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Guide to SEC Registration


Private Fund Investment Advisers

Pursuant to the Private Fund Investment Advisers Registration Act of 2010

The guide was prepared by SEC Compliance Consultants, Inc, in response to the July
21st, 2010, passage of the Private Fund Investment Advisers Registration Act of 2010
(“the Registration Act”), which is part of the larger Dodd-Frank Wall Street Reform and
Consumer Protection Act. The Registration Act has significant implications for many
currently unregistered U.S. and non-U.S. advisers of private funds.

July 21 , 2010

Disclaimer: SEC Compliance Consultants, Inc. is not a law firm and does not provide legal advice. This document should
not be considered legal advice on any subject matter. The information contained in this document is presented without
any warranty or representation as to its accuracy or completeness, or whether it reflects the most current regulatory
developments. This document is provided for general information purposes only. Further distribution of this document is
permitted so long as its distribution is solely for the purposes discussed in this disclaimer and consequently, the
distributing party cannot be held liable for its accuracy or completeness, or whether it reflects the most current
regulatory developments.
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Table of Contents

Private Fund Investment Advisers Registration Act of 2010 .............................................. 3
Implications for Investment Advisers to Private Funds ...................................................... 6
Compliance Rule - Advisers Act Rule 206(4)-7 .................................................................. 7
Registration Process.......................................................................................................... 10
Form ADV - Disclosure Requirements............................................................................... 10
Associated Costs ............................................................................................................... 15
Life after Registration ...................................................................................................... 16
Contact Information.......................................................................................................... 19

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Private Fund Investment Advisers Registration Act of 2010

Today, July 21st, 2010, the President signed into law the Dodd-Frank Wall Street Reform
and Consumer Protection Act, which includes in Title IV, the Private Fund Investment
Advisers Registration Act of 2010 (the “Registration Act”). The Registration Act, among
other things, amends the Investment Advisers Act of 1940, (the "Advisers Act") and has
significant implications for advisers to both U.S. and non‐U.S. domiciled private funds.

The Registration Act eliminates the exemption from registration with the Securities and
Exchange Commission (“SEC”) for private fund advisers who have fewer than 15 clients
and do not hold themselves out to the public as investment advisers. Consequently,
unless an investment adviser to a private fund qualifies for another exemption, they will
be required to register with the SEC.

The Registration Act provides for new exemptions and certain exclusions from SEC
Registration. These are as follows:

Private Fund Advisers with AUM Less than $150 million: Exempt from SEC
registration are investment advisers that advise only private funds 1 and
have AUM less than $150 million.

Foreign Fund Advisers: Exempt from registration are “foreign fund
advisers” defined as an adviser that: (i) has no place of business in the
United States; (ii) has fewer than 15 clients and investors in the United
States in private funds; (iii) has aggregate AUM attributable to investors in
the United States of less than $25 million; and (iv) does not hold itself out to
the public in the United States as an investment adviser.

Family Offices: Excluded from the definition of an investment adviser is any
family office. The SEC is to define “family office” although the SEC must be
consistent with previous exemptive policy and must also include a
grandfathering provision effective January 1, 2010.

“Private Fund" is defined as an issuer that relies upon the exclusion from the definition of
investment company provided for in Sections 3(c)(1) or 3(c)(7) of the Investment Company Act
of 1940.

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Venture Capital Advisers: Exempt from registration are investment
advisers who advise solely “venture capital funds”. However, advisers who
qualify for this exemption will have a recordkeeping and reporting
obligation. Both the definition of a “venture capital fund” and the exact
recordkeeping and reporting requirements are to be defined by the SEC.

Commodity Trading Adviser: Exempt from registration are advisers
registered with the Commodities Futures Trading Commission (“CFTC”) as
long as the CFTC registered adviser advises a private fund and is not
predominately providing securities-related advice.

The Registration Act introduces the term “Mid-Sized Private Fund Advisers” although it
is not defined. The Registration Act directs the SEC to develop specific registration and
examination procedures for investment advisers to mid-sized private funds based on
whether a mid-sized private fund poses systemic risk after taking into account their size,
governance and investment strategies. Presumably, the SEC will define Mid-Sized
Private Fund Advisers and develop rules regarding specific registration and examination
procedures of such mid-sized private fund advisers. State regulations and applicability
may vary and will need to be assessed, as well.

