E-Mail

February 10, 1997

Mr. Jonathan Katz
Secretary
U. S.  Securities and Exchange Commission 450 5th Street, NW
Washington, DC  20549

Re:     Rules Implementing Amendments to the Investment Advisers Act of 1940 Release No. IA-1601
File No. S7-31-96

Dear Secretary Katz:

Please accept this comment letter on behalf of the Business Services
Division of the Mississippi Secretary of State's Office ("the Division") regarding the above-referenced 
release (the "Release").

I.      The Commission should withdraw its proposed definition of
"investment advisor representative. "

We strongly urge the Commission to withdraw its proposed definition of
"investment advisor representative." The Investment Advisors Supervision and Coordination Act 
("Coordination Act") itself states that "a State may license, register, or otherwise qualify any investment 
adviser representative" with a place of business in the State. The phrase "investment adviser 
representative" is not contained in the Coordination Act, the NSMIA, nor in any of the federal securities 
acts.  Therefore, the states are the only parties that should be able to require registration, licensing or 
qualification of such supervised persons. Presently, the states are the only regulatory entities requiring the 
registration or licensing of investment adviser representatives. The Commission, to our knowledge, has 
never licensed any investment adviser representative (or any other natural person).  For this reason, we 
believe it inappropriate and beyond the Commission's authority to attempt to provide a definition of 
"investment adviser representative" in this release.  In addition, Section 211(a) limits the Commission's 
rule making authority to those matters which "are necessary or appropriate to the exercise of the functions 
and powers conferred upon the Commission elsewhere in this title."

II.     The term "regularly" should be eliminated from the definition of
"place of business."

"Doing business" is not necessarily synonymous with having a "place of
business." The term "place of business," should incorporate a "bright-line" test for compliance directors to 
utilize in determining whether its representatives are required to register in the appropriate state(s).  The 
Division recommends that the Commission delete the word "regularly."  Use of the term "regularly" 
creates confusion for the industry and for regulators in at least two regards.  First, it is unclear whether 
"regularly" is meant to modify the phrases "provides advisory services" and "otherwise solicits, meets 
with, or communicates with," or whether the term "regularly" is meant to merely modify the phrase 
"provides advisory services" and not "solicits meets with . . . ."  The distinction is important in that an 
adviser could have a place of business in a given state if it "solicits, meets with, or communicates to 
clients," whether such contact is regular or sporadic. We would support the latter interpretation.  

The effect of the Commission's definition of "place of business,"
coupled with the proposed definition of "investment adviser representative" provides not one, but two 
"safe harbors" for supervised persons.  Every supervised person of an investment adviser would have to 
come within the definition of "investment adviser representative" before the adviser would have to 
determine for state registration purposes whether or not its supervised persons have a "place of business" 
in a given state.  An "investment adviser representative" that would otherwise have a "place of business," 
but for the fact that her activities were not "regular," appears to be unduly narrow.

The consequence of engaging in such solicitation is that the investment
adviser representative is subject to registration in the jurisdictions from within which it is conducting 
advisory activities.  We believe this approach to be consistent with the NSMIA, as supervised persons who 
telephone into a state would not be deemed to have a "place of business" in the states into which they call, 
but those supervised persons that conduct, for example, one or more "road shows" in a given state would 
be deemed to have a "place of business" in that state.

Regulatory difficulties of determining whether a pattern or practice of
activities is sufficiently "regular" to cause a supervised person's activities to come within the definition of 
"investment adviser representative," or for the supervised person's location to constitute a "place of 
business," do not warrant such a restriction on the definition.  As proposed, it is very likely that one 
supervised person that has visited a given state X number of times for the purposes of providing advisory 
services may have a place of business in that state, but another supervised person visiting the same state 
the same number of times may not, as such contact with that state may not be deemed "regular."  It is for 
this reason that use of the term "regularly" does a disservice to the very industry it intends to benefit; it 
should be deleted from the definition of "place of business."  Investor protection concerns warrant that 
such individuals be deemed to have a "place of business" in that state under either scenario.

III.    The Commission should withdraw consideration of its request for
comment on an exception from the definition of "investment adviser representative" for dually-licensed 
agents.

The proposal, regardless of whether the Commission intends to adopt it
or not, is inappropriate and in direct conflict with the intent of Congress.  Broker-dealer agents and 
investment adviser representatives perform entirely different functions.  The qualifications for an 
investment adviser representative and a broker-dealer agent are entirely different, as are the examinations 
that states require each party to take.  As an accommodation to industry, NASAA voluntarily created a 
combined examination to ease any burden associated with dual licensure. The Commission is unlikely to 
ever suggest that a broker-dealer firm registered with it should somehow be exempt from Commission 
registration as an investment adviser, merely because the firms do not wish to be burdened. We believe 
that this proposal, applied to individual representatives, is of an equal nature.  Similarly, an attorney who 
is also a certified public accountant would likely have little success arguing to her state bar or state 
accountancy board to be excepted from one because she is properly licensed with the other.

In addition, the legal responsibilities of the two parties are also
extremely dissimilar.  Investment adviser representatives are considered fiduciaries and have traditionally 
been held to a higher ethical standard, as advisers are far more likely to have discretion over client funds.

The NSMIA was purported to be revenue neutral.  Persons licensed with
the states as both investment adviser representatives and broker-dealer agents comprise as much as 75% of 
the total number of investment adviser representatives licensed with the states.  Should the Commission 
include such an exception, states will experience a significant revenue impact not envisioned nor approved 
by Congress. Congress was very clear that the NSMIA be revenue neutral.

