Offering Advice & Services to Traders | Investors | Funds
SEC and State Investment Adviser Registration
Customer Testimonial Hannah and her team were knowledgeable, professional, and a pleasure to work with; having access to their expert help is indispensable in forming an incubator fund or hedge fund entity at a very reasonable cost and time frame. D. Rxxxn December 21, 2011
The Securities and Exchange Commission (SEC) expects to bring more enforcement actions against investment advisers to hedge funds in the coming years due to advanced data analysis and analytics. The SEC is studying the Form ADVs submitted during the registration process in an effort to unearth fabrications leading to fraud. State securities regulators are following suit. It is more important than ever to make sure your Form ADVs are accurate and updated at least annually.
Investment Adviser Registration The Investment Advisers Act of 1940 is a federal law enacted to regulate the activities of investment advisers. Unless they are otherwise exempted or excluded from registration, the law requires larger investment advisers to register with the Securities and Exchange Commission (SEC). If an investment adviser will not qualify for any exemption from SEC registration the investment adviser will be required to register with the SEC by March 30, 2012. The SEC recommends completing the registration application no later than February 14, 2012. However, plans for the federal government to transfer to the state regulation of investment with assets under management between $25 million and $100 million have been delayed until June 2012. Investment Advisers An "investment adviser" is defined 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." There is specific guidance as to what constitutes a larger investment adviser, based on assets under management. There is also considerable law interpreting each of the elements of the above definition. Investment advisers can be registered or unregistered. Dodd-Frank Act Financial reform legislation enacted in 2010, commonly referred to as the Dodd-Frank Act, removed an exemption from registration (previously available for investment advisers with fewer than 15 clients) to enable the SEC to regulate private fund advisers (i.e., hedge funds, private equity funds and hybrid funds). Under Dodd-Frank, investment advisers to private hedge funds with fewer than 15 clients are required to register with the SEC. Private fund managers with assets under management of $150 million or more will be required to register as investment advisers with the SEC. Private fund managers with assets under $150 million or venture capital fund managers will not be required to register. However, under SEC rules, these exempt fund managers must file a truncated Form ADV as "exempt reporting advisers." To facilitate the transition to SEC registration, the SEC extended the deadline for registration for currently unregistered private advisers to March 30, 2012. Do I Need to Register with the SEC? The Dodd-Frank Act affects the majority of private fund managers and registered investment advisers advising U.S.-based funds. The Dodd-Frank Act eliminates exemptions for private fund managers with fewer than 15 clients. While Dodd-Frank lays out a more defined set of registration requirements driven primarily by AUM (assets under management), it does not create rules on the qualifications of individuals to be a private fund manager and does not alter state law requirements for investment advisers.
Customer Testimonial Hannah and her team are experts in their field of offshore funds. The expertise and care to think ahead of all the specific issues I might have as a client are greatly appreciated. Capital Management Services Group applies a no-nonsense and straight forward business approach to a complex maze of international rules and regulations. I'm pleased to have them on my team and certainly recommend them to any professional looking for guidance in the hedge fund industry.Andre Voskuil, DutchOracle Capital Ltd. December 28, 2011
State Registered Investment Advisers Currently, the states are the sole regulators of investment advisors with less than $25 million in assets under management. By the middle of 2012, this threshold will increase to $100 million, with the SEC overseeing investment advisers managing more than $100 million in assets. The next 12 months will see changes in the landscape of investment advisor regulation. Under the Dodd-Frank Act, the states will be responsible for licensing, monitoring and overseeing all hedge funds and other alternative investment management firms with assets under $100 million. This represents a significant increase in the responsibility and jurisdiction of state securities departments and law enforcement officials. Previously, the states were only responsible for firms below $25 million of assets. SEC De-Registration Certain smaller investment advisers previously eligible to register with the SEC must transition down to state registration. This group of investment advisers are termed "state registered investment advisers." The state-level investment adviser registration process is becoming more complex and slow. State investment advisers are subject to more scrutiny as well. See State Investment Adviser Exams Reveal Significant Deficiencies Who are Investment Adviser Representatives? A firm is a registered investment adviser--a person is not a registered investment adviser. Under state law, investment adviser representatives are persons who are employed by investment adviser firms and engage in such activities as rendering investment advice, making recommendations concerning securities, soliciting new customers or are active in managing accounts or portfolios for clients, among other duties. Investment adviser representatives must pass a qualifying examination and are required to be registered. Other frequently used terms to describe persons rendering these types of services include: financial planner, money manager, financial consultant, asset allocation analyst, or fee-only planner.
