Frequently Asked Questions
Investment Advisor Registration

In layperson terms, an investment advisor is an individual or entity that (1) provides advice or analysis by making direct or indirect recommendations regarding securities or securities markets; (2) for compensation in any form; and (3) engages in the regular business of providing advice regarding securities. (It should be noted that there are certain individuals that are excluded from the definition of investment advisor.)  Please refer to the Investment Advisers Act of 1940 as amended and the state securities act for the precise definition used by the applicable securities regulator.

No, the term “investment adviser” with the “er” ending has the same meaning as the term “investment advisor” with the “or” ending.  Under federal law, “investment adviser” with the “er” ending was utilized by Congress; however, “investment advisor” with the “or” appears to be a more popular form within the securities industry.

The term “RIA” is an abbreviation for “registered investment advisor” or “registered investment adviser”.  This term refers to investment adviser firms which are registered (i.e., licensed) with the securities regulator. “RIA” is not a professional designation. Most securities regulators prohibit the use of the term “RIA” by an investment advisor firm or individual when advertising or communicating with prospective or existing investment advisory clients due to concerns the term may appear to be a professional designation and is therefore misleading.

Just because a firm meets the definition of providing investment advisory services, it does not automatically mean the firm must register as an investment advisor.

Domestic banks are generally excluded from the definition of investment adviser under the Investment Advisers Act.  Credit unions (and credit union service organizations) are not defined as banks for purposes of this exclusion.  To the extent that the bank is serving as an investment adviser to a registered investment company, the bank (or the bank’s division if services are performed through the division) is required to register as an investment adviser.

Additionally, the definition of investment adviser under the Investment Advisers Act of 1940 does not include lawyers, accountants, engineers,  and teachers if advisory service is solely incidental to the practice of the profession.

A bona fide publisher of a newspaper, news magazine, or business/financial publication of general and regular circulation is exempted from registration as an investment adviser if all of the following requirements are met: (1) the investment advice within the publication is impersonal; (2) the publication is disinterested rather than promotional to tout a security or incidental to personalized investment services; and (3) the publication must be of general and regular circulation rather than issued from time to time in response to episodic market activity or events affecting the securities industry.

Click here to view a recording of our compliance consultant discussing investment advisor registration exemptions.

Other common exemptions from SEC investment advisor registration include charitable organizations, officials, and church plans. An investment advisor that is registered with the Commodity Futures Trading Commission and whose business does not consist primarily of acting as an investment advisor does not need to register with the SEC. While these exemptions allow investment advisor firms to avoid registration with the SEC, investment advisor firms must still be cognizant and comply with applicable state requirements for investment advisor registration.

Again, we recommend that an investment advisor firm retain a compliance professional or attorney that can consider all of the facts surrounding the firm’s situation and applicable laws and regulations in order to determine whether an investment advisor registration exemption applies to the firm; this webpage is for general education purposes and is not advice specific to the reader.

Whether a firm should be registered as an investment advisor with the SEC or a state securities regulator is typically determined by the amount of regulatory assets receiving continuous and regular supervisory or management services (known as “assets under management” or “AUM”). In order for a firm to register with the SEC as an investment advisor, the firm must have over $100 million of regulatory AUM at the time of investment advisor registration or within 120 days of the effective date of the investment advisor registration. If a firm has less than $100 million of regulatory AUM and doesn’t anticipate having $100 or more within 120 days of the effective date of the investment advisor registration, then it must register with the individual state(s) as an investment advisor. If a firm has $100 million or more of regulatory AUM, then it must register with the SEC as an investment advisor. The SEC’s definition of regulatory AUM is outlined in the Form ADV Part 1 and should be thoroughly reviewed and consulted prior to beginning the investment advisor registration process. If an investment advisor has less than $100 million of regulatory AUM and is exempt from registration in the state in which its principal office and place of business is located, the investment advisor firm will have to register with the SEC (unless an exemption from SEC registration is available). Investment advisors will be required to register with the SEC once the investment advisor has $110 million in regulatory AUM. Investment advisors registered with the SEC will not be required to withdraw registration until it has less than $90 million of regulatory AUM.