The Registration Act also affects “Mid-Sized investment Advisers” by effectively raising
the minimum threshold for SEC registration from $25 million to $100 million. As such,
these effected advisers with assets under management ranging from $25 million to $100
million will now be forced to shift their registration from the SEC to the states unless (i)
the investment adviser is not required to be registered with the state securities
regulator in the state where they maintain their principal office and place of business,
and (2) would not be subject to examination as an investment adviser by such state

The Registration Act also addresses both the “accredited investor” standard and the
“qualified client” standard. The accredited investor standard is immediately adjusted,
upon enactment, to exclude the value of a natural person’s primary residence from the
$1 million net worth threshold. The standard would apply to new investors and to
current investors making additional purchases. In addition, after the first four years,
there is a provision for the SEC to adjust the standard. Within the first year of the
Registration Act’s enactment, the SEC is required to adjust the “qualified client”
standard for inflation and every five years thereafter.

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The Registration Act deems the records and reports of private funds advised by an
investment adviser registered under the Registration Act to be records and reports of
the investment adviser. It also allows the SEC to require registered and unregistered
investment advisers, to maintain certain records of, and file with the SEC such reports
regarding, private funds advised by the investment adviser, as necessary and
appropriate in the public interest and for the protection of investors, or for the
assessment of systemic risk by the Financial Stability Oversight Council (“Council”). As
well, both registered and unregistered advisers to private funds will be required by the
SEC to maintain with respect to each private fund advised, a description of:

• assets under management and leverage;
• counterparty credit risk exposure;
• trading and investment positions;
• valuation policies and practices;
• types of assets held;
• side arrangements or side letters;
• trading practices; and
• other information that the SEC deems necessary and appropriate in the
public interest and for the protection of investors and the assessment of
systemic risk.

All reporting to the SEC in accordance with the Registration Act will be expressly exempt
from public disclosure pursuant to the Freedom of Information Act, although the SEC
will be authorized to share the information with the Council and other government
agencies. All agencies receiving the information will also be required to keep all
information confidential.

The Registration Act becomes effective one year following the date of enactment,
although Investment advisers to private funds may voluntarily register with the SEC
during this one year period. During the next twelve months, the SEC will be active
promulgating numerous rules and providing clarification.

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Implications for Investment Advisers to Private Funds

The Registration Act requires advisers to quickly become familiar with the Advisers Act.
Important considerations include, but are not limited to:

• Compliance ‐ new registrants would be required to adhere to the Advisers
Act Rule 206(4)‐7 known as the Compliance Rule which requires
establishing written Policies and Procedures and appointing a competent
Chief Compliance Officer ("CCO"). Key to establishing an adequate
compliance program is evaluating and properly documenting existing and
potential conflicts of interest. The SEC wants assurance that advisers have
a mechanism in place to identify risks, conflicts of interest and have
established a system of internal controls to mitigate those risks.

• Disclosure ‐ Registrants are subject to the Advisers Act disclosure rules
requiring the preparation and filing of Form ADV Part I and Part II. See the
Form ADV section for a detailed review of Form ADV.

• Books and Records - In addition to following the books and records
requirements applicable to all registered advisers, the books and records
of private fund advised by investment advisers to private funds are now
deemed to be books and records of the Adviser. The SEC will now have
the authority to examine these books and records.

• Performance Fees – Registrants must follow Rule 205 ‐3(d)(1) of the
Advisers Act which limits the ability to charge performance fees.
Performance based compensation can be paid if the adviser's clients are
"qualified clients". If you manage a 3c(1) fund and charge a performance
fee you will need to determine if your clients meet the “qualified client”

• Investment Advisory Contracts – With respect to the anti-fraud provisions
of the Advisers Act, the SEC cannot define the term “client” to include an
investor in a private fund managed by an investment adviser, provided
that the adviser has entered into an advisory contract with such private
fund. Many private funds may not have investment advisory agreements
separate, and apart, from the limited partnership or limited liability
company agreements. We suggest that private fund managers review
these arrangements and enter into investment advisory agreements, as
necessary and appropriate.

