NASAA ALL-MEMBER CALL November 3, 2011 Investment Adviser Switch Update

Topics  Update on the timeline for the switch by mid-sized investment advisers.  NASAA’s investment adviser coordinated review program.  IARD programming update.  NASAA proposed exemption for private fund advisers.  Summary.  Questions. 2

Reminder – “Mid-sized Investment Adviser”  Mid-sized investment adviser:  AUM of $25 million - $100 million (note “buffer” for SEC- registered firms is $90 million - $110 million).  Principal office and place of business in a state where IA is required to be registered and, if registered, is subject to examination.  If exempt or excluded in state where principal office is located, then SEC registration unless exempt.  NY and WY based advisers excluded.  Investment advisers required to register in 15 or more states will register with the SEC. 3

Switch Update – No Changes in Schedule 4  Mid-sized advisers registered with the SEC as of 1/1/2012.  Mid-sized advisers registered with the SEC as of 7/21/11 must remain SEC registered until 1/1/12.  Mid-sized advisers will file an amendment with the SEC between 1/1/12 - 3/30/12.  Mid-sized advisers no longer eligible for SEC registration must file ADV-W by 6/28/12.  “New” Mid-sized advisers.  As of 7/21/2011 mid-sized advisers must register with the appropriate state regulator (prohibited from SEC registration).  Advisers with AUM of $100 million or more continue to register with SEC.

Switch Update: Suggestions for Processing Switching Firms  Allow firms to file early.  Remain in “pending” status.  No renewal fees for “pending” firms.  Complete state registration process before filing ADV-W with SEC.  Avoid imposing fees for switching firms.  Change fee settings with FINRA.  Fee settings available at:  Contact regulatory user support staff at FINRA.  “Reg fee if firm is noticed filed” set to “$0.”  Two weeks notice to FINRA.  Transition queue – Recommend not using this queue for switching firms. 5

NASAA Investment Adviser Coordinated Review Program 6  NASAA Investment Adviser Coordinated Review Program (“Program”).  NASAA has contracted with a program manager to manage the program.  Advisers required to register in 4 or more states can elect to have their applications reviewed in the program.  Program availability: November 7 through March 30.  Advisers elect to participate by completing the Investment Adviser Coordinated Review Form on the NASAA website and clicking the “submit” button.  Submission of the form notifies the program manager of the adviser’s participation.  The program manager will send an to the states where the adviser has applied that a conference call will be convened to discuss the application.  The program’s goals are to expedite the reviews of applications and to avoid conflicting and inconsistent deficiencies or comments.  Each state can send a separate deficiency letter.  If there are inconsistent or conflicting deficiencies that cannot be resolved, the program manager will schedule a second call with relevant staff and the state’s securities administrator.

NASAA Coordinated Review Program 7  Notice to switching advisers.  NASAA is sending an describing the program to advisers who will be required to register in 4 or more states.  The notice will be sent to these advisers following this call.  A copy of the notice will be available on the Switch Resource Center on the NASAA website.  FAQs about the program will be posted to the Switch Resource Center on the NASAA website.

IARD Programming Update 8  On target for November 7 release.  In order to implement this release, CRD and IARD will not be available beginning 8:00 p.m. Eastern on Friday, November 4.  The scope of the release is available in release  Changes to the ADV will include new filing options for advisers including filing with the states or the SEC as an exempt reporting adviser.

Exempt Reporting Advisers 9  Under Dodd-Frank, advisers to private funds (hedge fund managers, private equity fund managers, etc) may report to the SEC. These are “exempt reporting advisers” (“ERAs”).  Advisers to private funds with less than $150 million AUM.  Advisers to venture capital funds (as defined by the SEC) regardless of AUM.  ERAs do not register with the SEC and are not “notice filers” with the states.  No preemption of state authority to require registration.  NASAA has prepared a model rule that would provide an exemption from registration for some ERAs.  The NASAA Board has recently voted to take the proposal to the membership for a vote on adoption of the proposal as a model rule.  The rule will be distributed to the members in 7-10 days.  There will be an electronic vote on the rule the first week in December.

NASAA’s Private Adviser Proposal  The rule includes advisers to 3(c)(1) and 3(c)(7) funds and other private funds that would satisfy the statutory requirements found in these exclusions. Generally, a 3(c)(7) fund is composed entirely of qualified purchasers (people with at least $5 million in investments), and a 3(c)(1) fund has no more than 100 beneficial owners.  There is a “bad boy” disqualification provision.  The exemption is contingent on the adviser filing a report with the state through IARD. This report is identical to the report required by the SEC for exempt reporting advisers.  There are additional requirements for advisers to 3(c)(1) funds.  Investors in the 3(c)(1) fund must be “qualified clients” under SEC Rule (either $1 million in investments managed by the adviser or at least $2 million in net worth excluding primary residence).  Specific additional disclosures, including the duties the adviser owes to the individual investors.  Advisers registered with the SEC are not eligible for the exemption.  Investment adviser representatives employed by the advisers would not be required to register.  The rule contemplates a fee for filing the report, but in most instances a statutory change is required.  Provisions for transitioning to registration if exemption is lost.  Optional “grandfathering” provision that would allow currently exempt advisers to remain exempt under certain conditions. 10

Summary 11  The switch is continuing on schedule.  The coordinated review program of switching advisers will be underway beginning November 7.  NASAA is sending a notice to advisers with information about the coordinated review program.  IARD programming is on schedule and will deploy this weekend.  NASAA will be distributing the proposed rule for exempt reporting advisers and a vote will happen in early December.

Questions 12