E-Mail February 10, 1997 Mr. Jonathan G. Katz Secretary Securities & Exchange Commission 450 5th Street, NW, Stop 6-9 Washington, DC 20549 Re: Proposed rules to implement the Investment Advisers Supervision Coordination Act, Release No. IA- 1601, File No. S7-31-96 Dear Mr. Katz: The International Association for Financial Planning (IAFP) is pleased to provide these comments on the proposed new rules to implement the Investment Advisers Supervision Coordination Act (the Act) (approved on October 11, 1996) as published in Volume 61, No. 250, of the Federal Register, Page 68480 (December 27, 1996). IAFP is the oldest and largest membership association serving financial planning. Our over 16,000 members are guided by the principle that everyone needs objective advice to make smart financial decisions. IAFP advances the financial planning process as the foundation for making good financial decisions. The financial planning process is client centered rather than product centered, and includes an analysis of the clientIs current situation; determination of the clientIs needs, goals and objectives; formulation of a written plan of action, and implementation and ongoing review of that plan. The Commission staff has done an excellent job of addressing issues raised by the Investment Advisers Supervision Coordination Act and anticipating the challenging questions that splitting investment adviser oversight between the Commission and state securities regulators raise. IAFP generally supports the proposed rules; however, we submit the following comments for consideration: Assets Under Management - We agree with the Commission that an investment adviser having discretionary authority would clearly be engaged in providing continuous and regular supervisory or management services. While those advisers that do not have discretionary authority over client assets must be considered on a facts-and-circumstances basis to determine whether they are providing continuous and regular supervisory or management services, we believe those advisers that have limited trading authority over client assets should be considered to be providing continuous and regular supervisory or management services. Date of Valuation - Instruction 7(d) of Form ADV-T asks for valuation of securities portfolios as of a date no more than 10 days before filing the form. Many smaller advisers will not be able to generate this information within the proposed 10-day period. Therefore, we recommend that the securities portfolios of an investment adviser be valued as of a date within 30 days before filing Form ADV-T. This will give small firms more time to properly generate the valuation of closely held businesses, illiquid but publicly traded securities, and other assets that are difficult to value. Safe Harbor Provision - IAFP strongly supports the safe harbor provision for state registered investment advisers. Since there is no bright-line client asset test for any advisers that do not have discretionary authority over client funds, it will be difficult for small firms to determine whether they are eligible to register with the Commission. If the adviser is properly registered with the state(s), the adviser should not be penalized for failure to register with the Commission if the adviser is otherwise required to do so. Transition Between State and Commission Registrations - IAFP believes that the determination of whether an adviser should register with the Commission or be subject to state registration should be an annual test rather than an "as soon as" test. Such determination should be made annually at the end of the adviserIs fiscal year. This would be consistent with the transition from Commission to state registration. We also believe that advisers should have 120 days after the end of the adviserIs fiscal year to transition from Commission to state registration. This would give advisers more time to determine in which states they would have to register and subsequently complete the required paperwork to be properly registered in those states. Exemptions from Prohibition on Registration with the Commission - The Commission asked for comment on whether the 90-day period for a newly formed adviser to meet the requirements to register with the Commission is adequate. IAFP suggests that a 120-day period would be more reasonable. Start-ups usually need more time to get organized and realize their expected business. This additional time would save newly formed firms from the costs and paperwork of having to transition to state registration if their expected business was developing slowly. Individual Advisers not Regulated or Required to be Regulated by the States - IAFP strongly supports this provision interpreting Section 203A(a)1 as requiring any person or firm which meets the definition of investment adviser in Section 202(a)(11) of the Investment Advisers Act, and is not otherwise exempt from registration, to register with the Commission if the person or firm has a principal office and place of business in a state that has an investment adviser statute but is not required to register under that statute. IAFP believes this is good public policy and would oppose any efforts to weaken or delete this provision. Definition of Investment Adviser Representative - IAFP strongly supports a federal definition of "investment adviser representative." CongressIs intent in passing this statute was to provide more uniformity in the regulation of investment advisers. Without a federal definition, there could be 50 different state investment adviser representative definitions. Comment was requested on whether supervised persons, a substantial portion of whose business is providing services to natural persons who have a high net worth and meet other conditions of financial sophistication, should be excepted from the definition of investment adviser representative. IAFP believes that such supervised persons should be excepted from the definition. This person is supervised by the investment adviser and the clients of such a supervised person would be financially sophisticated and thus less likely to be confused or misled by the supervised person. Comment was also requested on whether an investment adviser representative who is dually registered as a broker-dealer agent in the state should be excepted from the definition of investment adviser representative. IAFP believes that an investment adviser representative who is dually registered as a broker-dealer agent should be excepted from the definition of investment adviser representative. This individual would already be registered with the state as a broker-dealer agent, thus giving the state regulatory control over such individual. In addition, the state anti-fraud statutes would apply to the investment adviser. Principal Office/Place of Business - The proposed definition of "place of business" is too broad, goes far beyond Congressional intent, and creates confusion. The words "place of business" have a clear and plain meaning. The Congress had in mind the concept of a physical place of business, which might include temporary office space, but clearly not a restaurant or clientIs home. How could a clientIs private residence or a public facility such as a restaurant be an adviserIs "place of business"? While the proposed rules differentiate between "doing business" and "place of business," the discussion of "place of business" has incorporated some of the concepts of "doing business," such as the number of contacts and visits in a clientIs home. This is clearly not consistent with the intent of Congress, and the definition should be narrowed significantly to take into account an office or physical place where the adviser regularly and continuously conducts business. National De Minimus Standard - IAFP strongly supports the interpretation of the national de minimus standard as well as the definition of "client." It is important to retain the definition of "client" as stated in the rules to provide clarity and uniformity under the national de mimimus standard. Some additional clarification of foreign clients is needed. The Form ADV-T Instruction 7(a) discussion is unclear whether or not the portfolios of US non-resident citizens must be included. In one instance, the term "foreign clients" is used; in another, "clients who are not US residents" is used. No distinction is made between non-citizen residents and non-resident citizens. IAFP suggests that the definition of "foreign clients" should be limited to non-resident aliens. Comment was requested on whether the Commission should adopt a single rule regarding the counting of clients under Sections 203(b)(3) and 222(d). IAFP believes the Commission should adopt a single rule regarding the counting of clients under these Sections. This would ensure uniformity and consistency in interpreting who is a client with respect to complying with these two sections. The Commission also asked whether the rule should specifically address the status of foreign clients since clients include foreign clients of an adviser. IAFP believes there should be no special rule addressing foreign clients. A client is a client, and the definition of client in the proposed rules adequately covers how to count persons and entities. IAFP is pleased to provide these comments. If the Commission needs more information, please feel free to contact us. Respectfully submitted, Dale E. Brown, CAE Associate Executive Director International Association for Financial Planning 5775 Glenridge Drive, NE, Suite B-300 Atlanta, GA 30328-5364 Phone: (404) 845-0011, x7764 Fax: (404) 845-3660 E-mail: daleb@iafp.org