Click here to view a recording of our compliance consultant explore whether an investment advisor should register with the SEC or a state securities regulator on the basis of $100 million of assets under management.

Firms serving as an investment advisor or sub-advisor to an investment company (for example, a registered mutual fund) are required to register with the SEC regardless of their total assets under management. The SEC has passed several exemptions that allow an investment advisor with less than $100 million of AUM and does not serve as an investment advisor to an investment company to register with the SEC if the firm chooses.

The following situations do not require SEC registration, but such firms are permitted to register with the SEC rather than individual states.

Investment advisor firms that own, are owned by or are under common ownership with an SEC registered investment advisor may be able to register with the SEC even if their assets under management are below $100 million.

Investment advisors that are required to register in 15 or more states may choose to register with the SEC. This exemption is not available to a firm that chooses to register in additional states if the firm is not also required to register.  During the application process, the SEC is likely to review the underlying basis (e.g., number of clients in each state, places of business in each state) for the firm’s claim that it is required by the applicable state securities regulator to register if it’s not readily apparent to the SEC staff.

Another exemption (allowing an investment advisor with less than $100 million of AUM to register with the SEC) is a pension consultant that provides investment advice to plans with at least $200 million in assets. The investment advisor relying upon the pension consultant exemption cannot include assets when it only provides advice to plan participants.

The final exemption is for internet investment advisors that provide advice exclusively through an interactive website which the SEC has defined as a website in which computer software-based models or applications provide investment advice to clients based on personal information each client supplies through the website.  There is a currently a de minimis exception permitting an investment advisor relying upon this exception to advice clients through other means so long as the investment advisor has had less than 15  non-Internet clients in the last 12 months.  The use of this exemption will be carefully scrutinized by the SEC during the application and examination processes with a focus on whether (i) the investment advisor has an interactive website, (ii) advice is provided exclusively through such interactive website, and (iii) the number of non-Internet clients exceeds the de minimis.  The SEC is considering whether to adopt a proposed rule which would significantly limit the use of the Internet exception. Please see blog post, Regulatory Watch – Proposed Change to SEC Rule for Internet-Based Investment Advisers (7/28/2023), for additional details.

Click here to view a recording of our compliance consultant review some of the exemptions to the $100 million of assets under management requirement for SEC investment advisor registration.

If a firm registers with the SEC as an investment advisor but does not acquire $100 million in regulatory assets under management within 120 days, the firm must submit a 120-day amendment filing with its regulatory AUM.  The SEC will then require the investment advisor to de-register as an investment advisor with the SEC.  If an investment advisor relying on this basis for registering with the SEC does not anticipate that it will meet the regulatory AUM requirement within 120 days, it should consider whether to submit a state registration application prior to the 120-day deadline while still registered with the SEC.

Most individuals establishing an investment adviser do so by establishing an entity (such as a corporation or limited liability company), registering the entity with the securities regulator as the investment adviser and then serving in their individual capacity as an investment adviser representative (“IAR”) of the investment adviser firm; however, individuals can also register with investment adviser as a sole proprietor.

There are several advantages of registering an entity as the investment adviser such as allowing for business continuity beyond the owner’s life and limiting the owner’s liabilty for certain type of claims.  However, the protection offered to an owner of an entity from general liability does not protect necessarily a securities principal from liability under the federal and state securities laws. You should consult with your legal counsel and tax professional regarding whether you should establish an entity and if so, the type of entity.

