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Ibbotson Associates, Inc.; Notice of Application

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Start Preamble January 18, 2000.


Securities and Exchange Commission (“SEC”).


Notice of Application for Exemption under the Investment Advisers Act of 1940 (“Advisers Act”).


Ibbotson Associates, Inc.

Relevant Advisers Act Sections:

Exemption requested under section 203A(c) from section 203A(a).

Summary of Application:

Applicant requests an order to permit it to register with the SEC as an investment adviser.

Filing Dates:

The application was filed on August 2, 1999, and amended on December 8, 1999.

Hearing or Notification of Hearing:

An order granting the application will be issued unless the SEC orders a hearing. Interested persons may request a hearing by writing to the SEC's Secretary and serving applicant with a copy of the request, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on February 14, 2000, and should be accompanied by proof of service on applicant, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the Start Printed Page 3749request, and the issues contested. Persons may request notification of a hearing by writing to the SEC's Secretary.


Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 20549-0609. Applicant, Ibbotson Associates, Inc., 225 North Michigan Avenue, Suite 700, Chicago, Illinois 60601-7676.

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Karen L. Goldstein, Attorney, at (202) 942-0646 or Jennifer L. Sawin, Special Counsel, at (202) 942-0716 (Division of Investment Management, Task Force on Investment Adviser Regulation).

End Further Info End Preamble Start Supplemental Information


The following is a summary of the application. The complete application may be obtained for a fee at the SEC's Public Reference Branch.

Applicant's Representations

1. Applicant is an Illinois corporation with its principal place of business in Chicago, Illinois. Until July 8, 1997, Applicant was registered as an investment adviser with the SEC. Applicant is currently registered as an investment adviser in California, Illinois and New York.

2. Applicant provides services predominantly to institutional clients such as pension plans, pension consultants, investment advisers, broker-dealers, insurance companies and banks. None of Applicant's current clients are natural persons.

3. Applicant provides a wide range of services to its clients; these services include portfolio strategy design, asset allocation, assessment of investor risk tolerance and financial engineering, corporate finance, client specific research and educational programs. Applicant also assists institutional clients by designing model asset allocation portfolios or by designing a questionnaire for institutions to use in determining model portfolio allocations for their individual investor clients. Applicant's institutional clients, however, are responsible for their individual investor clients.

Applicant's Legal Analysis

1. On October 11, 1996, the National Securities Markets Improvement Act of 1996 was enacted. Title III of the Act, the Investment Advisers Supervision Coordination Act (“Coordination Act”), added new section 203A to the Advisers Act. Under section 203A(a)(1),[1] an investment adviser that is regulated or required to be regulated as an investment adviser in the state in which it maintains its principal office and place of business is prohibited from registering with the SEC unless the investment adviser (i) has assets under management of not less than $25 million or (ii) is an investment adviser to an investment company registered under the Investment Company Act of 1940 (“Investment Company Act”). Section 203A(a)(2) defines the phrase “assets under management” as the “securities portfolios with respect to which an investment adviser provides continuous and regular supervisory or management services.” [2]

2. Applicant states that it does not qualify for registration as an investment adviser with the SEC. Applicant states that it does not have $25 million or more in assets under management, does not serve as an investment adviser to an investment company registered under the Investment Company Act, and does not qualify for an exemption from the prohibition on SEC registration as provided in rule 203A-2 under the Advisers Act.

3. Applicant notes that section 203A(c) of the Advisers Act authorizes the SEC to permit an investment adviser to register with the SEC if prohibiting registration would be “unfair, a burden on interstate commerce, or otherwise inconsistent with the purposes of [section 203A].” [3]

4. Applicant argues that prohibiting it from registering as an investment adviser with the SEC would be inconsistent with the purposes of section 203A. Applicant submits that Congress intended section 203A to divide responsibility for regulating investment advisers between the SEC and the states; the states should be responsible for regulating advisers “whose activities are likely to be concentrated in their home state,” and “larger advisers, with national businesses” should be regulated by the Commission and “be subject to national rules.” [4] Applicant asserts that Congress chose the “assets under management” requirement as a rough guide for this division, on the theory that investment advisers with $25 million or more of assets under management are likely to be national investment advisers that should be regulated by the SEC, while investment advisers managing less than $25 million in assets are likely to be smaller advisers that should be subject to the local rules of the states.

5. Applicant submits that Congress recognized that the “assets under management” requirement does not precisely differentiate national investment advisers from local investment advisers, and that some national investment advisers may not qualify for SEC registration under the test formulated by Congress. Applicant states that Congress acknowledged that “the definition of ‘assets under management’ * * * may, in some cases, exclude firms with a national or multistate practice from being able to register with the SEC.” [5] Applicant further states that Congress intended the SEC to use its exemptive authority under section 203A(c) to remedy any unfairness, burdens or inconsistencies caused by the assets under management requirement by permitting, “where appropriate, the registration of such firms with the [SEC].” [6]

6. Applicant argues that it engages in a large, national investment advisory business of the type Congress contemplated when it provided the SEC exemptive authority under section 203A(c). Applicant asserts that by providing services to institutional clients across the country, its activities, like those of pension consultants exempted by SEC rule from the prohibition on SEC registration,[7] have a direct effect on billions of dollars of assets under management at the nation's investment companies, investment advisers, broker-dealers, insurance companies, banks, and other institutional investors.

7. Applicant submits further that it is inconsistent with the purposes of section 203A for a state to regulate investment advisers whose activities involve little or no traditional state interest. Applicant notes that, in section 203A, Congress preserved the states' ability to regulate certain investment adviser representatives of advisers registered with the SEC. Applicant further notes that under the SEC's definition of investment adviser representative,[8] only personnel who work principally with individual, rather than institutional, clients are subject to state regulation. Applicant argues that this definition recognizes that, consistent with Congress' intent in the Coordination Act, the states' primary interest is in oversight of representatives who have an individual, not an institutional, clientele. Applicant submits that in fashioning this definition, the SEC noted its belief that distinguishing between retail and other clients was consistent with the intent of Start Printed Page 3750Congress as reflected in the Coordination Act.

8. Applicant argues that it is the type of investment adviser that Congress intended the Commission to consider exempting under section 203A(c). Applicant states that it provides services predominantly to institutions and that it believes that its business will remain predominantly institutional. Applicant will not market its services to individual investors, and in no case will it have (i) more than five clients who are natural persons (other than certain “excepted persons,” as that term is defined in rule 203A-3, paragraph (a)(3)(i) under the Advisers Act [9] ) or (ii) more than ten percent of its clients who are natural persons (other than certain excepted persons).

Start Signature

For the SEC, by the Division of Investment Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

End Signature End Supplemental Information


4.  S. Rep. No. 293, 104th Cong. 2d Sess. (1996) at 4.

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6.  Id. at 5.

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9.  See 17 CFR 275.203A-3(a)(3)(i)

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[FR Doc. 00-1634 Filed 1-21-00; 8:45 am]