Order Governing Certain Federally Exempt Investment Advisers

the Commissioner of Banking (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act"), as amended by P.A. 97-220 (effective July 1, 1997), and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;

WHEREAS Section 36b-3(10) of the Act defines the term "investment adviser" to mean "any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities";

WHEREAS Title III of Public Law 104-290, The National Securities Markets Improvement Act of 1996 ("NSMIA"), which became effective on July 8, 1997, preempted the state registration of certain investment advisers who were either registered under Section 203 of the federal Investment Advisers Act of 1940 (the "Advisers Act") or excepted from the federal definition of "investment adviser" under Section 202(a)(11 ) of the Advisers Act;

WHEREAS Title III of NSMIA expressed a Congressional intent that an investment adviser would be required to register under Section 203 of the Advisers Act where it 1) had assets under management of not less than $25 million or such higher amount as the Securities and Exchange Commission (the "SEC") by rule deemed appropriate; or 2) was an adviser to an investment company registered under the Investment Company Act of 1940;

WHEREAS Title III of NSMIA was silent on whether the states were preempted from regulating investment advisers having $25 million or more in assets under management or acting as advisers to federally registered investment companies where such investment advisers would otherwise be exempt from federal registration by virtue of Section 203(b) of the Advisers Act;

WHEREAS the SEC has interpreted NSMIA as not foreclosing state registration of investment advisers who, despite their assets under management or their status as advisers to federally registered investment companies, were not required to register federally by virtue of Section 203(b) of the Advisers Act;

WHEREAS Section 203(b)(3) of the Advisers Act exempts from federal registration:

Any investment adviser who during the course of the preceding twelve months has had fewer than fifteen clients and who neither holds himself out generally to the public as an investment adviser nor acts as an investment adviser to any investment company registered under ... [the Investment Company Act of 1940], or a company which has elected to be a business development company pursuant to section 54 of title I of this Act and has not withdrawn its election. For purposes of determining the number of clients of an investment adviser under this paragraph, no shareholder, partner, or beneficial owner of a business development company, as defined in this title, shall be deemed to be a client of such investment adviser unless such person is a client of such investment adviser separate and apart from his status as a shareholder, partner, or beneficial owner;

WHEREAS, for purposes of Section 203(b) of the federal Advisers Act, the SEC has developed a non-exclusive safe harbor in Rule 203(b)(3)-1, which rule is incorporated by reference herein and made a part hereof, defining the term "client" and explaining that the term includes non-U.S. residents as well as clients nationwide;

WHEREAS Section 36b-3(10)(G) of the Act excludes from the state definition of "investment adviser" "such other persons not within the intent of this subsection as the commissioner may by ... order designate";

WHEREAS the Commissioner finds that the issuance of this order is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;


(1) The term "investment adviser" as defined in Section 36b-3(10) of the Act shall not include an investment adviser which, by virtue of its assets under management or its status as an investment adviser to an investment company registered under the Investment Company Act of 1940, would otherwise be required to register with the SEC as an investment adviser were it not for the exemption in Section 203(b)(3) of the federal Advisers Act. For purposes of ascertaining the investment adviser’s exempt status under federal law, the Commissioner acknowledges the applicability of SEC Rule 203(b)(3)-1 in counting advisory clients;
(2) Nothing in this Order shall be construed to prohibit an investment adviser otherwise excluded pursuant to the foregoing paragraph from voluntarily seeking investment adviser registration under the Act, nor shall this Order be construed to create a basis for enforcement action against those investment advisers who, on June 30, 1997 (a) were otherwise in compliance with state law; (b) would have been subject to exclusive federal oversight under the criteria established by NSMIA had Title III of NSMIA been effective on that date; and (c) were eligible to rely on the federal exemption from registration in Section 203(b)(3) of the federal Advisers Act; and
(3) This Order shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.
So ordered at Hartford, Connecticut
this 14th day of October, 1997
John P. Burke
Banking Commissioner

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