[Federal Register Volume 62, Number 120 (Monday, June 23, 1997)]
[Notices]
[Pages 33945-33946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16336]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IA-1639/803-106]


KPMG Investment Advisors; Notice of Application

June 17, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'').

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APPLICANT: KPMG Investment Advisers (``KPMGIA'').

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 
continue to be registered with the SEC as an investment adviser.

FILING DATES: The application was filed on March 7, 1997, and amended 
on June 5, 1997. By letter dated June 17, 1997, applicant's counsel 
stated that an additional amendment, the substance of which is 
incorporated herein, will be filed during the notice period.

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 July 7, 1997, 
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 request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicant, 4200 Norwest Center, 90 South Seventh Street, 
Minneapolis, Minnesota 55402.

FOR FURTHER INFORMATION CONTACT: Jennifer S. Choi, Special Counsel, at 
(202) 942-0725 (Division of Investment Management, Task Force on 
Investment Adviser Regulation).

SUPPLEMENTARY 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 a general partnership owned by KPMG Peat Marwick 
LLP (``KPMG''). KPMG provides accounting and related services to 
individuals and entities in the private and public sectors throughout 
the United States.
    2. Since December 13, 1994, applicant has been registered with the 
SEC as an investment adviser. Applicant's principal place of business 
is in Minneapolis, Minnesota, and it has approximately 32 registered 
advisory representatives conducting business from 19 offices located in 
13 states and Puerto Rico.
    3. Applicant is responsible for the investment advice component of 
the personal financial planning services offered by KPMG. Applicant 
supervises the delivery of investment advice by partners and 
professional employees of KPMG in connection with personal financial 
planning services offered by KPMG to its clients, and the scope, 
content and delivery of such advice is subject to quality control 
standards prescribed and monitored by applicant.
    4. Applicant does not manage or exercise discretionary authority 
over clients' accounts or maintain custody of clients' funds or 
securities. In instances where clients seek or would benefit from 
specific advice on securities investments, applicant may present the 
client with a list of investment advisers that specialize in providing 
such advice from which the client may choose.
    5. Applicant provides generic advice on securities of all types but 
does not recommend specific securities. At the request of a client, 
applicant would provide an analysis of the attributes of a specific 
security without recommendation as to whether a client should buy, sell 
or hold the security. With regard to mutual funds, applicant may assist 
a client in identifying categories of funds that match the client's 
individual profile. Applicant does not select mutual funds for clients. 
If a client's needs dictate, applicant would, using published ranking 
data, assist the client in selecting several mutual funds in each 
investment category for further consideration. The client would then 
have the opportunity to compare the investment philosophy, past 
performance, and other features and services of the funds before making 
the investment decision. Applicant would discuss the use of 
professional money managers with clients with an investable asset base 
in excess of $250,000. Applicant also provides asset allocation 
services and ongoing performance evaluations.
    6. Applicant's fees are generally based on actual or estimated 
hourly charges, which vary according to the staff classification, 
experience and location of the individual providing the service.

Applicant's Legal Analysis

    1. Under section 203A(a) of the Advisers Act, which would become 
effective July 8, 1997, as a consequence of the enactment on October 
11, 1996 of the National Securities Markets Improvement Act of 1996,\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 adviser (i) has assets under management of not less than 
$25 million (or such higher amount as the SEC may, by rule, deem 
appropriate), or (ii) is an adviser to an investment company registered 
under the Investment Company Act of 1940, as amended. The SEC is 
directed by section 203(h) of the Advisers Act to cancel the 
registration of any adviser that no longer meets the criteria for 
registration.
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    \1\ The effective date of the National Securities Markets 
Improvement Act of 1996, originally April 9, 1997, was extended to 
July 8, 1997 by Pub. L. No. 105-8 (Mar. 31, 1997).
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    2. Applicant states that it does not meet the statutory test of 
having $25 million of assets under management. Applicant also states 
that it does not act as an investment adviser to any registered 
investment company. Applicant also states that it would not qualify for 
exemption from the prohibition on SEC registration as provided in rule 
203A-2 under the Advisers Act. Applicant states that it would not be 
able to rely on the rule to relieve the burden of multi-state 
registration because it does not qualify