Wyoming Investment Adviser Registration Wyoming does not provide for investment adviser registration. Under current law, Wyoming-based advisers must register with the SEC regardless of their assets under management, unless otherwise exempt from registration as a private adviser able to rely upon the transition rule provided in 203-1(e).
Customer Testimonial I would like to state unequivocally that I have had a completely positive experience in dealing with Capital Management Services Group. Truly, from the first phone call that I made to Capital Management, to the conference call that was arranged with Hannah Terhune, the time she took in answering all of my questions, and, finally, to the follow-up by Amy Hong. My case involved the establishment of a Forex Incubator Fund, and was thoroughly handled. Hannah Terhune responded promptly to my subsequent phone calls and Amy Hong is absolutely 100% efficient. I, certainly, plan to enlist Capital Management's services for my legal needs in the future concerning fund management. I would rate my experience and results 5 out of 5 stars! Totally satisfied, Rxxxxxx Sxxxx, Sept.22, 2010
Exempt Single Family Office Dodd-Frank Act carved out an exclusion from registration under the 1940 Act for single family offices and instructed the SEC to define which family offices providing investment advice qualified. On June 22, 2011 the SEC released details of its final rules (effective August 29, 2011) regarding excluded single family offices. A family managing its own financial portfolio can apply the final rules to determine whether its family office is excluded from registration under the 1940 Act.
Family offices are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services. Determining whether a family office that is considered an investment adviser will now be excluded from the registration requirement under the 1940 act is a three-prong test. An excluded single family office is any company that does not hold itself out to the public as an investment adviser and: (1) provides investment advice only to "family clients"; (2) is wholly owned by family clients; and (3) is exclusively controlled by family members or family entities.
Family Clients include: lineal descendants (including by adoption, stepchildren, foster children, and, in some cases, by legal guardianship) of a common ancestor (who is no more than 10 generations removed from the youngest generation of family members), and such lineal descendants' spouses or spousal equivalents; Any non-profit or charitable organization funded exclusively by family clients; Any estate of a family member, former family member, key employee, or subject to certain conditions a former key employee; Certain family client trusts; Any company wholly-owned by and operated for the sole benefit of family clients. A
family office may also advise "key employees" and still be exempt from registration.
A "key employee" is (i) an executive officer, director, trustee, general partner, or person serving in a similar capacity at the family office or its affiliated family office; or (ii) any other employee of the family office or its affiliated family office (other than an employee performing solely clerical, secretarial, or administrative functions) who, in connection with his or her regular functions or duties, participates in the investment activities of the family office or affiliated family office, provided that such employee has been performing such functions or duties for or on behalf of the family office or affiliated family office, or substantially similar functions or duties for or on behalf of another company, for at least 12 months.
A family office may also advise trusts established by key employees whose beneficiaries are the key employee's immediate family members, or lineal descendants. Former key employees would not be required to liquidate or transfer their family office investments, but may not make new investments after their departure.
It should be noted that the SEC declined to permit a key employee's spouse, spousal equivalent, and immediate family members to be considered key employees.
The SEC also provided transition guidance. Specifically, all current family offices who will have to register because they do not meet the new definition must register by March 30, 2012. Additionally, family offices that obtained exemptive orders from the SEC prior to July 21, 2011 will be permitted to operate without registration.
I run a small hedge fund or a venture capital fund--do I have to deal with the SEC? Yes. The SEC requires exempt private fund managers to file many of the same forms as those of registered advisers. The SEC requires exempt private fund advisers to provide such records and reports as the SEC determines necessary or appropriate in the public interest or for the protection of investors.
Exempt Reporting Advisers Under the authority of Dodd-Frank, the SEC has designated private fund advisers that are exempt because they manage assets under $150 million and private fund advisers that are exempt because they solely advise venture capital funds as "exempt reporting advisers." Like their registered counterparts, exempt reporting advisers are required to file Form ADV through the IARD system managed by FINRA. Exempt Reporting Advisers must file a Form ADV for informational purposes to provide the SEC with information it deems necessary to track industry developments in the private fund arena.
