Andrew Donohue, Director of the SEC's Division of Investment Management, spoke at the 2007 Managed Accounts Solutions Conference in New York. He began his speech by reviewing statistics. Based on data from the SEC's IARD system, as of September 30, 2007 there were 10,817 investment advisers registered with the SEC. Of these, 486 advisers (4.5%) indicated that they sponsor a wrap fee program and 1,110 advisers (over 10%) indicated that they act as a portfolio manager for a wrap fee program.
He reviewed the SEC's principal trading rulemaking that responds to the decision by the Court of Appeals for the DC Circuit in Financial Planning Association v. SEC. He stated that new rule 206(3)-3T permits an adviser that also is a registered broker-dealer to give oral disclosure prior to each principal trade rather than the written disclosure otherwise required by section 206(3). The rule applies only to non-discretionary accounts -- where there already is client involvement in every transaction.
He mentioned that the RAND Corporation is conducting a study of the issue of the roles that investment advisers and broker dealers play in the retail financial services market. Following the Financial Planning Association v. SEC decision, Mr. Donohue stated that Chairman Cox approved additional emergency funding to accelerate this study so that it will be delivered to the SEC no later than December of this year, which is several months ahead of schedule.
Other topics addressed were Form ADV, Part 2, SMA trade execution and Rule 3a-4 under the Investment Company Act of 1940 (the inadvertent investment company rule). With respect to Rule 3a-4, Mr. Donohue stated that it was important that the SEC periodically review the conditions in the rule to consider whether they provide for an appropriate level of individualized treatment to support an exception from the definition of investment company for certain types of managed accounts or investment advisory programs.
Please click http://www.sec.gov/news/speech/2007/spch101907ajd.htm for a copy of his speech.