Effective July 21, 2011 (one year from the date that the Reform Act became law), there will be significant changes to the landscape for investment advisers.

For example, investment advisers with less than $100 million of assets under management will be required to register with their home states unless the home states do not require registration or do not have an investment adviser examination program. All states other than Wyoming currently register investment advisers, and a majority of the states have examination programs for registered investment advisers. It is expected that prior to July 2011, additional states will have implemented investment adviser examination programs. This state registration requirement does not pertain to investment advisers to a registered investment company or to a business development company or one that would be required to register as an investment adviser with at least 15 states.

Also, those investment advisers who currently rely on the private investment adviser exemption by having fewer than 15 clients in any 12-month period will need to register with their home state or with the SEC. Many of the advisers to private funds (including hedge funds) rely on this exemption. Under the Reform Act, advisers managing private funds who rely on either the Section 3(c)(1) or Section 3(c)(7) exemptions from registration under the Investment Company Act of 1940 and that have at least $150 million of assets under management, will be required to register with the SEC as investment advisers under the Investment Advisers Act of 1940. The private adviser exemption will go away on July 21, 2011. Such private fund advisers may be able to qualify for an exemption from SEC registration. If such an adviser does not have $150 million of assets under management and provides advice exclusively to those private funds that rely on either Section 3(c)(1) or Section 3(c)(7), it would not have to register with the SEC. Also, advisers solely to venture capital funds will not have to register with the SEC. The definition of venture capital funds will be determined by the SEC by rule prior to July 21, 2011.

Exemptions from SEC registration also will be available to advisers who exclusively advise small business investment companies licensed under the Small Business Investment Act of 1958 and for “family offices,” a term to be defined by rule by the SEC. This term generally pertains to investment advisers who have been formed to exclusively provide investment advice to the members of a single family.

What all of this means is that those investment advisers currently registered with the SEC, having assets under management of less than $100 million prior to July 21, 2011, and are not otherwise required to be registered with the SEC, will have to withdraw from SEC registration and become registered with the state securities commission of their home states and possibly other states, unless exempt from such registration.

The SEC and the state securities administrators are supposedly discussing how to make this registration transformation for investment advisers as efficient as possible. Whether it turns out to be an efficient process will depend, of course, on the degree of cooperation between the SEC and the states, and that is always difficult to predict. Stay tuned.