I found out last week that in my industry, the new Dodd-Frank law says that if I decide to manage investments in separately managed accounts (SMA) for my investors in addition to the private investment fund that I currently manage, it will trigger a requirement to register with the SEC as an Investment Advisor. Needless to say, registration will cost tens, if not hundreds of thousands of dollars each year just to comply with SEC regulations, and small firms will not be able to afford it.
If managing a hedge fund is no different from managing an SMA except that an SMA gives the investor some access and control over her account, why would adding SMAs trigger the need to register? I think we get a hint in the following column on the laws that are created merely to protect the interests of the politically connected:
…soon after 1932, New Deal progressivism washed over the courts, which became derelict regarding their duty to protect economic liberty. Courts deferred to governments eager to experiment with economic micromanagement. Inevitably, this became regulation in the service of existing interests. And regulatory agencies often succumbed to “regulatory capture,” whereby regulated businesses and professions dominate regulatory bodies.