IAA Letter to SEC Chairman Atkins

May 1, 2025

Download PDF

The Honorable Paul S. Atkins
Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090

Re: Regulation of Registered Investment Advisers

Dear Chairman Atkins:

On behalf of the Investment Adviser Association (IAA), congratulations on your confirmation as Chairman of the Securities and Exchange Commission.[1] The SEC plays a critical role in overseeing the nearly 16,000 registered investment advisers under its supervision, which collectively serve more than 68 million investors and manage over $144 trillion in assets as fiduciaries.[2] We greatly value the SEC as our industry’s primary regulator and support efforts to improve the efficiency and effectiveness of its oversight. We particularly appreciate Commissioner Uyeda’s leadership and the staff’s responsiveness in addressing key concerns early in the new administration, such as extending compliance deadlines for certain rules and engaging with the industry to provide essential interpretive guidance.[3]

In this spirit, we write to highlight key concerns of our membership as you assess the agency’s priorities. Our recommendations are structured as follows:

1. Overarching Principles:
   • Deploy a flexible principles-based framework.
   • Approach regulation in a manner that is strategy and product neutral.
   • Tailor regulatory practices to the range of adviser business models, including aligning them with the distinct needs of small advisers.
2. Specific Regulatory Recommendations (prioritized by urgency to our members):
   • Extend compliance dates and provide necessary relief for the new anti-money laundering requirements and amendments to Regulation S-P.
   • Facilitate electronic delivery of required disclosures.
   • Provide additional guidance under the Marketing Rule.
   • Expand investor access to investment opportunities.
   • Implement principles-based modifications to the Custody Rule and Pay to Play Rule.
3. SEC Process Reforms: Establish formal guidelines for SEC staff that promote:
   • Comprehensive cost-benefit analyses in rulemaking.
   • Proactive collaboration with compliance officers.
   • Tailored examinations.
   • Prioritizing misconduct and investor harm.
   • Meaningful industry engagement before proposing rule changes or issuing interpretive guidance.

These priorities and recommendations are discussed below.

I. Overarching Principles

The IAA’s advocacy is informed by the following guiding principles, which we encourage the SEC to incorporate into its regulatory framework for advisers, ensuring a tailored and flexible approach to adviser oversight:

1. Retain the Principles-Based Framework of the Advisers Act: The principles-based statutory framework for advisers has proven remarkably robust in protecting investors while allowing the adviser industry to grow, benefiting investors, the capital markets, and the U.S. economy. The IAA strongly supports this evergreen and adaptable approach, which allows the SEC to “right size” its oversight of advisers and facilitate regulatory certainty. We urge the SEC to move away from its recent prescriptive one-size-fits-all approach to adviser regulation.
2. Be Strategy and Product Neutral: As fiduciaries, advisers must use their professional expertise and discretion to serve clients’ diverse financial objectives and act in their best interests. This requires regulatory measures to remain neutral and avoid favoring or disfavoring particular investment factors, considerations, strategies, or products to facilitate investor choice and prevent adverse consequences for investors. For example, regulatory policies should not explicitly or implicitly favor or disfavor passive or active management. Therefore, advisers should be able to consider – and investors should have access to – a full spectrum of investment strategies and products to meet their clients’ goals.
3. Support Small Businesses: The adviser industry is largely comprised of small businesses, which are a significant driver of economic activity. More than 9,000 SEC-registered advisers employ 10 or fewer non-clerical employees and over 92% employ 100 or fewer. We encourage the SEC to formally align its rulemaking, examination, and enforcement practices with the distinct needs of the full range of adviser business models, including small advisers, to ensure fair and equitable oversight, including by prioritizing reasonable regulatory alternatives where appropriate.[4]

II. Specific Regulatory Recommendations

Our specific regulatory recommendations, prioritized based on their urgency to our members, are as follows:[5]

A. Anti-money Laundering (AML)/Customer Identification Program (CIP): Significant procedural and substantive concerns remain with the new AML Rule and CIP Proposal.[6] The CIP Proposal’s comment period closed before FinCEN finalized the AML Rule, preventing our members from reviewing it in that context. Reopening the comment periods for both rules would help address key interpretive and implementation challenges, including resource allocation, duplicative efforts with custodians, new compliance systems, high personnel costs, divergence from global regimes, and unclear and unrealistic delegation processes.[7]