The information required as part of the Part IA of Form ADV (Identifying Information), Item 2.B (SEC Reporting by Exempt Reporting Advisers), Item 3 (Form of Organization), Item 6 (Other Business Activities), Item 7 (Financial Industry Affiliations and Private Fund Reporting), Item 10 (Control Persons), and Item 11 (Disclosure Information). Additionally, exempt reporting advisers must complete Schedules A, B, C and D. The reports of the Exempt Reporting Advisers will be made public and available on the Investment Adviser Public Disclosure (IAPD) website. Exempt Reporting Advisers must also file updating amendments within 90 days of the end of the advisers' fiscal year or more frequently if required by specific new instructions to the Form ADV. When an adviser ceases to be an Exempt Reporting Adviser, new Rule 204-4 requires that adviser to file an amendment to its Form ADV to indicate that it is filing a final report.
Fortunately, Exempt Reporting Advisers are not required to file the plain-English narrative description of the adviser's business that must be filed at registration and provided to all clients (i.e., Form ADV Part 2). Any hedge fund manager running small or a venture venture capital fund is required to file their initial Form ADV between January 1, 2012 and March 30, 2012.
Exempt Foreign Private Adviser A foreign private adviser may also be exempt from SEC registration. An exempt foreign private adviser is any investment adviser that: (1) has no place of business in the United States; (2) in total, has fewer than 15 clients in the United States (including investors in the United States in private funds advised by the investment adviser); (3) has aggregate assets under management attributable to clients in the United States (and investors in the United States in private funds advised by the investment adviser) of less than $25 million; and (4) does not hold itself out generally to the public in the United States as an investment adviser. The SEC has the power to raise the threshold amount and has said that it will evaluate whether doing so may be appropriate in the future. Counting Investors With the notable exception of private funds, an investment adviser may treat as a single client a natural person and: (i) that person's minor children (whether or not they share the natural person's principal residence); (ii) any relative, spouse, spousal equivalent or relative of the spouse or of the spousal equivalent of the natural person who has the same principal residence; (iii) all accounts of which the natural person and/or the person's minor child or relative, spouse, spousal equivalent or relative of the spouse or of the spousal equivalent who has the same principal residence are the only primary beneficiaries; and (iv) all trusts of which the natural person and/or the person's minor child or relative, spouse, spousal equivalent or relative of the spouse or of the spousal equivalent who has the same principal residence are the only primary beneficiaries.
The final rule also allows an investment adviser to treat as a single client: (i) a corporation, general partnership, limited partnership, limited liability company, trust, or other legal organization to which the adviser provides investment advice based on the organization's investment objectives, and (ii) two or more legal organizations that have identical shareholders, partners, limited partners, members or beneficiaries.
However, in the event that any such legal organization is a collective investment vehicle excluded from the definition of investment company by Sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (the "Company Act"), reference must be made to the number of investors in such private fund as discussed below. The requirement to count each investor in a private fund against the 15 client and investor limitation is a significant departure from current practice. As noted above, special rules apply to legal organizations that constitute private funds. For collective investment vehicles excluded from the definition of investment company by Sections 3(c)(1) or 3(c)(7) of the Company Act, the fund adviser/manager must count each investor in the private fund against the 15 client and investor limitation. The Final Release clarifies that in calculating the number of investors, advisers are required to "look through" nominee and similar arrangements and count certain of the underlying holders of private fund interests. The SEC acknowledges that determining the number of private fund investors will require individual determinations based on the facts and circumstances of each case. However, the SEC does provide the following specific examples.
An adviser to a master fund in a master-feeder arrangement must treat as investors the holders of the securities of any feeder fund formed or operated for the purpose of investing in the master fund rather than the feeder funds, which act as conduits. An adviser must "look through" any nominee entity or similar arrangement. An adviser must "look through" any entity created for the purpose of making an investment and count each of its beneficial owners as investors. An adviser must count as an investor any holder of an instrument, such as a total return swap, that effectively transfers the risk of investing in the private fund away from the record owner of the private fund's securities. An adviser must count as an investor holders of both equity and debt securities.
Since calculating the number of private fund investors requires individual determinations based on facts and circumstances, the Final Release notes that an adviser may treat as an investor a person the adviser reasonably believes is the actual investor and that, if the adviser reasonably believes that the investor is not "in the United States," the adviser may treat such investor as a non-US investor.
