1. © Goulston & Storrs, 2004 The Investment Advisers Act and Its Impact on “Real Estate Only” Investment Advisers Rebecca O’Brien Radford Goulston & Storrs, P.C.

2. © Goulston & Storrs, 2004 Advisers Act Update  Recent rules  Impact on your business as a real estate adviser

3. © Goulston & Storrs, 2004 Today’s Topics  Custody Rule  Proxy Voting Rule  Compliance Programs for Investment Advisers and Chief Compliance Officers  Proposed Adviser Code of Ethics  Proposed Anti-Money Laundering Rule  SEC Inspections

4. © Goulston & Storrs, 2004 Custody Rule: Rule 206(4)-2  An adviser that has custody of client funds or securities must maintain those assets with a “qualified custodian”  What is “custody”? –holding client funds or securities –having authority to obtain possession of them  Exceptions –Private Placement –Pooled Investment Vehicle –Mutual Funds

5. © Goulston & Storrs, 2004 What Does This Mean to You?  Do you have custody?  Do you hold assets other than funds or securities?

6. © Goulston & Storrs, 2004 Proxy Voting: Rule 206(4)-6  Advisers that exercise voting authority with respect to client securities must: –adopt and implement policies and procedures –describe and provide copies on request –disclose how to find out how proxies were voted

7. © Goulston & Storrs, 2004 Proxy Voting: Rule 206(4)-6  Considerations: –Do you have authority to vote proxies? –What should you cover in the policies and procedures? –How does this apply to your clients and their investments in real estate assets?

8. © Goulston & Storrs, 2004 Compliance Programs: Rule 206(4)-7  Advisers must implement compliance programs by October 5, 2004: –Adopt policies and procedures –Have an annual review –Appoint a chief compliance officer

9. © Goulston & Storrs, 2004 Compliance Programs: Rule 206(4)-7  Chief Compliance Officer: –Empowered to enforce –Sufficient seniority  Goals of Policies and Procedures: –Detect violations –Correct violations –Prevent violations

10. © Goulston & Storrs, 2004 Compliance Programs: Rule 206(4)-7  How to go about designing your compliance program (according to Lori Richards, OCIE): –Inventory your compliance obligations –Identify areas of conflicts of interest –Match practices to obligations and conflicts: any gaps? –Assess effectiveness of existing practices –Any additional procedures needed? –Write them down: goal, when performed, who will do it –Test the procedures

11. © Goulston & Storrs, 2004 Compliance Programs: Rule 206(4)-7  What might your compliance program include? –Portfolio management –Trading practices –Personal trading –Protecting assets –Accurate disclosure, books & records –Business continuity plans  Annual review

12. © Goulston & Storrs, 2004 Advisers Code of Ethics: Proposed Rule 204A-1  Establish a code of ethics that would –set forth standards of business conduct –reflect fiduciary duty –include references to compliance with federal securities laws –prevent access to material, non-public information –report securities transactions and pre-approve certain transactions –report violations to Chief Compliance Officer –require written acknowledgement of the code

13. © Goulston & Storrs, 2004 Advisers Code of Ethics: Proposed Rule 204A-1  Who are “access persons”? –Access to material, non-public information –Involved in non-public recommendations to clients –Directors, officers and partners are deemed access persons –Portfolio managers would be access persons

14. © Goulston & Storrs, 2004 Advisers Code of Ethics: Proposed Rule 204A-1  What specifics might be included? –Pre-clearance –Restricted lists –Blackout periods –Prohibitions on short-swing trades/market timing –Procedures to detect conflicts of interest

15. © Goulston & Storrs, 2004 Anti-Money Laundering: Proposed Rule  FinCEN proposed Advisers AML rule in May 2003 - not yet adopted  Four specific requirements of program: –ID unusual transactions –Independently test procedures –Designate person in charge –Provide for ongoing training  Rule provides for avoiding overlapping procedures

16. © Goulston & Storrs, 2004 SEC Inspections  Some Brief Advice –Preparation –Responsiveness –Follow-up

17. © Goulston & Storrs, 2004 The Investment Advisers Act and Its Impact on “Real Estate Only” Investment Advisers Rebecca O’Brien Radford Goulston & Storrs, P.C.