Recommendations: Collaborate with FinCEN to: (1) reopen the CIP Proposal and propose amendments to the AML Rule to address our concerns; (2) postpone the AML Rule compliance date until after a CIP rule is finalized; and (3) provide a reasonable compliance period for both rules, once they are better tailored to the business models and resources of advisers, including their level of AML risk. Because of the complexities involved, we suggest an extension of 18 months for larger advisers and 24 months for smaller advisers with 100 or fewer employees. At a minimum, we ask for confirmation that enforcement and examinations of the AML Rule will not begin on the current compliance date.

B. Regulation S-P: The Regulation S-P amendments introduce expansive new definitions and impose extensive disclosure and recordkeeping requirements, requiring advisers to overhaul processes and infrastructures to meet new standards for handling unauthorized access to client information. Additionally, advisers must negotiate or renegotiate vendor relationships to address challenging elements, such as the unrealistic 72-hour breach notification rule. In addition to providing more time for advisers to work with vendors and update their policies and procedures, the SEC staff should work with the industry to address some of the more challenging interpretive and operational issues raised, for example, by the broad definitions of “customer information” and “sensitive customer information.”

Recommendations: Extend the compliance period for one year to provide advisers with the time needed to work towards implementing fulsome breach notification disclosures and procedures, including working through their vendor agreements and attempting to work with service providers to comply. In the meantime, work with the industry to refine and clarify the scope of some of the terms and requirements.[8]

C. E-Delivery: E-delivery of regulatory disclosures is easier, more efficient, and more cost-effective for firms, and its greater flexibility allows for enhanced communications with investors. Moreover, during times of business disruptions like the pandemic, e-delivery ensures that required disclosures reach investors promptly and efficiently, maintaining transparency and compliance despite challenging circumstances. In practice, however, many advisers have been unable to use e-delivery for required disclosures due to the costs involved, implementation issues, and lack of clarity associated with the current consent requirements under applicable SEC guidance.[9]

Recommendation: Facilitate e-delivery by making it the default option for required regulatory disclosures[10] while permitting an opt-out for investors who prefer paper delivery.[11]

D. Marketing Rule: We appreciate the SEC staff’s engagement with us in recently issuing updated FAQs for the Marketing Rule. This collaborative approach serves as a valuable model for addressing interpretive guidance needs in other areas moving forward, including addressing ongoing compliance challenges under the Marketing Rule. For instance, when key investment team members responsible for prior results at a predecessor firm leave the adviser (g., due to retirement), the rule restricts advisers from sharing valuable information with investors about historical investment performance and strategy characteristics. Additionally, the restrictive provisions of the Marketing Rule relating to predecessor performance have disrupted longstanding and widely accepted industry practices.[12]

Recommendations: Issue guidance addressing predecessor performance consistent with the approaches we have been discussing with the staff. Also, issue additional guidance in other specific areas we have discussed with the staff.

E. Form PF: Implementing the new Form PF amendments has created significant compliance and technological challenges for private fund advisers. We appreciate the SEC’s three-month extension of the compliance date. Unfortunately, in part because the XML reporting scheme for new Form PF was only recently finalized, we believe that additional time is needed to source and integrate the new data reporting requirements, refine workstreams, and ensure accurate filings. For example, many large hedge fund advisers that are scheduled to report by August 29, 2025, are relying on third-party vendors that are continuing to develop new reporting solutions under the recently released technical specifications. Advisers need to work with vendors to test the data and ensure accurate reporting. An additional three-month extension will provide much needed time for these advisers to continue to operationalize the new requirements.

In addition, while recent SEC staff FAQs address some interpretive concerns, critical questions about the broad scope of some definitions and data requests remain unresolved. For example, private equity fund advisers are required to report on hundreds of indirectly related legal entities under the “trading vehicle” definition, which will not provide relevant information to the Commission. We believe the SEC should narrow the scope of the definition, which would reduce the significant burden on these advisers without impacting the SEC’s ability to receive meaningful information.