Customer Testimonial It is hard to believe that Hannah and her team are even available for less than a small fortune. CMSG is efficient and knowledgeable yet extremely patient and understanding in dealing with clients at various levels of development. I received my initial advice from CMSG years before actually committing. Our legal needs seemingly transformed every few months, yet Hannah and her team were supportive and responsive at every turn. That level of effort was far more than I expected but has certainly become the benchmark for all others. I look forward to many years of excellence and superior service from Ms. Terhune and her team at Capital ManagementServices Group October 25, 2010 Mxxxxxxx D. Sxxxxxr II
What is Holding Out? None of the exemptions (except the Venture Capital Fund Advisers) apply if you "hold out" to the public. A person is deemed to "hold himself out generally to the public" as an investment adviser if he lets it be known by word of mouth through existing clients or otherwise, that he is willing to take on new clients. You are holding yourself out as an investment adviser if you: use the term investment adviser or similar term on a business card or stationary; are listed as an investment adviser in a telephone, business or building directory; or let it be known generally by word of mouth or otherwise that you are available to provide investment advice or you will accept new clients. Few states have a private adviser exemption that is practical. If you identify yourself as an investment advisor to anyone or use business cards, letterhead, a web site, a mass mailing, a trade show display, etc., you can't rely on the private adviser exemption to avoid registration. If you tell others by word of mouth or otherwise that you are available to provide investment advice, advisory services, or that you will accept new clients, you cannot rely on the private advisor exemption.
Customer Testimonial Hannah While studying for the Series 65 was a challenge, I never imagined how difficult it would be to register as a Registered Investment Adviser. I spent hours upon hours on research but the bureaucracy and the paper work was so overwhelming I found myself ready to give up. That is until I found you. Working with you and your team has been a pleasure. After speaking with you I provided some detailed information and before I knew it I was registered! I still can't believe how smoothly the whole process went. Speaking with you over the past few months has been informative and very enjoyable. I now have the confidence to move ahead with my business because I know that you are there to help. Thank you so so much for everything. Sincerely, Daniel Gxxxxz
SEC Adopts Amendments to Form ADV, Part 2 Investment advisers that are currently registered, with fiscal years ending on or after December 31, 2010, must file a brochure that complies with the new rules by March 31, 2011. New investment advisers filing for registration after January 1, 2011 must file a brochure that complies with the new requirements with their application for registration. Under the new rules, investment advisers must prepare a narrative, plain English, brochure, presented in a consistent, uniform manner that will make it easier for clients to compare different investment advisers' disclosures. Investment advisers must deliver the brochure to a client before or at the time the investment adviser enters into an advisory contract with the client. In addition, investment advisers must provide each client an annual summary of material changes to the brochure and either deliver a complete updated brochure or offer to provide the client with the updated brochure.
The new brochure addresses those topics the SEC believes are most relevant to clients, including (i) advisory business; (ii) fees and compensation; (iii) performance-based fees and side-by-side management; (iv) methods of analysis, investment strategies and risk of loss; (v) disciplinary information; (vi) code of ethics, participation or interest in client transactions and personal trading; and (vii) brokerage practices. An investment adviser is also required to deliver brochure supplements to clients and prospective clients providing them with information about the specific individuals who will provide services to the clients.
Customer Testimonial Hannah: You and your team delivered what you promised--on time and on budget. You all were were attentive and professional in every respect, and I appreciate your effort, advice and guidance very much. It was a pleasure working with you, and I would recommend you to others without reservation.Best Regards, PB. January 18, 2010
Hedge Fund and Investment Law Securities are regulated under Regulation D of the Securities Act of 1933. However, there is an exemption that allows you to make a private placement of your hedge fund without having to register the security with the SEC and each state (an expensive and time-consuming process). The attorneys that create your offering documents will ensure that the disclosures in the documents will allow you to achieve this exemption. The exemption is great news, and all the states honor this exemption from registration. If you desire the exemption, you probably want to form what is known as a Section 3(c)(1) fund (from the Investment Company Act of 1940). This type of a hedge fund allows you to have fewer than 100 investors, up to 35 of whom can be non-accredited investors. A typical hedge fund manager has only one client - the hedge fund. The individuals that buy into the hedge fund are the investors. Hedge funds and their advisers are governed primarily by the Investment Company Act of 1940, theSecurities Act of 1933 and the Investment Advisers Act of 1940.
