Wyoming poised to scrutinize its RIA industry for the first time

In about a year from now, 21 investment advisory firms representing about $518 million of assets will be required to switch to a state registration from the one they now hold with the SEC

Jul 6, 2016 @ 12:37 pm

By Christine Idzelis

Wyoming is preparing to scrutinize its registered investment advisory firms for the first time ever.

There are 21 investment adviser firms representing about $518 million of assets that will be required on July 1, 2017 to switch to a state registration from the one they hold with the Securities and Exchange Commission, according to Kelly Janes, the director of the Wyoming Secretary of State's compliance division. That's when its Uniform Securities Act, which was signed into law in March, will take effect.

“We're in the process of writing the rules and implementing our new law,” she said.

Wyoming, the only state that does not regulate RIAs, will put its investment advisers on an audit schedule once the law takes effect next year, according to Ms. Janes. In the past, some advisers have taken advantage of the state's lack of jurisdiction, falsely identifying their principal offices within the state.

“They would actually have to be here if they are going to claim this is where their principal office is,” she said.

The SEC is currently investigating Timothy Sexton, a resident of Dix Hills, N.Y., who is the CEO and owner of Bantry Bay Capital, an investment advisory firm that reported Jackson, Wyo., as the location of its principal office, according to a litigation release this month. When, in November, its examiners appeared at Bantry Bay's address, “they found a UPS Store at that location, but no investment advisory business,” the SEC said.

The agency has filed a subpoena against Mr. Sexton in the U.S. District Court for the District of Colorado, alleging that he withdrew his SEC registration in December after failing to respond to repeated requests for copies of his firm's books and records. Bantry Bay had reported about $310 million of assets, according to the court document filed June 27.

Efforts to reach Mr. Sexton were not immediately successful.

"The SEC is continuing its fact-finding investigation and, to date, has not concluded that any individual or entity has violated the federal securities laws," the agency said in the litigation release.

Last year the SEC cracked down on firms falsely identifying the state as their home office. In February 2015, the agency filed charges against three investment advisers, each with less than $100 million of assets, for falsely identifying Wyoming as the state where they practice.

The SEC expressed concern investors may be misled into believing the RIAs were larger than they were because of their registration with the agency. Larger firms often have an advantage in attracting new clients, as investors often perceive asset size as a metric to judge a firm's success.

While investment advisers with less than $25 million of assets are prohibited from registering with the SEC if their principal office is in a state that regulates them, firms based in Wyoming have been free to do so, potentially giving the false impression that they are larger than they are.

Firms with more than $100 million in assets must register with the SEC, a threshold that was increased from $25 million as a result of the 2010 Dodd-Frank Act Wall Street Reform and Consumer Protection Act. The new threshold, which first became effective in July 2011, has shifted primary regulatory authority over a substantial number of investment advisers to the states.

Wyoming has been concerned about firms setting up businesses in the state to take advantage of its lack of jurisdiction, according to Ms. Janes. ”It does give the appearance that they are a bigger firm than they actually are,” she said.

Any firm with more than $100 million of assets that is registered with the SEC as a federally covered investment adviser will not fall under the state's jurisdiction. "They may be subject to a notice filing but our office would not audit these firms," she said.

The decision to sign the new law wasn't just about sniffing out misconduct, as Wyoming also wants to be there for questions and concerns its RIAs may have.

“We do want to provide services to our legitimate investment advisers,” said Ms. Janes. “We want to be able to help and assist where we currently can't.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Broker protocol: Indecision over recruiting agreement is rampant

Ruckus over recruiting agreement has even wirehouse lifers wondering if it's time

Cetera reportedly exploring $1.5 billion sale

The company confirmed it's talking to investment bankers to 'explore how to best optimize [its] capital structure at lower costs.'

SEC Chairman Jay Clayton outlines goals for a new fiduciary standard

Rule should provide clarity on role of adviser, enhanced investor protection and regulatory coordination.

Advisers bemoan LPL's technology platform change

Those in a private LinkedIn chat room were sounding off about fears the independent broker-dealer will require a move to ClientWorks before it is fully ready.

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print