Finding A Way.

Update on Contract Requirements for Newly Registered Advisers

Investment adviser complianceNewly registered advisers to hedge funds and private equity funds are now subject to the provisions of the Investment Advisers Act of 1940 (Advisers Act).  The Advisers Act spells out the minimum requirements for the contract that an advisor enters with its clients.

The Securities and Exchange Commission’s Division of Investment Management recently supplemented its Investment Management Staff Issues of Interest posting on the SEC website to include no-action relief for several contract requirements for newly registered advisers.

Under the Advisers Act, advisory contracts may not be assigned without the consent of the client; and the registered adviser, if a partnership, must notify its clients of any change in membership within a reasonable time after the change.

Not all advisors that just registered may have language to that effect in their contracts. The SEC realized that it might be impractical for advisors to seek or get consent to a contract change from all clients  — at all or in a timely manner.

The no-action relief the SEC just granted in March clarifies that, in essence, the SEC would not seek enforcement action if an advisor complied with the rules even if not specified in the contract, i.e. sought consent or sent a notice of change, and any new contracts would have the proper language.

This is very good news for newly registered advisors, as everyone knows who ever tried to re-paper a client!

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If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.