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Remarks to the IAA Investment Adviser Compliance Conference 2013

Norm Champ, Director, Division of Investment Management

U.S. Securities and Exchange Commission

Arlington, VA

March 8, 2013


Good afternoon and thank you for inviting me to speak to you today.  Before I begin, let me remind you that the views I express are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any of my colleagues on the staff of the Commission.

Today I would like to highlight certain regulatory initiatives of the Division and update you on other issues of interest for investment advisers.

Regulatory Initiative Process

First, a little background on how we arrived at the Division’s regulatory initiatives.

Like most of the SEC, we have been focusing on the rulemaking required under the Dodd-Frank Act and the JOBS Act.  The bulk of rulemaking related to investment advisers that was required by the Dodd-Frank Act is complete, such as the registration of advisers to private funds.  We are working with colleagues across the Commission on other required rulemakings, such as general solicitation.

In addition, the staff continues to work on the Volcker Rule, diligently analyzing commenters’ concerns and collaborating with other federal regulators to draft a recommendation for the Commission.

In addition to our work in these areas, I asked the Division staff to conduct a comprehensive review of our active, inactive and potential rulemaking initiatives to develop potential “discretionary” or non-mandatory rulemaking initiatives.

We analyzed potential rulemaking initiatives by looking at the following four factors:  the identification of risks to be mitigated or problems to be solved, the urgency associated with a particular initiative, the potential impacts on various stakeholders, and the resources associated with each policy initiative.

The analysis has helped to inform the Chairman, collaborating with the Commissioners, in her determination of which priorities the Commission will pursue. 

There are three short term priorities: potential money market mutual fund reform, identity theft red flag rules, and valuation guidance; and five longer term regulatory initiatives: the review of rules that apply to private fund advisers, a derivatives concept release, an ETF rule, a variable annuity summary prospectus, and enhancements to fund disclosures about operations and portfolio holdings.

Each of the three short-term regulatory priorities I mentioned is actively being worked on by staff in the Division of Investment Management.  In addition, we are scoping five longer-term rulemaking projects and allocating resources toward them.  These projects are in a less advanced stage, but we want to share them so that investors, funds and advisers, taxpayers and others are aware of where we are focused and devoting resources.

Review of Adviser Act Rules

One of the longer term initiatives, specifically the review of rules that apply to private fund advisers, has been informed by a  number of questions from these newly registered  advisers about how certain provisions of the Advisers Act and related rules apply to their businesses. 

Today, close to 40% of all advisers registered with the Commission manage one or more private funds.1  The staff estimates that this represents an over 50% increase in registered private fund advisers since the effective date of the Dodd-Frank Act.  Registered private fund advisers report on Form ADV that they advise approximately 24,000 private funds with total assets of $7.9 trillion.  This represents 16% of total assets managed by all registered advisers.  Hedge funds and private equity funds comprised the majority of private fund assets managed by registered advisers. 

As you know, the Advisers Act regulatory regime is principles-based; it imposes a broad fiduciary duty on investment advisers to act in the best interests of their clients.  Even before the recent influx of private fund advisers registering with the Commission, the Advisers Act and related rules have been applied to a diverse set of advisory relationships and adviser operations.

Two areas that I would like to focus on are advertising and Form ADV.


As a threshold matter, the advertising rule covers an expansive set of adviser communications.  In addition to communications that are typically considered advertisements, such as announcements in publications or on television or radio, newsletters, marketing brochures, websites, as well as various types of social media may fall within the definition of “advertisement” in the advertising rule.  The rule prohibits advertisements by registered advisers that are false or misleading or contain any untrue statement of a material fact and explicitly prohibits certain advertising practices that the Commission found to be inherently misleading, such as testimonials.  Commission staff also has issued many no-action letters and interpretive guidance regarding the advertising rule since its adoption over 50 years ago.  For example, Commission staff has said that an advertisement including performance data should disclose all material facts necessary to avoid unwarranted conclusions.

We have recently heard from advisers to private funds, particularly advisers to private equity funds, about the difficulties of applying the specific prohibitions on testimonials and past specific recommendations to their business models.  The staff is considering issues raised by private fund advisers regarding the advertising rule and considering what action, if any, should be taken or recommended to the Commission. 

In the meantime, advisers should be sure to provide clear, complete and accurate disclosure in their advertising, particularly with respect to performance.  You should review marketing documents to ensure information is truthful, accurate and not misleading.  You should also be sure that you have adopted, and periodically review the effectiveness of, compliance policies and procedures covering advertisements and other types of communications.  Marketing is one area that our colleagues in the Office of Compliance, Inspections and Examinations have highlighted as a higher-risk area of the business and operations of many advisers.  It is also one of the areas of focus of OCIE’s Presence Exam initiative.