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Compliance Rule - Advisers Act Rule 206(4)-7

Effective October 5, 2004, SEC Rule 206(4)‐7 (“the Compliance Rule”) became effective
for all SEC‐registered advisers. The rule reads as follows:

If you are an investment adviser registered or required to be registered
under section 203 of the Investment Advisers Act of 1940, it shall be
unlawful within the meaning of section 206 of the Act for you to provide
investment advice to clients unless you:

(a) Policies and procedures. Adopt and implement written policies and
procedures reasonably designed to prevent violation, by you and your
supervised persons, of the Act and the rules that the Commission has
adopted under the Act;

(b) Annual review. Review, no less frequently than annually, the adequacy
of the policies and procedures established pursuant to this section and the
effectiveness of their implementation; and

(c) Chief compliance officer. Designate an individual (who is a supervised
person) responsible for administering the policies and procedures that you
adopt under paragraph (a) of this section.

Under the Compliance Rule, it is unlawful for an investment adviser registered with the
Commission to provide investment advice unless the adviser has adopted and
implemented written policies and procedures reasonably designed to prevent violation
of the Advisers Act by the adviser or any of its supervised persons. The rule requires
advisers to consider their fiduciary and regulatory obligations under the Advisers Act
and to formalize policies and procedures to address them.

Rule 206(4)‐7 does not specifically list the elements that advisers must include in their
policies and procedures. The SEC acknowledges that advisers are too varied in their
operations for the rules to impose of a single set of universally applicable required
elements. Each adviser should therefore adopt policies and procedures that take into
consideration the nature of their specific operations. Advisers must therefore have
customized policies and procedures designed to prevent violations from occurring,
detect violations that have occurred, and correct promptly any violations that have

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Policies and Procedures:

The SEC states the policies and procedures, at a minimum, should address the
following issues to the extent that they are relevant to that adviser:

• Portfolio management processes, including allocation of investment
opportunities among clients and consistency of portfolios with clients'
investment objectives, disclosures by the adviser, and applicable regulatory

• Trading practices, including procedures by which the adviser satisfies its
best execution obligation, uses client brokerage to obtain research and
other services ("soft dollar arrangements"), and allocates aggregated trades
among clients;

• Proprietary trading of the adviser and personal trading activities of
supervised persons;

• The accuracy of disclosures made to investors, clients, and regulators,
including account statements and advertisements;

• Safeguarding of client assets from conversion or inappropriate use by
advisory personnel;

• The accurate creation of required records and their maintenance in a
manner that secures them from unauthorized alteration or use and protects
them from untimely destruction;

• The marketing of advisory services, including the use of solicitors;

• Processes to value client holdings and assess fees based on those

• Safeguards for the privacy protection of client records and information; and

• Business continuity plans.

Annual Review

Rule 206(4)‐7 requires each Adviser to review their policies and procedures annually to
determine their adequacy and the effectiveness of their implementation. The review
should consider any compliance matters that arose during the previous year, any
changes in the business activities of the adviser or its affiliates, and any changes in the
Advisers Act or applicable regulations that might suggest a need to revise the policies or

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Although the rule requires annual reviews, advisers should also be conducting interim
reviews by testing and assessing, on an ongoing basis, how significant compliance
events, changes in business arrangements, and regulatory developments affect the
adviser's business.

Chief Compliance Officer

Rule 206(4)‐7 requires each adviser registered with the SEC to designate CCO to
administer its compliance policies and procedures. An Adviser’s CCO should be
competent and knowledgeable regarding the Advisers Act and should be empowered
with full responsibility and authority to develop and enforce appropriate policies and
procedures for the firm. Thus, the CCO should have a position of sufficient seniority and
authority within the organization to compel others to adhere to the compliance policies
and procedures.

What about Outsourcing the CCO Role?

Some advisers inquire about outsourcing the CCO position. The SEC does not explicitly
prohibit outsourced CCO’s. However, we believe that the SEC does not look favorably
upon hiring a third-party to serve as an adviser CCO . The Compliance Rule requires the
CCO to be a “supervised person” which is defined as “…any partner, officer, director (or
other person occupying a similar status or performing similar functions), or employee of
an investment adviser, or another person who provides investment advice on behalf of
the investment adviser and is subject to the supervision and control of the investment
adviser.” The CCO is required to administer the firm’s written compliance procedures.