[[Page 33946]]

for any of the four exemptions listed in rule 203A-2. Applicant, 
therefore, requests exemptive relief.
    3. Under section 203A(c), the SEC has the authority to permit an 
investment adviser to register with the SEC if the application of the 
prohibition would be unfair, a burden on interstate commerce, or 
otherwise inconsistent with the purposes of section 203A. For the 
reasons discussed below, applicant believes that the standards for 
exemptive relief under section 203A(c) are met.
    4. Applicant believes that Congress in adopting section 203A 
intended the SEC to grant these exemptions to advisers having a 
``national or multistate practice'' and that ``[l]arger advisers, with 
national businesses, should be registered with the [SEC] and be subject 
to national rules.''\2\ Applicant notes that the Advisers Act gives the 
SEC primary responsibility to regulate advisers that remain registered 
with the SEC by preempting certain state laws with respect to those 
advisers.
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    \2\ S. Rep. No. 293, 104th Cong. 2d Sess. 5 (1996).
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    5. Applicant notes that the SEC's release adopting the rules 
implementing the Coordination Act stated that Congress recognized that 
``some advisers that do not have $25 million of assets under management 
may still have national businesses.''\3\ As a result, the SEC was given 
the ``authority to exempt advisers from the prohibition on [SEC] 
registration if the application of the prohibition would be unfair, a 
burden on interstate commerce or otherwise inconsistent with the 
purposes of section 203A.'' \4\
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    \3\ Rules Implementing Amendments to the Investment Advisers Act 
of 1940, Investment Advisers Act Rel. No. 1633 (May 15, 1997), 62 FR 
28112 (May 22, 1997).
    \4\ Id.
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    6. Applicant submits that the nature of its business consists of a 
national or multistate practice that Congress intended to be regulated 
by the SEC and not at the state level. Applicant states that it 
currently supervises services provided through 19 offices in 13 states 
by approximately 32 advisory representatives. Applicant believes that 
although it does not provide discretionary management services to its 
clients, the services provided are national in scope.
    7. Applicant asserts that the purpose of the $25 million test was 
to limit SEC regulation of advisers likely to be subject to multiple 
state registration requirements. Applicant believes that if the 
requested relief is not granted, it would continue to be subject to a 
multitude of state requirements, a result which is inconsistent with 
the purpose of section 203A to preempt certain state laws insofar as 
they relate to advisers with a multi-state practice.
    8. Applicant further submits that the national de minimis standard 
embodied in section 222(d) of the Advisers Act provides little or no 
relief from the burdens of multi-state registration. Pursuant to 
section 222(d), a state may not require applicant to register as an 
investment adviser if applicant does not have a place of business 
located within that state and, during the preceding 12 month period, 
had fewer than 6 clients who are residents of that state. Applicant 
states that it has had, during the past 12 months, at least 6 state-
resident clients in each of the 17 states and the District of Columbia 
in which applicant does not currently maintain an office. As a result, 
applicant believes that it currently would be required to register in 
30 states and the District of Columbia, including the 13 states in 
which applicant maintains an office. Even after giving effect to all 
state-adopted exemptions that are more liberal than the national de 
minimis standard, applicant represents that, as of July 8, 1997, it 
would be required to register in 30 states and the District of 
Columbia.
    9. Finally, applicant also submits other grounds for granting an 
exemption under section 203A. Applicant believes that prohibiting it 
from registering with the SEC would be unfair or a burden on interstate 
commerce in that advisers with fewer clients and a much more local 
practice than applicant's national presence would enjoy the benefits of 
state law preemption, while applicant would be compelled to expend the 
considerable resources required to constantly monitor and enforce 
compliance with the state regulations to which it would be subject.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-16336 Filed 6-20-97; 8:45 am]
BILLING CODE 8010-01-M