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Bill114th CongressFiled Jun 9, 2016Finance and Financial Sector
H.R. 5424

Investment Advisers Modernization Act of 2016

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Under committee review

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What it doesSummary passed house amended (Sep 9, 2016)

Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:

  • qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
  • knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
  • qualified purchasers; or
  • accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).

(Sec. 3) The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

(Sec. 4) On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

(Sec. 6) Any regulation referred to in this bill includes any successor regulation.

What just happenedSep 12, 2016

Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

Who’s behind it

Rep. Hurt, Robert [R-VA-5](R-VA)Sponsor
5 cosponsors3 D2 R
Read on Congress.gov
5cosponsors2committees27actions2amendments1related bills7subjects
  1. Sep 12, 2016IntroReferral

    Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

    Banking, Housing, and Urban Affairs Committee
  2. Sep 9, 2016FloorH38310

    Motion to reconsider laid on the table Agreed to without objection.

  3. Sep 9, 2016FloorH37100

    On passage Passed by the Yeas and Nays: 261 - 145 (Roll no. 495).

  4. Sep 9, 2016Floor8000

    Passed/agreed to in House: On passage Passed by the Yeas and Nays: 261 - 145 (Roll no. 495).

  5. Sep 9, 2016FloorH36110

    On motion to recommit with instructions Failed by the Yeas and Nays: 176 - 232 (Roll no. 494).

    Financial Services Committee
  6. Sep 9, 2016FloorH30000

    Considered as unfinished business. (consideration: CR H5244-5246)

  7. Sep 9, 2016FloorH8D000

    POSTPONED PROCEEDINGS - At the conclusion of debate on the Torres motion to recommit, the Chair put the question on adoption of the motion and by voice vote, announced the noes had prevailed. Mrs. Torres demanded the yeas and nays and the Chair postponed further proceedings on the motion to recommit until later in the legislative day.

  8. Sep 9, 2016FloorH8A000

    The previous question on the motion to recommit with instructions was ordered without objection. (consideration: CR H5244)

  9. Sep 9, 2016FloorH8D000

    DEBATE - The House proceeded with 10 minutes of debate on the Torres motion to recommit with instructions pending a reservation of a point of order. The instructions contained in the motion seek to require the bill to be reported back to the House with an amendment to add at the end of the bill a section pertaining to Report on Emergency Vehicle Response Times of Companies Owned by Private Funds. Subsequently, the reservation was removed.

  10. Sep 9, 2016FloorH36100

    Mrs. Torres moved to recommit with instructions to the Committee on Financial Services. (consideration: CR H5238-5239, H5244-5245; text: CR H5238-5239)

    Financial Services Committee
  11. Sep 9, 2016FloorH8D000

    DEBATE - Pursuant to the provisions of H.Res. 844, the House proceeded with 10 minutes of debate on the Foster amendment.

  12. Sep 9, 2016FloorH8D000

    DEBATE - The House proceeded with one hour of debate on H.R. 5424.

  13. Sep 9, 2016FloorH8D000

    Rule provides for consideration of H.R. 2357 and H.R. 5424.

  14. Sep 9, 2016FloorH30000

    Considered under the provisions of rule H. Res. 844. (consideration: CR H5230-5239; text of measure as reported in House: CR H5230-5231)

  15. Sep 9, 2016FloorH8D000

    ORDER OF PROCEDURE - Mr. Hurt asked unanimous consent that the question of adopting a motion to recommit on H.R. 5424 may be subject to postponement as though under clause 8 of rule 20.

  16. Sep 8, 2016FloorH1L220

    Rule H. Res. 844 passed House.

  17. Sep 6, 2016FloorH1L210

    Rules Committee Resolution H. Res. 844 Reported to House. Rule provides for consideration of H.R. 2357 and H.R. 5424.

  18. Jul 21, 2016CalendarsH12410

    Placed on the Union Calendar, Calendar No. 540.

  19. Jul 21, 2016CommitteeH12200

    Reported (Amended) by the Committee on Financial Services. H. Rept. 114-698.