We believe that advisers that attempt to outsource this role are generally perceived
negatively by the SEC and subject to increased scrutiny. This does not mean that all
firms need to hire a dedicated CCO. In many instances and in particular for certain
advisers to solely private funds, an existing executive such as the CFO 2 can effectively
function in both capacities. However, the ultimate decision should be made after a

The CFO is often a logical choice given his/her familiarity with internal controls and auditing.
However, other firm officers such as COO, General Counsel and portfolio manager have also
successfully fulfilled the role.

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careful assessment of an adviser’s business model, infrastructure and available
resources. In many cases a cost effective solution is to use the services of an outside
third party to assist with compliance rather than have a full-time dedicated compliance

Registration Process

1 Complete Entitlement Forms and submit to FINRA in order to gain access to the
IARD system, which is required to begin the registration process. This process
takes approximately 10 days.
2 File Form ADV Part 1 electronically through IARD. This process can take up to 45
days before approval is received by the SEC.
3 Complete form ADV Part II and Schedule F in hard copy, which should be
complete before beginning operations as a registered adviser.
4 Prepare a customized Compliance Program including written policies and
procedures (compliance manual).

Form ADV - Disclosure Requirements

Form ADV is divided into 3 parts:

Part 1A ‐ Includes information about the adviser, its business practices,
the ownership structure, and the client base. Part 1A is mandatory for
those advisers registering with the SEC and/or state securities

Part 1B ‐Concerns state registration and is only required if an adviser is
registering with the state(s).

Part II ‐ Known as an adviser’s brochure, Part II, along with its
accompanying schedules form the basis of the required adviser
disclosures to existing and potential clients. In addition, it is required to
be amended whenever material changes occur that affect an adviser's
business. Form ADV Part II is also required to be offered at least
annually to existing clients and documentation must be retained
demonstrating that such offer was made.

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The Table below highlights the various sections of Part I and is offered to demonstrate
what information the SEC is seeking from advisers. When changes occur to many of
these sections in ADV Part I, amendments are required to be filed promptly. Although
"promptly" is undefined, it is generally interpreted to mean within 30 days of the

Part 1A - Item 1 Identifying Information

Part 1A - Item 2 SEC Registration

Part 1A - Item 3 Form of Organization

Part 1A - Item 4 Successions

Part 1A - Item 5 Information About Your Advisory Business

Part 1A - Item 6 Other Business Activities

Part 1A - Item 7 Financial Industry Affiliations

Part 1A - Item 8 Participation or Interest In Client Transactions

Part 1A - Item 9 Custody

Part 1A - Item 10 Control Persons

Part 1A - Item 11 Disclosure Information

Part 1A - Item 12 Small Businesses

Part 1B - Item 1 State Registration

Part 1B - Item 2 Additional Information

Schedule A Direct Owners and Executive Officers

Schedule B Indirect Owners

Schedule C Amendments to Schedule A and B

Schedule D Page 1 to 5 Additional Information to Certain Sections of Part 1

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FORM ADV Part II - "Brochure"
On July 21st, 2010, the SEC voted unanimously to adopt changes to Form ADV, Part II.
Commonly referred to as the investment adviser’s “brochure”, this document is the
principal disclosure document that registered investment advisers must provide their
clients and prospective clients. The “brochure”, provides to both existing investors and
potential investors, in plain English narrative and investment adviser’s qualifications,
investment strategies, business practices, conflicts of interest, compensation and
disciplinary history.

Proper disclosure is often an adviser’s best defense against enforcement action being
taken under the anti-fraud provisions of the Advisers Act. Consequently, properly
completing this document is critical to satisfying an adviser’s regulatory obligations. The
main disclosure topics in the brochure, which the SEC believes are most relevant to
investors, include:

Advisory business — An investment adviser must describe its advisory business,
including the types of advisory services offered, state whether it holds itself out as
specializing in a particular type of advisory service, and disclose the amount of client
assets that it manages.
Fees and compensation — An investment adviser must describe how it is
compensated for its advisory services, provide a fee schedule, and disclose whether
fees are negotiable. The investment adviser must also describe the types of other
fees or expenses, such as brokerage fees, custody fees, and fund expenses that
clients may pay in connection with the services provided.
Performance-based fees and side-by-side management — An investment adviser
that accepts performance-based fees, or that supervises an individual who accepts
such fees, is required to disclose this fact. If the investment adviser also manages
accounts that are not charged a performance fee, the adviser must explain the
conflicts of interest that arise from the simultaneous management of these
accounts and must describe how it addresses those conflicts.
Methods of analysis, investment strategies, and risk of loss — An investment adviser
must describe its methods of analysis and investment strategies and explain that
investing in securities involves risk of loss which clients should be prepared to bear.
Investment advisers who use a particular method of analysis or strategy or who
recommend a particular type of security are required to explain the material risks
involved and discuss the risks in detail if those risks are unusual.

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Disciplinary information — An investment adviser is required to disclose in its
brochure material facts about any legal or disciplinary event that is material to a
client’s evaluation of the advisory business or to the integrity of its management
personnel. An investment adviser must deliver promptly to clients updated
information when there is new disclosure of a disciplinary event or a material
change to an existing disciplinary event.

Code of ethics, participation or interest in client transactions, and personal trading
— An investment adviser is required to describe briefly its code of ethics and state
that a copy is available upon request. The adviser must also disclose whether it or
an affiliate recommends to clients, or buys or sells for client accounts, securities in
which the adviser or an affiliate has a material financial interest and, if so, the
conflicts of interest associated with that practice. The adviser also must disclose
whether it or an affiliate invests (or is allowed to invest) in the same securities that
it recommends to clients or in related securities, such as options or other
derivatives, and must explain the conflicts involved and how it addresses those
conflicts. In addition, an investment adviser that trades in the recommended
securities at or around the same time as the client has to explain the specific
conflicts inherent in that practice and how it addresses them.

Brokerage practices — An investment adviser is required to describe the factors
considered in selecting or recommending broker-dealers for client transactions and
determining the reasonableness of brokers’ compensation. Investment advisers also
must disclose soft dollar practices (research or other products or services, other
than execution, provided by brokers or a third party to the investment adviser in
connection with client transactions); client referrals (using client brokerage to
compensate brokers for client referrals); directed brokerage (asking or permitting
clients to send trades to a specific broker for execution); and trade aggregation
(bundling trades to obtain volume discounts on execution costs). Investment
advisers must explain how they address the various conflicts of interest associated
with these practices.

It is paramount that registered investment advisers understand that any issues which a
client or potential client would deem material must be disclosed even if not explicitly
asked in ADV Part II.

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As with ADV Part I, the newly adopted rules pertaining to ADV Part II, will require the
“brochure” to be filed electronically on the SEC’s website and will be publicly available.
An adviser must deliver the brochure to a client before or at the time the adviser enters
into an advisory contract with the client. Furthermore, advisers must provide each
client an annual summary of material changes to the brochure and either deliver a
complete updated brochure or offer to provide the client with the updated brochure.

An adviser will be required to deliver “brochure supplements” to new and prospective
clients providing them with information about the specific individuals who will provide
services to the clients. The supplement will contain brief résumé-like disclosure about
the educational background, business experience, other business activities, and
disciplinary history of the individual, so that the client can assess the person’s
background and qualifications. It will also include contact information for the person’s
supervisor in case the client has a concern about the person.

Establishing a Compliance Program

While the Compliance Rule appears relatively straight forward with regard to
establishing policies and procedures, it is more involved than meets the eye. The
Compliance Rule specifically lists 10 items which, at a minimum, need to be included.
However, it is misleading to expect the SEC to be satisfied if you only develop policies
and procedures covering these 10 areas. The regulators certainly expect to see
additional items included. For example, a robust compliance manual would also contain
additional sections including, but by no means limited to, advisory contracts, proxy
voting, payment of fees, supervision, and SEC and State registration.

When assisting clients through the registration process, the bulk of our time is spent on
customizing the compliance manual. The manual should be a dynamic document that
evolves with the business. The SEC periodically throughout the year provides guidance
to firms with regard to expectations. Inevitably, some of these items represent areas of
current high interest to the SEC. Consequently, the compliance manual and program
should be dynamic and updated periodically as the rules, best practices, and your
business changes.

