Getting Registered
The SEC and most states have mandated electronic filing via the Investment Advisor
Registration Depository (IARD) and the Central Registration Depository (CRD) for
certain forms. Both are administered by the Financial Industry Regulatory Authority
(FINRA). While the IARD and CRD accommodate electronic filings, a few paper forms
may still need to be filed manually in some states.
State Notice Filings
Federally-covered investment advisors may also have to make a Notice Filing with
states where they have clients. Such notice filings are usually required if the
advisor meets one or more of the following conditions:
- Has a place of business in the state.
- Has provided investment advisory services to more than the De Minimis number of
clients in that state in the past twelve-month period, regardless of whether they
have a place of business in that state.
A notice filing for a federally-covered advisor is usually made by filing Part I
of Form ADV, as filed on the IARD system, along with the notice filing fees required
by that state.
Representative Qualifications
Regardless of whether you have registered your firm with the SEC or state(s), the
states retain jurisdiction to register the representatives of an investment advisor.
The qualifications you must satisfy vary among states. However, most states follow
the rule promulgated by the NASAA. The model rule provides examination requirements,
which can generally be satisfied by passing either the Series 65 or the Series 66
in conjunction with the Series 7.
In some states, certain professional designations may qualify for a waiver from
the examination requirement, including:
- Certified Financial PlannerTM (CFP®)
- Chartered Financial Consultant (ChFC)
- Professional Financial Specialist (PFS)
- Chartered Financial Analyst (CFA®)
- Chartered Investment Counselor (CIC)
There are a number of factors that determine which regulatory agency(s) an advisor
must register with. To obtain a contact for any state, visit the NASAA website and
click on the state. The website is http://www.nasaa.org/QuickLinks/ContactYourRegulator.cfm
Requirements for registering with the state are:
- Manage less than $25,000,000 of assets on a regular and ongoing basis.
- Solicit clients on behalf of other investment advisors but does not provide investment
advice themselves.
- Provide a service or services that do not involve management of assets on a regular
or ongoing basis.
Additionally, advisors will be required to register with the SEC if they:
- Manage or will manage $25,000,000 or more in assets within 120 days of registration
on a regular and ongoing basis (advisors have a choice to register with either the
state(s) or the SEC if the amounts fall between 25 and 30 million).
- Provide investment advice to a registered investment advisor.
- Would otherwise be required to register as an investment advisor in 30 or more states.
- Are eligible for an exemption from state registration by rules or orders of the
SEC.
- Provide investment advice solely through an interactive website.
Please note that regulations vary from state to state and almost all states require
a regulatory filing be made by both state-registered and federally-registered advisors
doing business in their states. Advisors must check with each state before offering
their services.
To register with either the state or SEC an advisor will have to complete the Form
ADV, along with the schedules and disclosures, and pay the appropriate filing fees.
Overview
When it comes to compliance put the client first. The client should be the reason
advisors take the time to develop and understand the compliance guidelines relative
to their practice. Protecting the investor from loss due to incompetence, neglect,
or misconduct should be the root of every compliance landscape.
Because the regulations defining and governing the practice of an RIA are quite
complex and significant, it is recommended that an advisor seek the counsel of a
professional (such as an attorney or registration and compliance consultant) who
is knowledgeable in this field. Serving as an RIA requires advisors and associates
to adhere to professional ethics and regulation requirements. Advisors should verify
that the information they are receiving is up to date by consulting with their business
advisors, such as an experienced attorney or a registration and compliance consultant,
to ensure all issues have been addressed.
Although compliance issues regarding investment professionals are extensive, they
can become simplified if a set of guidelines are created and followed on a routine
basis. While not required in all states, developing a policy and procedures manual
will ensure the necessary guidelines are being followed and help eliminate potential
problems. If registering with the SEC, investment advisor firms need to adopt and
implement written policies and procedures “reasonably designed” to prevent violations
of the Investment Advisors Act. Even if advisors are not SEC registered, they should
check with their state to verify if their firm is required to implement policies
and procedures.
Record-Keeping
RIAs are required to maintain and keep current multiple accounting and client records.
Most recordkeeping requirements can be handled with accounting software and some
additional files for advertising, complaints and other items. Some additional recordkeeping
requirements may also be made by the state where the RIA does business. Advisors
should check with their state regulator for a complete list of the recordkeeping
requirements, or if registering with the SEC, check its website.
Legal Concerns
Advisors who work with a Broker-Dealer or wire-house and desire to go independent
need to consider a variety of legal issues. Contracts might exist with their current
relationships which may need to be addressed by legal counsel. In many cases, when
contracts exist, they protect the Broker-Dealer or wire-house from any loss of business.
Therefore, there may be a cost associated with becoming independent. Hiring an attorney
who can interpret these contracts and offer advice on how to effectively handle
these contractual obligations may be in an advisor’s best interest.
Regulatory and Compliance Resources
Compliance Consultants
Advisor Services Websites