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Investment Advisers Act of 1940 - Section 202(a)(11)(D)
Jonathon Hendricks
January 26, 2015
Response of the Chief Counsel's Office
Division of Investment Management
IM Ref. No. 20151261230
Jonathon Hendricks
PO Box 32
Hanna, WY 82327
Dear Mr. Hendricks:
Your letter dated October 30, 2014 requests our assurance that we would not recommend enforcement action to the Commission under section 203(a) of the Investment Advisers Act of 1940 (“Advisers Act”) against your new website business, the purpose of which is to recommend securities through LendingClub.com, if it does not register with the Commission as an investment adviser. We decline to respond to your request because it does not contain adequate facts and legal analysis to enable us to evaluate it thoroughly.[1] In particular, your letter does not provide adequate facts and legal analysis for us to determine whether your new website business meets the definition of “investment adviser” in section 202(a)(11) of the Advisers Act,[2] and if so, whether it meets the elements of an exclusion from that definition as provided under section 202(a)(11)(D) of the Advisers Act as you suggest may be the case. The staff has generally declined to express an opinion as to whether a person qualifies for this exclusion, as interpreted by the United States Supreme Court, because this is a factual and not a legal determination.[3] However, we provide the information below to assist you in making this determination.
Section 202(a)(11)(D) of the Advisers Act excludes from the definition of an investment adviser a “publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation.” The United States Supreme Court has interpreted this “publisher’s exclusion” to include publications that offer impersonal investment advice to the general public on a regular basis.[4] To qualify for the section 202(a)(11)(D) exclusion, the publication must be: (1) of a general and impersonal nature, in that the advice provided is not adapted to any specific portfolio or any client’s particular needs; (2) “bona fide” or genuine, in that it contains disinterested commentary and analysis as opposed to promotional material; and (3) of general and regular circulation, in that it is not timed to specific market activity or to events affecting, or having the ability to affect, the securities industry.[5] A person who provides advice about securities through a website such as the one described in your letter could similarly qualify for the section 202(a)(11)(D) exclusion, provided the three criteria listed above are met.
If your new website business meets the definition of investment adviser but qualifies for the publisher’s exclusion, it would not be required to register with the Commission under Section 203(a) of the Advisers Act. If your new website business meets the definition of investment adviser but does not qualify for the publisher’s exclusion (or another exclusion) from the definition of investment adviser, it would appear from your letter that it would be required to register as an investment adviser with the Commission because the State of Wyoming — where you appear to have your principal office and place of business — does not regulate investment advisers. Section 203(a) requires investment advisers that make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business to register with the Commission unless certain exceptions from the requirement to register or prohibitions against registration apply. In particular, Section 203A(a)(1) provides that no investment adviser that is regulated or required to be regulated as an investment adviser in the State in which it maintains its principal office and place of business shall register under section 203. An investment adviser is neither regulated, nor required to be regulated, as an investment adviser if its principal office and place of business is in the State of Wyoming.
/s/ Jane H. Kim
Senior Counsel
[1] See Procedures Applicable To Requests for No-Action and Interpretive Letters, Release No. 33-6269 (Dec. 5, 1980). See also Glenwood Investment Corp., SEC Staff No-Action Letter (Aug. 10, 1994) (providing guidance as to the information that should be provided when submitting no-action and interpretive requests) available at http://www.sec.gov/divisions/investment/noaction/1994/glenwoodinvestment081094.pdf; Gulf Coast Venture Forum, Inc., SEC Staff No-Action Letter (Aug. 21, 2002) (declining to respond to request for no-action relief on the issue of whether an entity meets the definition of an investment adviser because the request did not contain adequate facts and legal analysis) available at http://www.sec.gov/divisions/investment/noaction/gulfcoast082102.htm; Commission Policy and Guidelines for Filing of Applications for Exemption from Some or All of the Provisions of the Investment Company Act of 1940 and the Investment Advisers Act of 1940, Release Nos. IA-969 and IC-14492 (Apr. 30, 1985).
[2] Section 202(a)(11) of the Advisers Act defines the term “investment adviser, ” in relevant part, as:
any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities....
Thus, as we previously have stated, whether a person is an investment adviser depends on whether the person: (a) provides advice, or issues reports or analyses, concerning securities or the advisability of investing in, purchasing, or selling securities; (b) provides these services for compensation; and (c) is engaged in the business of providing these services. Staff Legal Bulletin No. 11 (Sept. 19, 2000), at text accompanying note 7, available at http://www.sec.gov/interps/legal/slbim11.htm. See also Applicability of the Investment Advisers Act to Financial Planners, Pension Consultants, and Other Persons Who Provide Investment Advisory Services as a Component of Other Financial Services, Release No. IA-1092 (Oct. 8, 1987).
[4] Lowe v. SEC, 472 U.S. 181 (1985).
Incoming Letter
The Incoming Letter is in Acrobat format.
http://www.sec.gov/divisions/investment/noaction/2015/jonathon-hendricks-012615-202a.htm
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