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Associated Costs

Cost to Comply

As private funds consider registration, it is important to remember that implementing
an adequate compliance program is a "must‐have" that will require time and expense to
establish. There will also be on‐going costs associated with maintaining and enforcing a
properly established compliance program. Regardless of size and complexity, there are
certain minimal requirements which must be present in all compliance programs.
Moreover, the actual compliance program must be customized to each adviser’s unique
business risks. The actual costs are therefore very much directly associated with the
complexity of the business. At a minimum, each adviser will have to appoint a
competent CCO familiar with the various rules and regulations. However, the CCO
should also have the stature and authority within the organization to administer and
enforce the compliance program. A tone of compliance from senior management is very
important to creating the necessary culture of compliance within an organization.

Each registered investment adviser needs to assess their unique situation and business
model when determining how best to allocate resources to compliance. While larger
advisers often have dedicated compliance and perhaps, internal audit, they need to
consider the adequacy and independence of their internal reviews being performed
in‐house. Smaller advisers need to assess the cost benefit trade‐off of staffing a
compliance department with sufficient personnel to ensure suitable and timely
monitoring and testing versus outsourcing part of the testing and review of compliance
to an independent third party.

Cost of non ‐ Compliance Failure to establish an adequate compliance program has
resulted in enforcement actions being brought against CCO's and Adviser’s. The actual
costs associated with non‐compliance may include significant fines and censures as well
as employees being barred from working in the industry. In addition to fines, the
reputational damage can be staggering. Consequently, CCO's need to ensure they are
working for a firm which has the proper compliance culture. CCO's should be prepared
to walk away from a position if they are not completely satisfied with their employer's
commitment to establishing an effective compliance program

A recent enforcement case involved a CCO being held liable for aiding and abetting his
employer's failure to establish, maintain and enforce policies and procedures designed
to prevent violations of the regulations. In this particular case, the CCO was not involved

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with the specific wrong doing. He failed to ensure proper policies and procedures were
in place and failed to enforce certain existing procedures. (See A. Carlos Martinez,
Exchange Act Release No. 57755, 2008 WL 1913369 ‐May 1, 2008). In another example,
a founding partner and shareholder of a firm was found liable for violating a number of
rules under the Advisers Act, including the purchase of "prepackaged" policies and
procedures which failed to adequately address the conflicts of interest unique to his
firm. (See Consulting Services Group, LLC, Securities Exchange Act Release No. 56612,
Investment Advisers Act Release No. 2669, 91 S.E.C. Docket 2079 ‐Oct 25, 2007). Both
cases resulted in censures and fines to both the CCOs and their firms.

Life after Registration

While the compliance program required by the SEC may be new to many private fund
advisers, it does not have to be overwhelming. When properly managed, the
registration process can be straightforward and the ongoing compliance requirements

Once registered with the Securities and Exchange Commission, private fund managers
will be required to follow the same rules as other registered advisers. However, due to
the significant differences in business model and infrastructure between many private
fund advisers and most traditional investment managers, the compliance resources
required to satisfy the rules and regulations associated with SEC registration often vary.
In some cases, the resources required of private fund adviser may be less than a
traditional manager.

Since 2003, our ex-SEC examiners have been providing expert compliance solutions to
our clients. To accommodate the unique issues associated with private funds compared
to traditional managers, we have designed three distinct compliance programs for
private fund managers. These programs are designed to offer a range of cost effective
solutions to managers and assist with determining the best use of a manager’s
resources to devote to the compliance function and ensure they are meeting their
regulatory obligations. They range from full registration with a customized compliance
manual to complete outsourced compliance solution. A complete description of these
offerings can be found by visiting our Private Fund Adviser Compliance webpage.

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Some of our traditional compliance related services which are useful to all registered
investment advisers include, but are not limited to:

Quarterly Compliance Reviews

Most advisers prefer to distribute the strain on their operations over the course of the
year. Quarterly Compliance Reviews spread all the aspects of the annual review over the
course of the year in manageable phases while revisiting critical and changing areas
throughout the year. The dynamic scope and disciplined approach of Quarterly
Compliance Reviews stimulates the evolution of the compliance program, keeping it
continually current and addressing any issues as they emerge. Quarterly Compliance
Reviews optimize compliance resources and limit the disruption to your firm. Like the
Annual Compliance Review, each Quarterly Compliance Review concludes with a
customized, easy to read report and action plan.