Recommendations: Further extend the compliance date by three months to September 12, 2025, to allow all advisers to incorporate the newly released technical requirements.[13] In addition, provide much needed clarity around the trading vehicle definition.

F. Custody/Safeguarding: Safeguarding client funds and securities is of paramount importance to investors and their advisers, and we strongly support the investor protection goals of the Custody Rule. However, the regulatory framework under the current Custody Rule is ill-fitting, overly complex, and unduly burdensome and has caused unnecessary confusion for advisers. The Commission’s goal of providing regulatory clarity for crypto assets, which includes actively seeking input from stakeholders, presents an excellent opportunity to thoroughly reassess the Custody Rule and related guidance.

In the meantime, we urge the SEC to withdraw the problematic 2023 Safeguarding Proposal and clarify an interpretive issue arising from the Safeguarding Proposal and the staff’s 2017 “inadvertent custody” guidance[14] regarding the authorized trading exception under the Custody Rule. The SEC’s 2003 adopting release affirmed that authorized trading does not constitute custody, but in 2017, the staff contradicted this stance, asserting that an adviser could have custody if the instruments it trades settle on a non-DVP basis. We strongly disagree with the staff’s reading.[15] Footnote 37 in the Safeguarding Proposal further downplayed the significance of this policy shift. Limiting the authorized trading exception to DVP transactions unnecessarily expands the Custody Rule to cover routine trading. It is vital for the industry that the authorized trading exception applies regardless of the settlement method, given the evolving nature of traded products and practices, such as security-based swaps and digital assets.

Recommendations: Formally withdraw the Safeguarding Proposal and provide clear confirmation that the authorized trading exception applies regardless of the form of settlement. Collaborate with industry participants and stakeholders to identify relevant risks to clients’ funds and securities, design safeguards appropriately tailored to those risks for practical implementation, and determine how best to modify the Custody Rule.

G. Access to Public and Private Markets: Access to capital markets is vital for helping individual and institutional clients achieve their financial goals, yet unnecessary restrictions limit investment opportunities for these investors – including retirement savers – in public and private markets. The IAA urges the SEC to expand access to these markets while ensuring strong investor protections, benefiting individuals and businesses – both early-stage and established – across the economy.

The SEC should broaden pathways for discretionary individual and institutional clients of investment advisers to qualify as accredited investors or qualified institutional buyers (QIBs),[16] as appropriate. We believe that SEC-registered advisers, as fiduciaries, offer critical safeguards consistent with the goals of these definitions.[17] Further, the SEC should reduce barriers for registered funds to invest in private markets, promote product innovation, and enhance the IPO process for smaller and mid-sized companies to access public markets.

Recommendations: Expand the accredited investor and QIB definitions among other things to allow clients represented by SEC-registered advisers on a discretionary basis to qualify,[18] streamline the exemptive application process and certain staff positions relating to the ability of registered funds to invest in private funds, and improve the IPO process to reduce barriers for emerging companies to access the public markets.

H. Pay to Play Rule: The rule is unnecessarily complex, draconian, costly, and burdensome, requiring extensive policies and procedures and significant efforts by compliance officers. An example of the unnecessarily burdensome nature of the rule is that advisers that are in noncompliance, even if inadvertently, can only self-correct in limited circumstances, by returning the contribution and going through a cumbersome exemptive process. Moreover, recent enforcement actions highlight that the rule imposes strict penalties that apply without regard to intent or severity of the violation, and on a presumption that virtually any campaign contribution is per se[19] Indeed, the Pay to Play Rule may negatively affect participation in the political process while at the same time imposing unnecessary and costly burdens on advisers.[20]

Recommendations: Move away from a strict liability approach in examinations and enforcement and consider alternative approaches, including through amending the rule, that are more tailored to its underlying objectives. Consider: (1) reducing the lengthy two-year “time out” period for providing compensated advisory services following certain triggering contributions; (2) ways to reduce or eliminate the due diligence burdens associated with the look-back provisions, particularly with respect to employee contributions prior to their hiring; (3) materially increasing the de minimis contribution exceptions; (4) streamlining the process for granting exemptive orders relating to the two-year time-out; and (5) providing certain self-executing exemptions for inadvertent or minor violations.