Investment Company Act of 1940 This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The regulation is designed to minimize conflicts of interest that arise in these complex operations. The Act requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis. The focus of this Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. It is important to remember that the Act does not permit the SEC to directly supervise the investment decisions or activities of these companies or judge the merits of their investments. Most hedge funds have substantial investments in securities that would cause them to fall within the definition of investment company under the Investment Company Act. Hedge funds, however, typically rely on one of two statutory exclusions from the definition of investment company, which enables them to avoid the regulatory provisions of that Act.
Section 3(c)(1) Exclusion Section 3(c)(1) of the Investment Company Act excludes from the definition of investment company any issuer whose outstanding securities are beneficially owned by not more than 100 investors and which does make a public offering of its securities. Hedge funds relying on Section 3(c)(1) may not make a public offering. These hedge funds must comply with Section 4(2) of the Securities Act, and frequently do so by relying on the safe harbor available under Regulation D under that Act. Consequently, hedge funds may offer their securities only to “accredited investors,” and may not engage in any general solicitation or general advertising of their shares.
Section 3(c)(7) Exclusion Section 3(c)(7) of the Investment Company Act excludes from the definition of investment company any issuer whose outstanding securities are owned exclusively by persons who, at the time of acquisition of such securities, are “qualified purchasers,” and which is not making a public offering of its securities. A hedge fund relying on Section 3(c)(7) may accept an unlimited number of qualified purchasers for investment in the fund. As a practical matter, however, most funds relying on Section 3(c)(7) have no more than 499 investors in order to avoid the registration and reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”).
Qualified Purchasers Section 2(a)(51) of the Investment Company Act generally define qualified purchaser” to be: (1) any natural person who owns not less than $5 million in investments; (2) any family-owned company (as described in that section) that owns not less than $5 million in investments; (3) any other trust the trustee and settlor(s) of which are qualified purchasers that was not formed for the specific purpose of acquiring the securities of the Section 3(c)(7) fund; and (4) any person acting for its own account or the accounts of other qualified purchasers, that owns and invests on a discretionary basis not less than $25 million in investments.
Securities Act of 1933 Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives: require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities. Section 5 of the Securities Act mandates the registration with the SEC of public securities offerings and the delivery to purchasers of a prospectus containing specified categories of information about the issuer and the securities being offered, unless there is an available exemption from the registration requirements. Since limited partnership, LLC and other interests offered to investors in the case of a typical hedge fund fall within the definition of the term “securities” for purposes of the federal securities laws, the hedge funds must either register the offer and sale of the securities or rely on an exemption from registration. Offerings of hedge fund securities in the United States generally rely on the private offering exemption in Section 4(2) of the Securities Act or Rule 506 promulgated under that Section to avoid the registration and prospectus delivery requirements of Section 5.
The Private Offering Exemption of the Securities Act Section 4(2) of the Securities Act exempts from the registration and prospectus delivery requirements of Section 5 any “transactions by an issuer not involving any public offering.” The Section 4(2) exemption, commonly known as the “private offering” or “private placement” exemption, requires no notice or other filing or regulatory approval as a prerequisite for its availability. Regulation D and Rule 506 Rule 506 of Regulation D under the Securities Act is a set of requirements promulgated by the SEC to govern private offerings. Although compliance with the Rule 506 requirements is not required to establish the availability of a private offering exemption, satisfaction of the conditions of the rule entitles an issuer to claim the Section 4(2) exemption. In this sense, Rule 506 establishes “safe harbor” criteria for the private offering exemption, but is not the exclusive means of establishing entitlement to the exemption. Because of a degree of uncertainty as to the availability of the Section 4(2) exemption, many hedge funds tailor their offering and sale procedures to the criteria specified in Rule 506. Offerings to Accredited Investors The safe harbor protection most often relied upon by hedge funds under Rule 506 exempts offerings that are made exclusively to “accredited investors.” While Rule 506(b)(2)(i) limits the number of purchasers in a Rule 506 transaction to 35, this numerical limitation becomes irrelevant if the offering is made only to “accredited investors” because Rule 501(e)(1)(iv) provides that “accredited investors” are not counted for purposes of determining whether the issuer has exceeded the 35-purchaser limit. Issuers are permitted under these provisions to sell securities to an unlimited number of “accredited investors.” In addition, if the offering is made only to accredited investors, no specific information is required to be provided to prospective investors. Investment Advisers Act of 1940 This law regulates investment advisers. With certain exceptions, this Act requires that firms or sole practitioners compensated for advising others about securities investments must register with the SEC and conform to regulations designed to protect investors. Since the Act was amended in 1996, generally only advisers who have at least $25 million of assets under management or advise a registered investment company must register with the SEC.
