Investment Advisers Act

SEC Announces Relief for Public Company Disclosure Report Filing Deadlines and Filing and Meeting Requirements under Investment Advisers Act


On March 25, the SEC announced a 45-day filing extension for certain public company disclosure reports due between March 1 and July 1. The SEC also announced certain filing and delivery requirement exemptions under the Investment Advisers Act of 1940 as well as additional time to hold in-person board meetings. Release.

New Jersey Appellate Court Clarifies Definition of Compensation under Advisers Act


On August 12, 2016, the United States Court of Appeals for the Third Circuit affirmed the decision of the District Court of New Jersey and held in United States v. Everett C. Miller that the defendant was an “investment adviser” within the meaning of the Investment Advisers Act of 1940 (the “Advisers Act”), notwithstanding defendant’s arguments that he did receive “compensation” and was not engaged “in the business” of acting as an investment adviser.

The Advisers Act does not explicitly define “compensation” or what constitutes being engaged “in the business.”  Consequently, the Court of Appeals based its decision on a 1987 Release issued by the Staff of the Securities and Exchange Commission (Investment Advisers Release No. 1092) which states, in part: “The Staff considers a person to be ‘in the business’ of providing advice if the person . . . holds himself out as an investment adviser or as one who provides investment advice.” In reaching its decision that the defendant provided advice for “compensation,” the Court recognized that the Advisers Act also does not define “compensation.”  The Court again cited the SEC Release which defines compensation as “any economic benefit, whether in the form of an advisory fee or some other fee relating to the total services, rendered, commissions, or some combination of the foregoing . . .” and concluded that: “It is not necessary that an investor pay a discrete fee specifically earmarked as payment for investment advice.”  Opinion.

SEC Extends Expiration of Rule 206(3)-3T, Regarding Principal Trades, to December 31, 2016

On December 17, the Securities and Exchange Commission amended Rule 206(3)-3T under the Investment Advisers Act of 1940 to extend the expiration date of the Rule from December 31, 2014 to December 31, 2016.  Rule 206(3)-3T is a temporary rule that establishes an alternative means for investment advisers that are registered with the Commission as broker-dealers to meet the requirements of Section 206(3) of the Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients.  Report.

SEC Order to Increase Performance Fee Thresholds

On July 12, pursuant to Section 418 of the Dodd-Frank Act, the SEC issued an order that raises two of the thresholds that determine whether an investment adviser can charge its clients performance fees pursuant to Rule 205-3 under the Investment Advisers Act. The order increases the dollar amount tests for: (i) assets under management from $750,000 to $1 million; and (ii) net worth from $1.5 million to $2 million. The order will be effective on September 16. SEC Release. SEC Order.

SEC Proposed Rule on Inflation Indexing of Performance Fees

On May 10, pursuant to Section 418 of the Dodd-Frank Act, the SEC proposed amending Rule 205-3 under the Investment Advisers Act, which mandates certain dollar thresholds be met before an investment adviser may charge a client performance fees. The proposed amendment would increase required assets under management and net worth thresholds from $750,000.00 and $1.5 million to $1 million and $2 million, respectively. The net worth test would exclude the value of a client’s principal residence and existing contracts in compliance with the original Rule 205-3 would be grandfathered. Comments must be submitted no later than July 11. SEC Release. SEC Proposed Rule.

SEC Proposed “Family Office” Definition under Dodd-Frank

On October 12, the SEC proposed a rule to define a “family office,” which would be excluded from the definition of an investment adviser under the Investment Advisers Act of 1940.  Family offices are entities established by wealthy families to manage their money and provide tax and estate planning and similar services. Comments to the proposed rule should be submitted by November 18. SEC Release. SEC Proposed Rule