The other thing that they realized from experience was that because the form had never been changed after umbrella registration was offered, there were a lot of places in which the industry was scratching it's head. There's a table in form 80 V, in which you show the owners of your business. The officers of your business, and how do you use a single table when you have five different registered investment advisors operating under one registration. The single table format was very awkward. People were populating information about who owned the different advisors and their business in different ways into the form.

Those were the two primary things that they were focused on. One, let's be transparent about the fact that the optoin exists, and then let's retool the form so that it better matches the option. Now if you're familiar with umbrella registratoin, you're familiar with these two pieces of jargon, relying advisors, and filing advisors. Filing advisors are really what you could think of as the primary advisor, the one that files the form 80 V. The relying advisors are the satellite group of advisors around that filing advisor, who are piggy backing and taking advantage of the registration and treating themselves as registered, even though they're not identified on the masthead of the form 80 V.

In the middle box here, you see a reference to schedule R. Remember the problem that people didn't know where to complete data about each of their relying advisors. Schedule R is the SEC's response. Each relying advisor will complete a schedule R going forward. The last box on this page. Umbrella registration is available only to US RIAs. Your principal place of business as the filing advisor should be in the United States. This is contrary, frankly to the way some practices built up. There are, in fact, non US advisor organizations using umbrella reporting today. Exempt reporting advisors. That category of advisors who aren't fully registered but are completing forms 80 V. Exempt reporting advisors have been using umbrella reporting models. They are also excluded from this rule making.

If you are an exempt reporting advisor, there is a bit of a ray of hope for you, and that's a FAQ published by the SEC staff some number of years ago that has rules for how an exempt reporting advisor can do a form of umbrella registration with respect to what the FAQ calls SPE's or Special Purpose Vehicles. As long as you have these special purpose vehicles, and they're thinking general partners of partnerships and that type of thing, the ERA still has some room to maneuver for umbrella reporting.

Pat, anything here before we go on? 

Nothing here.

Okay. Next slide please. Here are the conditions to rely on umbrella registration, and these are as the SEC says, "codifications of that no action letter." Meaning that the provisions that are here are provisions that will be familiar from a no action letter. Now, I will say that there is a difference between no action letter and codification, and again, I think people felt that with a no action letter they had some room to maneuver and people made different judgments about how close they were to the particular elements of umbrella registration. I think now that this is codified in a specific piece of the form, people are going to ask themselves afresh, "If I made a judgement call, should I stay with that judgement call or not?"

At the top filing an each relying advisor. All of the advisors in the mix here are supposed to be advising only private funds or SMA for qualified clients, and otherwise eligible to invest in the private fund. The investment strategies across that group should be "substantially similar." What does that mean in practice? The biggest thing it leaves out are people with retail businesses and mutual fund businesses. If that's your business, on the face of it you fall outside that test. The advisory activities are subject to examination by the commission.

The next bullet here, that you're operating under a single code of ethics, compliance program, that's a single set of written policies, and a single chief compliance officer. That's a reasonably restrictive package, and people did say in the rule making, "What if one investment advisor has a compliance program that's a little bit different? Cant' it at least be a little bit different? What if it meets a substantially similar test to the main compliance program?" The SEC basically came down and said, "No, we want a unified compliance program across the business here. 

We've already talked about the principle place of business in the United States, and the box at the bottom that the various relying advisors and their employees, that they should all be subject to the filing advisor's supervision and control. Again, a unified business.

Nathan?

Yeah.

You spoke briefly about exempt reporting advisors, but what about registered advisors who are very comfortable with their pre codification approach to umbrella registration. I don't think I've seen a statement from the staff saying that they can not continue to do that, have you?

I have not. I mean it is implicit in the rule making, that people should be taking what I'm calling a fresh look here, but no, I can't think of a direct statement that says that the prior practice is made unacceptable. It's certainly a presumption. 

Yeah, and I suspect the staff wouldn't be terribly happy with people who persisted in filing the old way with information somewhat scattered on an arbitrary basis through the 80 V. 

I agree, Pat. Let's move on to the next slide. This is the Schedule R that I mentioned, and Pat's reference to information being scattered throughout the form 80 V. Again, people found all kinds of places on the form 80 V where they were dropping in information about the "relying advisor." Schedule R will bring that altogether in one place. At some level that's a good thing. It is going to make the form easier to understand for third parties looking at your form. At some level though if you have dropped information or not used information on schedule R and you've sort of taken the view that you did the best you could with the prior form, and if a particular piece of information didn't make it in from the relying advisors, well that was okay in the balance. Schedule R is really going to call that into question, and I think there are going to be advisors that find they're putting some new information out there that they're going to have to condition their business to the fact that new information is going out.

The most obvious example in my mind is that the ownership of the relying advisors, all the way down to 5% owners is going to now be public across the industry.