The Division believes that a proposal to except broker-dealer agents
from the definition of "investment adviser representative," a definition which the Commission lacks the 
authority to promulgate, directly contradicts the intent of Congress.  The NSMIA does not contain the 
concept of dual licensure.  The NSMIA addresses state regulation of broker-dealers and associated persons 
thereof in section 103.  There, certain registration and post registration provisions were preempted to the 
extent that such provisions were different from or "in addition to" those contained in the Securities 
Exchange Act of 1934. Congress would have incorporated a preemption of state statutes requiring dual 
licensure, had it so desired. Such preemption was not included in the legislation , nor was it even debated.

Finally, if the intent of the Coordination Act in this area is to
"promote uniformity of regulation,"  Mississippi and other states are more likely to adopt or adhere to a 
definition proposed or suggested by a federal administrative agency if it can do so without significant 
adverse revenue impact.  The Coordination Act grants exclusive regulatory authority over 75% of the total 
number of advisers.  Any diminution in state revenue would seriously jeopardize our ability to effectively 
regulate these advisers.  Also, any proposal to further exclude dually-licensed entities from state 
registration provisions will provide an unavoidable disincentive for Mississippi and other states to adopt 
the definition.  Providing an exclusion from dual-licensing before states have an opportunity to secure 
alternate regulatory oversight increases the likelihood that states, out of budgetary and regulatory 
concerns, will reject the definition proposed by the Commission.  Thus, the very goal of uniformity 
espoused by the Commission will collapse under its own weight, with neither the Commission, the states, 
advisers, nor investors particularly well-served.

IV.     The Commission's interpretation of the scope of preemption of
state
law as applied to commission-registered advisers is incorrect.

We disagree with the Commission's interpretation of the scope of
preemption of state laws under the Coordination Act.  Such interpretation is not only unnecessary, but 
likely unconstitutional as well. The Commission states in the Release that the Coordination Act preserves 
state authority over (1) enforcement actions with respect to fraud or deceit;  (2) requiring notice filings;  
and (3) payment of state fees. We agree that, in these three areas, the Coordination Act specifically 
preserved state authority.  However, the Commission then argues that because these three areas were 
specifically preserved by the Coordination Act, all other state regulatory authority is preempted. The 
Commission's analysis is simply wrong.

The 10th Amendment's preservation of state authority "states but a
truism that all is retained which has not been surrendered." The Coordination Act preempts state authority 
in but two narrow and limited areas:  (1) the registration, licensure, and qualification of investment 
advisers having in excess of $25 million under management or advisers to registered investment 
companies;  and (2) the registration, licensure, or qualification of certain "supervised persons" of 
Commission-registered investment advisers. The Coordination Act left all remaining areas of state 
securities regulation untouched. The fact that a particular provision is expressly preserved in the 
Coordination Act has no effect on those provisions not mentioned. The Commission should note that state 
antifraud provisions were expressly preserved in both Title I and Title III of the NSMIA merely to provide 
clarity and guidance, not to preserve authority that would otherwise be lost. 

The Commission's offhand interpretation and voluntary extension of
Congress' clear limitation on the preemption of state law in this area is in direct conflict with the United 
States Supreme Court's present stance on the issue.  The Court has recently stated, with respect to the 
various preemption doctrines, that "historic police powers of the States [are] not to be superseded by . . . 
Federal Act unless that [is] the clear and manifest purpose of Congress."  When Congress does preempt 
state law, as it did in the NSMIA, state preemptive language provides a "reliable indicium of 
congressional intent with respect to state authority," and "there is no need to infer congressional intent to 
preempt state laws from the substantive provisions" of the legislation. Congress has clearly limited the 
parameters of state preemption;  any extension or strained inference drawn by the Commission beyond 
those confines is inappropriate and invalid.

Congressional enactment of preemptive provisions implies that matters
beyond those provisions are not preempted.  Such an approach is directly opposite that employed by the 
Commission. The Division does not contend that Mississippi's or any other state's conditions of 
registration and post-registration provisions are unenforceable as applied to Commission-registered 
advisers, such as state books and records provisions, bonding, and minimum capital.  However, other 
regulatory provisions that do not "flow from" the adviser's status as a state registrant remain in full force. 

In addition, the Commission's interpretation of the Coordination Act is
in direct conflict with its own statute.  Section 222(a)  of the Advisers Act, as amended by the 
Coordination Act, states that "[n]othing in this title shall affect the jurisdiction of the securities 
commission . . . of any State over any security or any person insofar as it does not conflict with the 
provisions of this title or the rules and regulations thereunder."  With that backdrop, many state provisions 
not preempted by the NSMIA (nor fairly characterized as "back door" regulation) but not rising to the 
level of fraud or deceit are enforceable by states as such enforcement does not conflict with the Advisers 
Act or the rules thereunder.  For example states can, and will, take enforcement action against 
Commission-registered advisers that fail to comply with fee payment provisions, whether such failure to 
pay is "fraudulent," "deceptive," or merely unlawful.  Similarly, state civil liability provisions against 
Commission-registered advisers (and issuers of covered securities) remain in full force, despite the fact 
that the NSMIA did not specifically preserve such causes of action. The Commission needs to correct its 
interpretation in the next release.

For the reasons discussed above, we urge that the Commission: (1)
withdraw its proposed definition of "investment advisor representative"; (2) remove the term "regular" 
from its proposed definition of "place of business"; (3) withdraw from consideration of any exception from 
the definition of "investment adviser representative" for dually-licensed agents; and (4) correct its 
interpretation of federal preemption of state laws.

Thank you in advance for your consideration of our comments. Please do
not hesitate to contact me at (601) 359-6364, if you have any questions regarding these comments.

Respectfully yours,




James Anderson, Jr.
Assistant Secretary of State for Securities 
janderson@sos.state.ms.us