    Financial Services Committee
  20. Jul 21, 2016Committee5000

    Reported (Amended) by the Committee on Financial Services. H. Rept. 114-698.

    Financial Services Committee
  21. Jun 16, 2016Committee

    Ordered to be Reported (Amended) by the Yeas and Nays: 47 - 12.

    Financial Services Committee
  22. Jun 16, 2016Committee

    Committee Consideration and Mark-up Session Held.

    Financial Services Committee
  23. Jun 15, 2016Committee

    Committee Consideration and Mark-up Session Held.

    Financial Services Committee
  24. Jun 9, 2016IntroReferralH11100

    Referred to the House Committee on Financial Services.

    Financial Services Committee
  25. Jun 9, 2016IntroReferralIntro-H

    Introduced in House

  26. Jun 9, 2016IntroReferral1000

    Introduced in House

  27. May 17, 2016Committee

    Hearings Held by the Subcommittee on Capital Markets and Government Sponsored Enterprises Prior to Introduction and Referral.

    Capital Markets Subcommittee
Passed House amendedSep 9, 201636

Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:

  • qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
  • knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
  • qualified purchasers; or
  • accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).

(Sec. 3) The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

(Sec. 4) On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

(Sec. 6) Any regulation referred to in this bill includes any successor regulation.

Reported to House with amendment(s)Jul 21, 201617

Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:

  • qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
  • knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
  • qualified purchasers; or
  • accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).

(Sec. 3) Another regulation shall declare that an investment adviser is not required to deliver a brochure or brochure supplement to a client that is a limited partnership, limited liability company, or other pooled investment vehicle for which each limited partner, member, or other equity owner has received, before purchasing a security issued by the pooled investment vehicle, a prospectus, private placement memorandum, or other offering document containing (to the extent material to the private fund offering) substantially the same information as would be required by Part 2A or 2B of Form ADV.

The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant. The current "privately offered securities" exemptions from this custody rule must apply to the outstanding securities (except short-term paper) of the pooled investment vehicle beneficially owned exclusively by:

  • the investment adviser;
  • affiliated or supervised persons;
  • officers, directors, and employees of affiliated persons;
  • family members (or former family members) of such persons; or
  • officers, directors, and employees or affiliated persons of, or persons who provide, have provided, or who have entered a contract to provide services to the investment adviser of the pooled investment vehicle, one or more of the adviser's clients, or to issuers from which the pooled investment vehicle or any other client of the vehicle's investment adviser has acquired securities, such as the portfolio company of a private fund.

The SEC must also make an exception that applies if the pooled investment vehicle has been established to hold only the securities of a single issuer in which one or more pooled investment vehicles managed by the investment adviser have acquired a controlling interest.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

(Sec. 4) On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

(Sec. 6) Any regulation referred to in this bill includes any successor regulation.

Introduced in HouseJun 9, 2016

Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

A specified regulation regarding books and records that investment advisers must maintain shall be amended to declare that an investment adviser is not required to maintain:

  • any communications or materials (including any made available in a secure electronic or physical data room) used in connection with due diligence for a prospective investment, if the communications or materials are subject to a confidentiality agreement; or
  • any written communications regarding recommendations, advise, purchase or sell orders, or the receipt, disbursement or delivery of funds or securities if they are sent and received only by supervised persons of the investment adviser.

The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to accredited investors, qualified clients, qualified purchasers, or knowledgeable employees.

Another regulation shall declare that an investment adviser is not required to deliver a brochure or brochure supplement to a client that is a limited partnership, limited liability company, or other pooled investment vehicle for which each limited partner, member, or other equity owner has received, before purchasing a security issued by the pooled investment vehicle, a prospectus, private placement memorandum, or other offering document containing (to the extent material to the private fund offering) substantially the same information as would be required by Part 2A or 2B of Form ADV.

The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant. The current "privately offered securities" exemptions from this custody rule must apply to both certificated and uncertificated securities and exempt special purpose vehicles managed by private fund sponsors and co-investment funds that hold only one investment.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

Investment Advisers Modernization Act of 2016 — Informed