NSMIA Causes Gap in Adviser Disciplinary Records

Under provisions of the National Securities Markets Improvement Act of 1996, investment advisers with less than $25 million in assets under management now register with their home state rather than the SEC. These small advisers encompass about two-thirds of the adviser universe.The change was designed to improve adviser oversight. But since the summer of 1997, when small advisers no longer filed with

Under provisions of the National Securities Markets Improvement Act of 1996, investment advisers with less than $25 million in assets under management now register with their home state rather than the SEC. These small advisers encompass about two-thirds of the adviser universe.

The change was designed to improve adviser oversight. But since the summer of 1997, when small advisers no longer filed with the SEC, an information gap has developed about these IAs. With the SEC no longer a central source for information on state-registered advisers, and with spotty state record keeping, the information available to investors and regulators may be incomplete and inaccurate.

The North American Securities Administrators Association (NASAA), a group of state regulators, is close to tapping the NASD to run a new CRD-like database for state advisers that would centralize the information. But as one key member of NASAAs legal staff says, Some states are so far behind with their records that it could be years before they have anything to contribute to this effort.

We recognize there will be some challenge in coordinating all the records but we dont see it as an insurmountable problem, says Richard Cortese, deputy securities commissioner in Vermont and head of the system development effort for NASAA.

Many state regulators continue to be notoriously under-staffed, with systems that are archaic. Some states reportedly still keep adviser records on manual ledgers.

Every state is different. Some are quite sophisticated in their record keeping, others, I know are far less so, Cortese says.

No definitive solution has been proposed. However, Cortese says one possibility is to start from scratch and simply require a one-time additional license filing by all IAs. The idea, he says, would be to bypass the need to go through each states records and instead capture all the data in one large effort.

But we have a way to go before we realistically decide if that is the best way to go, Cortese says.

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