Yes, you can start preparing your firm’s investment advisor application for registration without yet establishing the entity that will serve as the investment advisor; however, the entity will need to be established before the investment advisor application is filed. It’s recommended that you conduct a search of your state’s corporate name database to determine the availability of the intended name for your new entity. Once you identify an available name, an application can be submitted on your firm’s behalf to the Entitlement Group of FINRA for an IARD /WebCRD account. You will need to have established the entity with the state corporation office and obtain an employer identification number prior to filing your investment advisor registration application. Many state securities regulators require a firm to include a copy of its article of incorporation or limited liability company membership agreement as part of its investment advisor application.

Yes, it is most likely that an individual, who is currently licensed as a registered representative or investment adviser representative of an existing broker-dealer or an investment advisor firm, will need to disclose and/or obtain the authorization from the existing firm in order to establish a new investment advisor firm while still affiliated with an existing firm.  Many broker-dealers and investment adviser firms prohibit their employees and supervised persons from starting a new investment adviser firm while still employed or affiliated with the existing firm; however, some broker-dealers and investment advisers may permit a supervised person to establish a new independent investment adviser firm if certain disclosure, pre-approval and other requirements are met.  An individual desiring to start a new investment adviser firm should carefully review the current firm’s employee manual (if he or she is an employee), code of ethics and compliance policies and procedures related to (i) outside business activities, (ii) private securities transactions, (iii) owning, operating or working with an independent investment adviser firm, and (iv) serving dually as an investment adviser representative for two different firms.  Additionally, if the individual has an employment or independent contractor agreement with the existing firm, this document should be examined with respect to any prohibitions or special requirements.  In order to avoid violating any internal policies and procedures or regulatory requirements, an individual desiring to start a new investment adviser firm should retain local legal counsel experienced in such matters to hep determine whether approval by the existing firm is required and whether or how to make an inquiry with the existing firm’s management.  RIA Compliance Consultants is not a law firm and does not provide such services.

Yes, an investment adviser firm is typically permitted by securities regulators to utilize a doing business as name (also referred to as “D/B/A name“) if properly disclosed and not misleading; however, there are limitations and/or requirements to utilize such a name.  For example, if the D/B/A name is actually another legal entity, then this other entity cannot be a D/B/A name of the investment adviser firm; a business that is a separate legal entity (such as an LLC or corporation duly registered or incorporated under state law with its own tax identification number) cannot be a D/B/A of another legal entity.  Additional guidance regarding an investment adviser firm’s use of a D/B/A name can be found in our checklist, Advertising – D/B/A Name Guidance.

Currently there is a significant difference between registering as an investment advisor with the SEC and individual state securities regulators.

Firms registering as investment advisors with the SEC must prepare and file the Form ADV Part 1A and Form ADV Part 2A and its applicable schedules through the IARD system. The SEC will typically then review the Part 1A and approve/deny the investment advisor registration application of the firm; however, if the firm is relying upon certain exceptions (e.g., foreign advisor, Internet, required to register in 15 or more states) to the $100 million regulatory assets under management requirement, the SEC staff is likely to scrutinize such application and ask additional questions.  While the SEC generally reviews only the Part 1A as part of the initial application process, an investment advisor firm must have a Form ADV Part 2, client agreements, written supervisory programs/code of ethics, and other regulatory documents up and running upon its investment advisor registration approval by the SEC. The SEC will review such documents during a regulatory examination of the investment advisor firm.

Click here to view a recording of our compliance consultant summarize the process for registering with the SEC as an investment advisor.

In addition to filing the Form ADV Part 1A, 1B and applicable schedules through the IARD system, state registered investment advisor firms must also submit several documents directly to state securities regulators. These documents include the firm’s Form ADV Part 2A, 2B and Appendix 1 (if applicable); required financial statements; client agreements; and other supplemental documents and forms particular to the individual state securities regulator.

Click here to view a recording of our compliance consultant provide an overview of the process for registering with a state securities regulator as an investment advisor.