Additionally, Quarterly Compliance Reviews address the essential, on‐going demands of
a compliance program, such as managing disclosure documents, filing requirements,
and compliance policies and procedures. Quarterly Compliance Reviews provide the
opportunity for SEC3's professionals to establish a strong working relationship with each
adviser and fund and actively participate in the compliance program

Mock SEC Examinations

Much of the fear surrounding a regulatory examination stems from the "unknown"
element. A Mock SEC Examination is an effective process to gauge the types of
exposures and concerns that an adviser or fund would face during a real regulatory
examination. Our Mock SEC Examinations bring the same SEC focus utilizing proven
exam approaches and methodologies, including interviews, reviews of policy and
procedures, analysis, testing, and conclude with a customizable summary of
assessments, recommendations, and proposed solutions. SEC3's professionals, many
with years of experience as senior examiners with the SEC or as compliance
professionals, provide expert insight and guidance. Mock SEC Examinations pierce the
mystique of a regulatory examination and transform an often stressful experience into a
valuable assessment process that allows a Chief Compliance Officer and the compliance
staff to face a future regulatory examination with confidence and peace of mind.

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Annual Compliance Review

For registered advisers, the Compliance Rule requires each adviser to review its policies
and procedures, at least annually, to determine their adequacy and the effectiveness of
their implementation. If advisers are not performing any reviews during the year, the
annual review is necessary. During an annual compliance review, SEC3 provides
independence and assists Chief Compliance Officers in every phase of the annual review
process, from formulating a strategic plan, to conducting thorough assessments and
testing of all aspects of the compliance program, to planning for next year's review.
SEC3's Annual Compliance Review allows advisers to maximize available resources by
fulfilling specific elements or the entire scope of the regulatory obligation. The Annual
Compliance Review concludes with a customizable, easy to read report and action plan.

Risk Assessment & Gap Analysis

The Risk Assessment & Gap Analysis not only fulfills regulatory expectations, it provides
valuable insights into your risk profile and your exposure to those risks. SEC3's Risk
Assessment & Gap Analysis is based on our experience as ex SEC examiners. Our system
considers the likelihood and impact of the compliance risks specific to each advisory
firm or fund and assesses how well the existing controls mitigate those risks. The Risk
Assessment & Gap Analysis report is a concise, but detailed summary in plain English
that prioritizes risks by exposure, arming the Chief Compliance Officer and senior
management with the critical information to immediately implement an action plan.

Compliance Testing & Analysis
Forensic tests are the eyes and ears of the Chief Compliance Officer. Rigorous,
consistent forensic testing provides a Chief Compliance Officer with an early warning
system. Various forensic tests are means to identify symptoms of potential compliance
problems and can serve as confirmation that the compliance program is functioning
properly. SEC3 can assist Chief Compliance Officers in designing and conducting a
battery of rigorous and periodic forensic compliance tests as part of the continuous
monitoring of the compliance program including, but not limited to, trading and
execution, portfolio compliance, code of ethics, account administration, and investment

Telephone: 610.415.9261  Facsimile: 610.200.1463  18
SEC Compliance Consultants, Inc. Bridging your Compliance Gap

Compliance Training

Drafting and adopting reasonable policies and procedures is only part of the successful
implementation of a compliance program; effective compliance training is also essential.
The success of a compliance program is predominately determined by the ability of the
adviser's or fund's staff to consistently fulfill the goals and functions of the policies and
procedures. SEC3's professionals will assist Chief Compliance Officers in developing and
conducting customized training programs to your staff and boards on the various
aspects of your compliance program and their responsibilities under that program. Our
belief is that training should rejuvenate the staff's awareness and sensitivity of
compliance policies while reinforcing the importance of each person's role in the
compliance program.

Contact Information

For additional information, please contact Janaya Moscony, CFA, President & Founder
of SEC Compliance Consultants, Inc. by telephone at 610.415.9261 x1 or email us at

Telephone: 610.415.9261  Facsimile: 610.200.1463  19