Exam Requirements and Waivers There is no exam requirement by the SEC at the federal level. Most states require the Series 65 Exam - Uniform Registered Investment Adviser Examination. The Series 65 exam is waived by some states if the applicant has the CFP (Certified Financial Planner), the ChFC (Chartered Financial Consultant), APFS (Accredited Personal Financial Specialist), CFA (Chartered Financial Analyst), the CIC (Chartered Investment Counselor), or other designations or items as ruled by the (state) administrator.
What is the Series 65 Exam? The Series 65 exam is designed to qualify candidates as investment adviser representatives. The exam covers topics you need to understand in order to provide investment advice to clients. The Uniform Investment Adviser Law Examination consists of 130 questions plus 10 pretest questions covering the materials outlined in the following study outline. Applicants are allowed 3 hours to complete the examination. At least 89 (68.5%) of the questions must be answered correctly for an individual to pass the Series 65 exam. Some states require the principal of the RIA to pass the exam with a score greater than 70%. The examination is conducted as a closed book test. Upon completion of the examination, the score for each section and the overall test score will immediately be made available to the candidate.
The examination is administered by the FINRA. To schedule a candidate for the examination, an individual's firm should file an electronic Form U-4 or the individual should file a paper Form U-10 and pay the $135.00 examination fee to the FINRA at the following address: Send checks and U-10's to: FINRA - Field Support P.O. Box 5054 Philadelphia, PA 19175-5054. Once registered, FINRA will open a 120-day window within which you may schedule the exam.
What about the Series 66 and Series 7 Exams? An alternative to the Series 65 is the combination of the Series 7 and Series 66 exams. The Series 66 is only good in conjunction with the Series 7; most states will not sponsor a candidate for the Series 7. The Series 7/66 combination is generally used by an employee of a brokerage firm who is also registering as an investment adviser. Essentially, the Series 66 equals the combination of the Series 65 and Series 63 exams. A sponsor is not required to take either the 65 or 66 exams. The Series 66 is not valid until you pass the Series 7 exam.
I passed the Series 65; now what? Just passing the exam is only the first step. You must complete the registration process before you can solicit accounts. Successful completion of the Uniform Investment Adviser Law Examination does not excuse you of the personal responsibility to know and to abide by the specific requirements of the securities laws and regulations of the states in which you conduct business. Furthermore, although successful completion of the examination may satisfy a portion of the requirements of a particular state, it does not convey the right to transact business prior to obtaining a license from the state to conduct an advisory business.
Customer Testimonial Hannah Terhune and her associates have provided legal advice and services to me for over a year. She provided initial guidance to help determine the kind of fund most suitable for my goals, created the legal documents that are the framework for my hedge-fund, and assisted with ADV submissions to register my company as an Investment Advisor. I continue to rely on her for ongoing compliance issues in this complex and dynamic industry. I found Ms Terhune and her associates to be extremely knowledgeable and helpful in a very responsive way, with friendly and professional manners. Overall a very good experience. Highly recommended. Marty Cawthon ChipChat Technology Group
Use of Investment Adviser Website The SEC stated that an investment adviser that posted only information about private funds on a password protected web site is not holding itself out generally to the public. This ruling was based on the use of procedures designed to limit access to the web site information to a select group of accredited investors and the requirement that managers of the private funds agree to post only information related to these funds on the website and not to offer other services or products on the site. Investment Newsletters Section 202(a)(11) of the Investment Advisers Act of 1940 defines "investment adviser" in 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." Expressly excluded from the definition is "the publisher of bona fide newspaper, news magazine or business or financial publication of general and regular circulation." Section 401(f) of the Uniform Securities Act, upon which the majority of state securities laws are based, similarly excludes from the definition of investment adviser a publisher of any bona fid newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client. Since a bona fide newsletter publisher is not an investment adviser, registration as such is not required. Federal law is more lenient than state law.