III. SEC Process Reforms

The IAA recommends formal internal agency policies that guide staff to adhere to certain key principles in rulemaking, guidance, examinations, and enforcement.[21] We value the staff’s engagement with us on various issues, including the principles outlined below, and we look forward to continuing this collaboration.[22]

A. Impact Analysis: The IAA has long supported adhering to the overarching principle of making regulations efficient, effective, and appropriately tailored to the stated objective.

Recommendations: Include in the internal policies for Investment Management staff a requirement for a more comprehensive impact analysis in all rulemaking that (1) considers both the economic costs and the compliance challenges for advisers,[23] both in isolation and on a cumulative basis; (2) assesses how each rule proposal interrelates with existing rules and other open proposals to ensure consistency and limit regulatory duplication; and (3) analyzes the impact on small advisers.[24] Amend the agency’s definition of small adviser for purposes of analyzing the economic impact of proposed regulations on small entities.[25]

B. Key Principles for Internal SEC Processes: The IAA recommends that the following key principles be formally incorporated into internal agency policies regarding guidance, examinations, and enforcement:

• • • The SEC should obtain industry feedback prior to issuing interpretive guidance to ensure that such guidance is helpful and operationally feasible for the adviser industry, it does not effectively impose substantive new requirements, and the SEC staff is allocating its limited resources in the most effective manner.
    • The SEC should focus on partnering with compliance officers to achieve the shared goal of robust compliance which includes not second-guessing good-faith determinations of materiality or reasonableness made at the time or penalizing the victim (g., of a cyber attack) absent a finding of misconduct.
    • Examinations should be tailored to the size, business model, clients, and other characteristics of each firm, rather than, for example, imposing large firm standards and expectations on all firms.
    • Reasonableness is an inherent aspect of the Compliance Program Rule and the SEC should not equate it with strict liability or expectations of perfection.
    • The SEC should shift its focus away from penalizing minor, technical infractions and instead prioritize addressing misconduct and investor harm.
    • Enforcement actions should not be used to establish new regulatory requirements, interpretations, or expectations (g., through negotiated undertakings or “messaging” cases) in place of the notice and comment rulemaking process or formal interpretive procedures.

While we advocate for the SEC staff to follow these formal principles in rulemaking, guidance, examinations, and enforcement, we also support their flexibility to engage with the industry and believe clear guiding principles will enhance that engagement.

* * *

We welcome the opportunity to engage with the SEC and its staff to discuss each of these and other important issues in greater detail and to provide specific recommendations. Please don’t hesitate to contact us if you have any questions or we can provide additional information.

Respectfully,

Karen L. Barr
President & CEO

Gail C. Bernstein
General Counsel and Head of Public Policy

cc:
The Honorable Mark T. Uyeda, Commissioner
The Honorable Hester M. Peirce, Commissioner
The Honorable Caroline A. Crenshaw, Commissioner
Natasha Vij Greiner, Director, Division of Investment Management

[1] The IAA is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For more than 85 years, the IAA has been advocating for advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the majority of our industry. Together, the IAA’s member firms manage more than $35 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org.

[2] This data is based on our review of Form ADV filings in connection with our upcoming publication of our annual Investment Adviser Industry Snapshot 2025 (IAA Snapshot), which is expected to be available on our website in June 2025. See also Investment Adviser Industry Snapshot 2024.

[3] See IAA Letter to Acting Chairman Mark T. Uyeda (Jan. 29, 2025).

[4] We also recommend that the SEC consider recommendations from the Asset Management Advisory Committee for small advisers, including periodic reviews of regulatory impact, bond market access challenges, and a unified approach to cybersecurity and data privacy. See AMAC Final Report and Recommendations for Small Advisers and Funds (Nov. 3, 2021). We urge the SEC to reconvene AMAC for a broader perspective on asset management trends.

[5] In addition to the items discussed below, we support requests from ICI, AIMA, and MFA regarding the Fund Names Rule, Rule 17a-7 cross trading, funds of funds (ICI), and securities lending (AIMA and MFA). Additionally, the SEC has yet to finalize several rule proposals, including Predictive Data Analytics and Outsourcing, which we understand are unlikely to advance. A formal withdrawal would aid advisers in planning and budgeting.