You should be aware that our colleagues in the Division of Enforcement continue to bring enforcement cases against advisers for misleading advertisements.  For example, Enforcement recently brought proceedings against a registered adviser for allegedly disseminating false and misleading representations on the firm’s website and in its Form ADV brochure.2  Enforcement also recently alleged that an adviser violated the advertising rule for disseminating misleading hedge fund performance information.3

Of course, I cannot conclude a discussion regarding advertising without discussing the JOBS Act.  As I mentioned earlier, the staff of the Division has been working closely with staff from the Division of Corporation Finance on a proposal to amend Regulation D to permit advertising and general solicitation as long as all purchasers are accredited investors and the issuer has taken reasonable steps to verify their accredited status.4  The Commission received over 160 comment letters on the proposal, expressing different views about the extent to which private funds should be permitted to advertise publicly.  Chairman Walter has identified rulemakings required under the JOBS Act as a priority, and the staff is carefully reviewing comments and considering what recommendations to make to the Commission, taking into account Congressional intent as well as investor protection concerns. 

Form ADV – Related Investment Advisers

The Division also has received questions from private fund advisers relying on the 2012 ABA staff no-action letter regarding the completion of Form ADV.  In the ABA letter, the staff took the position that an investment adviser may file (or amend) a single Form ADV on behalf of itself and each other adviser under common control with the filing adviser under circumstances in which the advisers collectively conduct a single advisory business.5  Form ADV, however, is not structured to take into account the sometimes complicated private fund structures used by some private fund advisers.  While the Division has sought to informally respond to questions we have received from advisers completing the form, we are reviewing Form ADV to determine what action, if any, should be taken or recommended to the Commission to address these issues.

These issues that I have highlighted are just examples of where staff is reviewing regulatory requirements under the Advisers Act to determine whether they should be updated to address investor protection concerns and the business models of private fund advisers.

Other Division Work

The review of the issues facing private fund advisers under the Advisers Act is just one policy initiative; the staff continues its work on other important projects of interest to investment advisers, such as the IA/BD project.  This project relates to the study of advisers and broker-dealers that was required by section 913 of the Dodd-Frank Act. 6 The staff recommended in the study that the Commission engage in rulemaking to implement a uniform fiduciary standard of conduct for broker-dealers and investment advisers when they provide personalized investment advice about securities to retail investors. The staff also recommended that the Commission consider harmonizing broker-dealer and investment adviser regulation when it adds meaningfully to investor protection.  The Commission published a request last week requesting information and economic data to assist it in considering standards of conduct and potential areas for harmonization of the regulation of broker-dealers and advisers.7 

Another area of interest for those of you who advise registered funds is our initiative to enhance  fund disclosures about operations and portfolio holdings. As part of the money market fund reforms adopted by the SEC in 2010, the SEC required new monthly reporting on portfolio holdings by those funds to both investors and the SEC.  This new data has been invaluable.  Some have called it a game-changer.  We are able to use it to monitor trends, identify outliers and better inform our rule-writing efforts. 

Many believe we need similar structured data reporting for other mutual funds and investment companies.  The patchwork of outdated data collection and disclosure forms is not working, and the staff is examining how to enhance and streamline our data collection efforts.  This is another one of our longer term initiatives.

The purpose of this initiative is to improve the quality and usefulness of information that funds provide to investors and to the SEC, and to eliminate duplicative filings or disclosures.  It could make the SEC a better regulator and it could make investors better informed. 

Additional Activities

I would like to share with you some of our other Division activities.  In the Division, and throughout the Commission, we are striving to be a continuous improvement organization, looking for ways we can work smarter and better.  A few months ago, I reported that our Division had begun an intensive inquiry to better understand our strengths and areas of improvement.  This inquiry, which we refer to as “Moving Ahead” — comprises five broad categories, namely, people, processes, technology, structure, and strategy.  I am excited to provide you with a brief report on our Moving Ahead initiative to date.  Over the past few months, we’ve gathered input from across the Division and the Commission, we have identified and prioritized issues confronting our Division, and we have created action teams comprised of managers and staff to address these issues.  Two specific projects that I will mention are the streamlining of approval processes and the updating of our Division’s website to improve our communications both internally and externally.  I will provide further updates as we continue to make progress in these areas.


I appreciate the opportunity to share my thoughts on some issues of interest for investment advisers and the initiatives of the Division.  The Division is committed to helping American investors by protecting investors, promoting informed investment decisions, and facilitating appropriate innovation in investment products and services, through regulating the asset management industry.  Thank you.

1 IARD Data as of January 2, 2013.

2 In re Anthony Fields & Associates, Advisers Act Release No. 3348 (Jan. 4, 2012) (pending action), available at

3 In re GMB Capital Management LLC, et al., Advisers Act Release No. 3399 (Apr. 20, 2012) (settled action), available at

4 See Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Securities Act Release No. 33-9354 (Aug. 29, 2012), available at

5 See American Bar Association, Business Law Section, SEC No-Action Letter (Jan. 18, 2012), available at

6 Staff of the U.S. Securities and Exchange Commission, Study on Investment Advisers and Broker-Dealers As Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Jan. 2011) (“Study”), available at See also Statement by SEC Commissioners Kathleen L. Casey and Troy A. Paredes (Jan. 21, 2011).

7 Request for Data and Other Information: Duties of Brokers, Dealers, and Investment Advisers, Exchange Act Release No. 69013(Mar. 1, 2013), available at

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