Investment advisors in California are required to have a certificate from the Department of Corporations, the State agency which issues licenses and regulates investment advisor activity in the State. However, investment advisors that have a Federal exemption are also exempt from State regulation.

Previously, Federal law exempted “private advisors”, those with fewer than fifteen clients who do not hold themselves out to the public as investment advisors and meet other requirements. With passage of the Dodd-Frank Wall Street Reform and Investor Protection Act that changed. The new regulatory regime provides exemption instead for those who exclusively advise “private funds”, if advising venture capital funds or managing less than $150 million in assets.

California currently offers a similar exemption for those who manage assets of not less than $25 million and exclusively advise “venture capital companies”. 10 Cal. Code Regulations, Section 260.204.9

Unfortunately, the SEC has not yet adopted new rules related to licensing and exemption for advisors previously exempt as “private advisors” under Federal law. As a result, California is extending by emergency regulation its corollary exemption so that persons who may be impacted will have lead time to analyze the new Federal rules and ensure that they are in compliance.

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