[6] See FinCEN: Anti-Money Laundering Rule for Investment Advisers; FinCEN and SEC: Customer Identification Programs for Investment Advisers.

[7] See IAA Letter to FinCEN (Jan. 31, 2025); IAA comments on CIP proposal (July 22, 2024); and IAA comments on AML proposal (Apr. 15, 2024).

[8] For more details regarding our concerns, see Joint Request for Extension of Compliance Dates for Amendments to Regulation S-P (Apr. 25, 2025).

[9] See Use of Electronic Media for Delivery Purposes (1995); Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information (1996); and Use of Electronic Media (2000).

[10] See, e.g., Investment adviser brochures pursuant to Rule 204-3 and Form CRS pursuant to Rule 204-5 of the Advisers Act.

[11] In 2020, the IAA and other trade groups published a discussion paper outlining a path for the SEC to modernize investor communication regulations. See E-Delivery: Modernizing the Regulatory Communications Framework to Meet Investor Needs for the 21st Century (Sept. 2020).

[12] For example, under GIPS, a ported track record is allowed if the investment decision makers remain substantially intact with adequate knowledge transfer. By contrast, under the Marketing Rule, if the person or persons no longer manage the accounts, no matter the reason, the historical performance from the prior firm can no longer be used.

[13] See IAA and Trades Request Extension of Compliance Date for Form PF Amendments (Dec. 13, 2024) (requesting a six-month extension).

[14] See Guidance Update, Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority (Feb. 2017).

[15] See Letter to Dalia Blass, former Director, Division of Investment Management and Peter B. Driscoll, former Director, Office of Compliance Inspections and Examinations, IM Guidance Update No. 2017-01 – Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority, from SIFMA AMG and the IAA (Mar. 7, 2018).

[16] For example, clients pursuing fixed income strategies that do not meet the stringent numerical thresholds of the QIB definition are significantly disadvantaged by the increasing lack of availability of bond offerings that are only offered in the Rule 144A market.

[17] The IAA has long supported the expansion of both these definitions. See IAA Comments on SEC Amendments to the Definitions of “Accredited Investor” and “QIB” (Mar. 18, 2020); IAA Letter regarding Request for Information: Legislative Proposals to Increase Investor Access and Facilitate Capital Formation (Mar. 31, 2025).

[18] Specifically, for QIBs, we recommend including clients of SEC-registered advisers if, consistent with other QIB categories, the adviser manages in the aggregate in excess of $100 million in securities of issuers that are not affiliated with the adviser or the client on behalf of which the adviser is making the investment.

[19] See, e.g., Recent Administrative Proceeding and SEC Administrative Proceeding Summaries.

[20] The Pay to Play Rule also raises First Amendment concerns. See, e.g., Citizens United v. FEC, 558 U.S. 310 (2010).

[21] See, e.g., SEC Division of Enforcement, Enforcement Manual (Nov. 28, 2017); see also Small entity enforcement penalty reduction policy).

[22] For instance, we deeply appreciate the Division of Examinations’ engagement with us over the years, especially recently as they shape their examination priorities for the upcoming year.

[23] For example, advisers face rising, arbitrary, and opaque costs and other terms relating to their use both of CUSIPs and indexes used for benchmarking purposes. The IAA urges the SEC to evaluate the costs and market impact, including on smaller advisers, when selecting a financial instrument identifier or requiring use of a specific identifier or of indexes for benchmarking. See IAA Letter on Financial Data Transparency Act Joint Data Standards (Oct. 21, 2024).

[24] This framework could direct the rulemaking staff, among other things, to recommend rules to the SEC that: (1) consistent with the Advisers Act, are principles-based to allow for tailoring; (2) provide exclusions or exemptions when a requirement’s burdens are greater than its benefits to keep regulations practical and effective while still protecting investors; (3) tier requirements so that small advisers do not necessarily need to meet all or the identical requirements that large firms need to meet; and (4) stagger compliance and implementation dates where appropriate (e.g., additional time for small advisers).

[25] See IAA Petition for Rulemaking to Amend the Definition of “Small Entity” in Rule 0-7 under the Investment Advisers Act of 1940 for Purposes of the Regulatory Flexibility Act (Sept. 14, 2023).