Customer Testimonial It was indeed a pleasure working with you and your team at Capital Management Services Group to set up our investment management firm and its associated hedge fund. As someone with deep analytical and trading expertise who is unfamiliar with the complex regulatory environment surrounding hedge funds, I greatly appreciate the advice and clarity you brought to the process of establishing the firm. Your breadth of expertise was invaluable in navigating the plethora of choices to be made and more importantly, it was reflected in your ability to make the necessary filings and obtain approvals from all the regulatory agencies. I am also impressed that your estimate for how long the entire process would take was remarkably accurate. As a new business entity, it was a benefit to our firm that you were able to provide your knowledgeable and comprehensive services at extremely reasonable terms. I would not hesitate to recommend your firm to others seeking to launch or expand investment advisory businesses and hedge funds. Best regards, Dr. Sid Valluri Managing Director Odessa Capital Management LLC
Requirements for Investment Advisers that Advertise To protect investors, the SEC prohibits certain types of advertising practices by advisers. An "advertisement" includes any communication addressed to more than one person that offers any investment advisory service with regard to securities. An advertisement could include both a written publication (such as a website, newsletter or marketing brochure) as well as oral communications (such as an announcement made on radio or television). Advertising must not be false or misleading and must not contain any untrue statement of a material fact. Advertising, like all statements made to advisory clients and prospective clients, is subject to the general prohibition on fraud. Specifically prohibited are: testimonials; the use of past specific recommendations that were profitable, unless the adviser includes a list of all recommendations made during the past year; a representation that any graph, chart, or formula can in and of itself be used to determine which securities to buy or sell; and advertisements stating that any report, analysis, or service is free, unless it actually is free.
You may not imply that the SEC has sponsored, recommended or approved you, based upon your registration. You cannot use the term "registered investment adviser" unless you are registered, and you should not use this term to imply that as a registered adviser, you have a level of professional competence, education or special training. For example, you cannot use the term "RIA" after your name because using initials after a name usually indicates a degree or a licensed professional position for which there are certain qualifications; however, there are no federal qualifications for becoming an SEC-registered adviser.
Requirements for Investment Advisers that Pay Others to Solicit New Clients Registered investment advisers may pay cash compensation to others to seek out new clients on their behalf ("solicitors" or "finders") if they meet certain conditions. The fee must be paid pursuant to a written agreement to which you are a party and (with limited exceptions) the agreement must: describe the solicitor's activities and compensation arrangement; require that the solicitor perform the duties you assign and in compliance with the Advisers Act; require the solicitor to provide clients with a current copy of your disclosure document; and, if seeking clients for personalized advisory services, require the solicitor to provide clients with a separate written disclosure document containing specific information. You must receive from the solicited client, prior to or at the time you enter into an agreement, a signed and dated notice confirming that it was provided with your disclosure document and, if required, the solicitor's disclosure document. You must have a reasonable basis for believing that the solicitor has complied with the terms of your agreement. I deduct fees; do I have custody? Yes. If you are authorized to deduct your advisory fees or other expenses directly from clients' accounts, you have custody). If you have custody you must maintain these client funds and securities at a qualified custodian. Generally, qualified custodians include most banks and insured savings associations, SEC-registered broker-dealers, Commodity Exchange Act-registered futures commission merchants, and certain foreign financial institutions. Registered investment advisers that have "custody" or "possession" of client assets must take specific measures to protect client assets from loss or theft. "Custody" is defined as "holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them." This includes situations in which you enter into arrangements (including a general power of attorney) authorizing you to withdraw funds or securities from the client's account.
With respect to pooled investment vehicles over which you have custody, the qualified custodian must send account statements for the pooled vehicle directly to each investor. If you, rather than a qualified custodian, send account statements directly to your clients, you must have a surprise verification by an independent public accountant. The independent public accountant must verify the funds and securities in your custody or possession at least once each calendar year, and must then promptly file a certificate of examination with Form ADV-E with the SEC.
Form ADV Annual Review and Update Service As a registered investment adviser, you are required to file an annual update of Part 1A of your registration form (Form ADV) through the Investment Advisers Registration Depository (IARD). You must file an annual updating amendment to your Form ADV within 90 days after the end of your fiscal year. In addition to making annual filings, you must promptly file an amendment to your Form ADV whenever certain information contained in your Form ADV becomes inaccurate. You should update information that has changed, recalculating assets under management as necessary. During the year, if there are material changes to the information on the Form ADV, you should do an "other-than-annual" amendment within 30 days. Regulators can answer questions about whether a change is deemed material. State registrants pay no IARD fees for filing the annual update or other amendments to Form ADV other than a once-yearly system fee covering computerization costs.
