E-mail

February 7, 1997 
      
      
      
Mr. Jonathan G. Katz, Secretary 
Securities and Exchange Commission 
450 Fifth Street, N.W., Stop 6-9 
Washington, D.C.  20549 
      
Re:  File No. S7-31-96 
      
Dear Mr. Katz: 
      
     I appreciate the opportunity to comment on Release IA-1601 proposing rules 
to implement the provisions of the Investment Advisers Supervision Coordination  
Act, a key part of the National Securities Markets Improvement Act of 1996 ("NSMIA"). The  
Commission staff is to be commended for its recognition of the need for  
clarifying rules and its prompt response in promulgating these proposals. 
      
     The State of Nevada is a member of the North American Securities 
Administrators Association ("NASAA") which  filed a lengthy comment letter with the
Commission on February 3, 1997. In general, I concur with the comments contained in the
NASAA filing, but would like to comment on several of the issues raised by these proposed  
rules in my capacity as Nevada's Deputy Secretary of State for Securities Regulation. 
      
     First, I believe that the Commission's interpretation of the scope of 
NSMIA's preemptive provisions relating to the states' enforcement authority conflicts  
with the 10th Amendment and current case law. The precedent in this area is primarily  
concerned with limiting  preemption to only that which Congress specifically identifies. NSMIA  
limits its preemption to specific provisions relating to licensing, registration and  
qualification of certain investment advisers and  certain of their supervised persons.  Further,  
I find nothing in NSMIA or its legislative history to indicate that it was the intent  
of Congress that the Commission be empowered to extend by rule the preemptive provisions of the  
Act. Therefore, I urge the Commission to exercise restraint and withdraw from this  
position. 
      
     Second, I oppose  the Commission's attempt to federally define "investment 
adviser representative."  Such a federal definition is neither necessary nor desirable,  
nor is it contemplated by NSMIA.  It is only the state and not the Commission that has the 
authority to require the licensing, registration and qualification of any person as an  
investment adviser representative, and it follows logically that only the state should  
determine on whom those requirements will be imposed. Should a state wish to exclude a  
particular group such as MBAs  from its licensing requirements, it should be able to do so  
without running afoul of a Commission rule. Further, there is a high degree of  
uniformity in state definitions of investment adviser representatives and no federal definition is  
needed. I suggest this definition be withdrawn. 
      
     Third,  I support the Commission's decision to define "place of business" 
as used in the statute. The introduction of this new term into the legislation has  
provoked considerable discussion among regulators and the industry--- probably generating 
more heat than light. Unlike the term "investment adviser representative" which is  
defined in the various state laws, "place of business" is new to securities laws, and needs a  
single definition to provide guidance to practitioners and regulators. I believe the  
proposed definition is generally satisfactory because it recognizes many of the practices 
of the industry. However, I concur with the NASAA position that the use of the term  
"regular" in the proposed definition adds an unnecessary element of interpretation while  
adding nothing of value to the definition. If its purpose is to excuse the  occasional  
contact by an unlicensed investment adviser representative, Nevada already provides a  
safe-harbor through an existing de minimis exemption. I would expect most states will extend 
 the NSMIA national de-minimis exemption for firms to the representatives employed by 
them, thus obviating the need for the use of "regular" in the definition. 
      
     Fourth, I suggest that the Commission include consideration of the Internet 
in its rules defining "place of business." The increased use of the Internet by  
investment advisers is a reality that will pose greater challenges to regulators and the  
industry as its use increases. At a minimum, the place from which the supervised person is  
transmitting investment advice should be considered a place of business for licensing  
purposes. 
      
     Fifth, I consider the Commission's introduction of dual licensing issues 
inappropriate and beyond the scope of its authority under NSMIA. For all of the same reasons  
that I object to the Commission attempting to define investment adviser representative, 
I object to the attempt to exempt broker-dealer sales representatives from that  
definition. The functional difference between investment adviser representatives and  
broker-dealer sales representatives is obvious--they often do different things-- and should be  
maintained.  There is nothing in NSMIA to indicate that Congress wished to empower  the  
Commission to eliminate that distinction, a distinction that should not be eliminated. 
      
     Thank you for this opportunity to comment on the proposed rules. I will be 
happy to expand or clarify these comments at your request.  
      
                              Sincerely, 
      
      
      
                              Donald J. Reis 
                              Deputy Secretary of State