Perhaps not surprising, Illinois has a very well developed Securities Division website which provides its investment advisors (and potential investment advisors) with many informative articles.  In this article we have reprinted three separate resources which we found helpful for potential hedge fund managers located in Illinois.

The first resource provides a basic overview of investment advisors and the separation of regulatory jurisdiction between the federal government and the states.  This resource is glib on whether hedge fund managers in Illinois need to register as investment advisors with the state – generally they do not.  For those managers which are registered with Illinois, the second resource provides an overview of the potential for on-site examinations of the manager’s business.  The final resource provides an overview of the different fees which an advisor registered (or notice filed) in Illinois will need to pay.

Please contact us if you have any questions on Illinois investment advisor registration or if you would like to start a hedge fund in Illinois. The discussion above is general in nature, please review our disclaimer. As always, the facts of your particular situation may be such that the general information posted above is inapplicable.  A potential hedge fund manager should always discuss the facts of their particular situation with their hedge fund attorney.  Other related hedge fund law articles include:

• New Jersey Hedge Fund Law
• South Carolina Hedge Fund Laws
• Georgia Hedge Fund Laws
• Overview of Hedge Fund Investment Advisors
• Hedge Fund Managers
• How to register as an Investment Advisor
• Important Information for Registered Investment Advisors

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This resource can be found here.

INVESTMENT ADVISERS

The Illinois Securities Law of 1953 requires that any person with more than five (5) clients who offers financial planning services to consumers, in exchange for compensation, or who manages and supervises $25 million or less of investments, with limited exceptions, is required to be registered as an investment adviser with the Illinois Securities Department. This group of investment advisers are termed state registered investment advisers.

In addition, the U.S. Securities and Exchange Commission (SEC), under provisions of federal law, also plays a key role in the regulation of certain other investment advisers. Passage of federal legislation in 1996, The National Securities Markets Improvement Act of 1996, used the benchmark of “assets under management” to divide the regulatory jurisdiction for investment advisers between the SEC and state securities regulators. The federal SEC now exercises primary jurisdiction over those investment advisers with managed assets of more than $25 million. This group is termed federal covered investment advisers.

Investment adviser representatives are persons who are employed by investment adviser firms and engage in such activities as rendering investment advice, making recommendations concerning securities, soliciting new customers or are active in managing accounts or portfolios for clients, among other duties. Investment adviser representatives must pass a qualifying examination and are required to be registered with the Illinois Securities Department. Other frequently used terms to describe persons rendering these types of services include: financial planner, money manager, financial consultant, asset allocation analyst, or fee-only planner.

Most filing requirements for investment advisers and investment adviser representatives are met thru the use of the Central Registration Depository (CRD) and the Investment Advisor Registration Depository (IARD) electronic filing systems.

DISCLAIMER
The Secretary of State, Illinois Securities Department or their information providers shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or untimeliness of the information, or for any delay or interruption in the transmission thereof to the user, or for any claims or losses arising therefrom.

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This resource can be found here.

AUDIT AND COMPLIANCE

The Audit & Compliance Division conducts on-site compliance examinations and for-cause audits of branch and main offices of firms registered to offer investment advice to Illinois consumers. The definitions of those firms subject to state regulation are determined by the SEC and the National Securities Markets Improvement Act of 1996 (NSMIA). Compliance examinations are conducted to review the books and records of the entity being examined, and are intended to assure compliance with the Illinois Securities Law and attendant rules. For-cause audits are usually conducted to assist in an enforcement inquiry. The Division currently has 17 auditors and compliance examiners, and field assistance is also provided by other Department personnel. The Division is in constant communication with, and routinely cooperates with, the U.S. Securities & Exchange Commission, as well as other state and federal regulatory agencies.
Salespersons holding themselves out separately as investment advisers or financial planners remains a problem discovered during audits. In Illinois, anyone holding themselves out to the public as offering these services may have to register as an investment adviser. In order for a salesperson to rely on an exemption from the definition from an investment adviser they must not provide investment advice to more than 5 clients. All work product must also be approved by the dealer before it is distributed to the customer or the salesperson is deemed to be acting separate and apart from the dealer and the exclusion is not available. This is true regardless of whether any direct fee is involved, because all salespersons receive indirect compensation (commissions).

Due to recent changes in federal and state law, investment advisor representatives who conduct business in this State and federal covered investment advisor representatives with a place of business in Illinois must register with the Securities Department and are subject to compliance examinations and audits. A place of business of a federal covered investment adviser representative is defined as an office at which the investment advisor representative regularly provides investment advisory services, solicits, meets with, otherwise communications with clients, and any other location that is held out to the general public as a location at which the investment adviser representative provides investment advisory services, solicits, meets with, or otherwise communications with clients. Another change in the federal law requires audits of investment advisers with a principal place of business in another state to be conducted based upon the books and records requirements of the investment adviser’s home state.

DISCLAIMER
The Secretary of State, Illinois Securities Department or their information providers shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or untimeliness of the information, or for any delay or interruption in the transmission thereof to the user, or for any claims or losses arising therefrom.

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This resource can be found here.

ommon Fees

Federal Covered Investment Adviser
Filing or Renewal Fee: $400

Federal Regulation D Exemption Filings
Regulation D – Rule 504
Filing or Renewal Fee: $100

Regulation D – Rule 505
Filing or Renewal Fee: $200

Regulation D – Rule 506
Filing or Renewal Fee: $100

Designated Principal Of An Investment Adviser (applies only to state registered advisers)
Filing or Renewal Fee: $150

Investment Adviser
Filing or Renewal Fee: $400

Investment Adviser Branch Office (applies to state registered advisers, only)
Filing or Renewal Fee: $20

Investment Adviser Representative
Filing or Renewal Fee: $150