California Bill Requires Placement Agents to Register as Lobbyists


Advisers

Governor Schwarzenegger signed a new law in September requiring placement agents seeking to do business with the California retirement systems to register as lobbyists. The bill, which amends the California Political Reform Act of 1974 (PRA), subjects placement agents to several requirements, including annual registration with the California Secretary of State and quarterly reporting of all compensation received or paid.

Primarily, the new law prohibits placement agents from receiving compensation contingent on successfully securing advisory contracts with a California state public retirement system. In addition, placement agents are prohibited from giving gifts in excess of $10 per calendar month to certain public officials and from making campaign contributions to officials or candidates in an office related to the placement agentís lobbying efforts. A knowing or willful violation of the PRA is a misdemeanor and offenders are subject to criminal penalties.

In general, "placement agent" refers to any third party compensated by an adviser for the purpose of securing investment advisory contracts. Placement agent is also referred to as a finder, solicitor, marketer, consultant, broker, or other intermediary.

The California bill, however, does not limit its definition to third parties. To ensure an adviserís supervised persons are not caught up in these new requirements, the bill provides two exclusions. The first, known as the "One-Third Exclusion," excludes an adviserís employees, directors and officers who, on an annual basis, spend at least one-third of their time managing the securities or assets owned, held or controlled by the adviser. The second exclusion covers employees, directors, officers and affiliates of an adviser, provided the adviser (1) is registered with the SEC or state securities regulator; (2) was selected through a competitive bidding process; and (3) has agreed to a fiduciary standard of care.

 

 

 

 

 

 

 

   
 
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