Holding Yourself Out

Investment advisers have flocked to South Florida over the last several years. Many smaller advisers have taken advantage of the following exclusion from the definition of “Investment Adviser.”

Any person who does not hold herself or himself out to the general public as an investment adviser and has no more than 15 clients within 12 consecutive months in this state.[1]

The numerical limit on the number of clients is a easy to calculate. However, the “does not hold herself or himself out to the general public as an investment adviser” part is often forgotten about, especially where the person relying upon the exclusion is a manager only to private funds. Private fund managers often discuss private placement exemptions and the related prohibitions on general solicitation with their counsel or compliance consultants. The prohibition on holding oneself out may be confusingly similar to the prohibition on general solicitation (which is relevant in the context of preserving your private placement safe harbor under Regulation D), at least for people who do not have a legal or compliance background. As a result, I sometimes hear things along the lines of the following from fund managers located in South Florida: “I have a whole marking plan in place, but don’t worry, I’ll just talk about the manager and not the funds.”

Caution: You need to be wary of this potential trap if you manage a fund from Florida but are not registered as an investment advisers with the SEC or with the State of Florida.

[1] https://www.flsenate.gov/Laws/Statutes/2022/517.021