Part II of Form ADV, often called the "brochure," is a disclosure document that describes a firm's business and the methods used to charge clients. You must give it to prospective clients. Much of the information is in narrative format and it cannot yet be filed electronically. Your Form ADV Part II needs to be accurate and current at all times. If you add a hedge fund to your managed account business, you ADV needs to be revised to include that hedge fund. Filing your annual ADV update shouldn't stop your business. Let us complete this task for you. You must make sure your Form ADV is complete and current. Inaccurate, misleading, or omitted Form ADV disclosure is the most frequently cited issue raised by SEC examinations of investment advisers.
Can I Self Register? Yes, but it is time consuming and tedious. State employees will not assist you with the registration process or give you legal advice. Many states require disclosures that relate to custody issues. If you don't know what you are doing, you may inadvertently increase your minimum capital requirements.
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Why Hire Us? We advise individuals on hedge fund startups worldwide. We are experts on investment adviser law, hedge fund law and forex and managed futures fund law. We handle state investment adviser registrations, SEC investment adviser registrations, U.S. hedge fund formations, foreign hedge fund formations, forex fund startups, managed futures fund startups, commodity pool formations, NFA registrations, international hedge fund formations, and investment manager registrations in many countries.
More Reasons to Hire Us When you engage us for hedge fund you get a unique combination of securities, tax, and international experience, focused on the trader niche. We have established a leadership position with traders. We are one destination for all your very special hedge fund and trader tax needs. We think we have the best set of offering documents based on the current and ever changing federal, state and offshore securities, commodities, and tax laws. We aim and deliver quick turnaround times, because we understand that our customers want to begin their money management business as soon as possible. We conceive, structure, and deploy the best tax saving strategies into your hedge fund vehicle (for the benefit of the manager and their investors) and your management company. Investors value tax-savings strategies and we utilize all our special knowledge and ideas in this area. Our customers value our one-stop relationship. We will help you start your business and continue to assist you. Our tax services division handles accounting, software, and tax compliance, including all tax matters (tax planning and tax returns). Only one thing counts with us and that's our customer relationships!
CapitalManagementServicesGroup.com is recognized by discriminating fund managers and traders as being the foremost tax and legal authority in the business. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge funds creation and management platforms, and the complex body of tax laws related thereto. Ms. Terhune's exensive knowledge and experience have made her an indispensable resource for serious fund management and trading professionals. Ms. Terhune's articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read about the above matters, Ms. Terhune has written about them. Give us the opportunity to use that knowledge and experience for you. CMSG provides the best services and support needed for hedge fund projects and associated activities in one convenient place, saving you time and energy. No need to coordinate work between different firms; we handle the entire process from start to finish. We offer hedge fund and money management accounting, tax services, tax preparation, consulting, entity and retirement plan formation services. Our professionals provide the highest quality services at competitive rates. But don't take our word for it, give us a call and let us prove what we can do for you. Read our Customer Testimonials and learn more About Us.
Personal Consultations and Fees You get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund attorney. Ms. Terhune's hard-earned knowledge and experience can be put to work to save you unnecessary steps and costly wasted effort. The consult is an invaluable opportunity to speak to Hannah one-on-one, and learn how to achieve more in less time. As a result, you can anticipate that the return on your investment will far outweigh the costs associated with our unsurpassed services. Of course, fees are a necessary part of the consultation. Ms. Terhune's credentials reflect an invaluable resource that combines a well-informed professional practitioner with sound ethical judgment that cannot be over-estimated. The expertise required to recommend best solutions and provide sound advice should never be taken lightly. We are confident that when you are finished with your consultation, you will be impressed and more informed about your business plans than ever before. Call (307) 213-4732 or Click Here to Request Services.
Our Commitment Henry David Thoreau wrote: "Do not hire a man who works for money, but him who does it for love of it." We are committed to your business plans and bringing you the best possible options. We are an established and internationally recognized business that serves and educates our clients throughout the industry. We do this by striving for the best results. Above all, we are a law firm. A lawyer is a philosopher and role model. The ability to improve our clients' lives is a privilege that we do not take lightly. There is tremendous power in being able to effect a positive change in our clients' lives. Our aim is to welcome our clients and to provide a comfortable, warm environment for all. We believe that making our clients feel comfortable and confident with the process provides the basis for a constructive relationship built on mutual trust. time. Thanks for visiting our website. We hope to have the opportunity to serve you.
