisers prohibition on general solicitation and
and Broker-Dealers," pursuant to Section advertising for certain Regulation D
913 of the Dodd-Frank Act. The SEC staff private placements and Rule 144A offers.
recommended establishing a fiduciary In August, the SEC proposed rules to
standard for broker-dealers when providing implement the JOBS Act requirements. In
investment advice about securities to retail October, the IAA submitted a comment
customers consistent with the standard that letter supporting the SEC's flexible proposal
currently applies to investment advisers. In to permit issuers to use reasonable steps
addition to the standard of care, the study to verify the accredited investor status of
recommended harmonization of certain investors. The proposal is still pending.
aspects of the r~gulatory regimes for broker­
dealers and investment advisers when they During 2012, large hedge-rund-and liqUidity
are performing the same or substantially fund advisers began to file Form PF to be
similar functions, including advertising, the used by the SEC and the Financial Stability
use of and disclosures related to finders Oversight Council (FSOC). Other private
and solicitors, supeNisory requirements, fund advisers with more than $150 million in
licensing and registration requirements for private fund assets will be required to file in
firms and associated persons, and books early 2013. The IAA continued its advocacy
1954 1954

The Dow breaks the 400 barrier, Floyd L. McElroy (Loomis, Sayles & Co.). ICAA President,
l reaching 402 on December. 29. persuades members of the Southern California Investment
Counselors' Association to join the ICAA, raising the
L
combined total membership to 54 firms.
2012 ACTIVITY REP
INVESTMENT ADVISER ASSOCIA