Assignment Of Investment Advisory Agreement

The Staff has received requests as to whether certain investment advisors registered by the CFTC can take advantage of the exemption from registration under the Consultants Act of Section 203 (b) (6) of this Act as amended by the Dodd-Frank Act. While beyond the scope of this article, a consultant should also carefully consider what the SEC considers a “task.” At a very high level, a classification occurs when the control is changed at the counsellor`s. There is an often cited rebuttable presumption that “control” represents an interest of 25% or more in the ownership/voting rights of the consultant, but technically the rebuttable presumption exists in the Investment Corporation and not in the Investment Advisers Act. The department considers that a consultant can only announce past performance (both actual performance, hypothetical results or models) if the advertisement meets certain conditions and limitations. An ad using performance data must reveal all the essential facts necessary to avoid unwarranted conclusions. An investment advisor, among others, cannot disclose his performance data if the consultant: (1) does not disclose the effects of the material market or economic conditions on the results auctioned; (2) does not disclose whether and to what extent the results auctioned reflect the reinvestment of dividends or other income; or (3) above profit potential, without even revealing the potential for loss. In addition to these exclusions, the Consultants Act gives the Commission the power to exclude on orders other individuals and companies that do not meet the definition of investment advisor. Any person or company applying for such a contract should refer to rules 0-4 and 0-5 under the Advisers Act and Investment Advisers Act Release No. 969 (April 30, 1985). When these guidelines were made available, we noted a number of previously published guidelines. In particular, staff made it clear in advance that Section 205 (a) (2) did not prohibit the transfer of an investment advisory contract by a consultant without the client`s consent.

The section simply provides that the contract must contain the specified provision. (See American Century Companies, Inc./J.P. Morgan – co. Incorporated Staff No-Action Letter (23.12.1997) under sec.gov/divisions/investment/noaction/1997/americancentury122397.pdf) A transfer clause applicable in an investment advisory contract should give the client a reasonable period of time to object after written notification of the assignment (normally 30-60 days). Language should make the client understand that an failure to object to an assignment in days X is considered a de facto consent to the assignment. Section 18 (f) (1) prohibits a registered open investment company or a number of other (funds) in general from issuing priority guarantees. Section 18 (g) of the Investment Corporations Act defines the safety of older adults, in part relevant, as any class of shares that has priority over any other class in terms of asset allocation or dividend payments. Section 18 (i) generally stipulates that any share of shares issued by a fund has the right to vote and that it has the equal right to vote on any other outstanding vote. The point is that consultants need to be aware of positive issues v. negative approval, even if their entire practice does not change ownership.

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