The SEC has a regulatory requirement to approve or deny investment advisor applicants within 45 days of the firm’s initial filing. Most state securities regulators have very similar time periods usually between 30 and 45 days. However, many times the approval process for investment advisory applicants can last longer than this time frame, depending on several factors. If a firm’s initial application packet is incomplete, delays usually occur. Many state securities regulators will also require changes to an investment advisory document or request additional information regarding the firm’s background and/or investment advisory services.

If a securities regulator is satisfied with the information provided and the investment advisor applicant and its principal’s background, the firm will be approved.  There are no guarantees that a securities regulator will approve an application to register as an investment advisor.

Either the U.S. Securities and Exchange Commission (“SEC”) or a state securities regulator will serve as the primary securities regulator of a registered investment adviser firm; however, the SEC and the North American Securities Administrators Association (“NASAA”) have retained FINRA to administer the Investment Adviser Registration Depository (“IARD”) system, which electronically facilitates the filing of registrations for investment adviser firms and investment adviser representatives.

In order to initiate the process of registering as an investment adviser firm and pay the corresponding regulatory fees, an investment adviser firm applicant must establish an IARD account with FINRA which requires the applicant to complete the applicable IARD Entitlement Program paperwork with FINRA.

With respect to investment adviser firms, FINRA’s role is limited to administering an electronic filing system on behalf of the SEC and state securities regulators; however, some entities registered as investment advisers are also dually registered as broker-dealers or have supervised persons who are also registered representatives of a broker-dealer. Consequently, those entities and their supervised persons are subject to regulation by FINRA in their broker-dealer related capacities.

In order for a firm to register as an investment advisor with the SEC or a state securities regulator and an individual affiliated with the firm to register as an investment adviser representative, an account with the Investment Adviser Registration Depository (“IARD”) and WebCRD must be established through the Entitlement Group of FINRA, which administers the IARD/WebCRD systems on behalf of the SEC and states.

A new entity intending to apply for registration as an investment advisor must complete the New Organization SAA Form and specifically designate a single individual as the firm’s Super Account Administrator (“SAA”).  There are instructions and signature requirements noted in the form which must be met for processing. This form can be completed and submitted electronically to FINRA.

Your firm’s Super Account Administrator is able to create, maintain and remove users of the IARD/WebCRD account and level of entitlement for each user.  RIA Compliance Consultants recommends that the owner or a senior officer of the firm serve as the Super Account Administrator. For business continuity purposes, an investment advisor should consider adding a second user who is within the firm once the IARD/WebCRD account is established.

Upon its approval, the FINRA Entitlement Group will provide your account identification information and CRD number. The IARD/WebCRD account allows your firm and you to file the Form ADV Part 1, Form ADV Part 2A, Form ADV Part 2B (if state registered), Form ADV Part 3 (if SEC registered) and Form U4 to become an investment advisor and investment advisor representative and pay the registration fees charged by the appropriate securities regulators. If a firm does not file its Form ADV within 5 months of submitting the New Organization SAA Form, the system will delete the firm’s IARD account unless FINRA is contacted.

The Form ADV serves two primary functions; (1) it is the official governmental application form for investment advisor registration and (2) it serves as a disclosure brochure provided to investment advisory clients. An investment advisor is obligated to disclose material information to a client, and the Form ADV is a primary vehicle for an investment advisor to disclose the following information to clients and securities regulators: investment advisory services available to clients; the fees and costs associated with such investment advisory services; indirect compensation received from third-parties; the background of the investment advisor firm’s principals; affiliates of the investment advisor firm and outside business activities of the investment advisor firm, its principals, and supervised persons; potential conflicts of interest; and certain firm policies and procedures such as its Code of Ethics and proxy-voting policy.

The Form ADV consists of several sections. The Form ADV Part I is filed electronically with the applicable securities regulators via the IARD system.

Click here to view a recording of our compliance consultant give a summary of the general information that an investment advisor must disclose on the Form ADV Part 1A. SEC registered investment advisor firms must complete Form ADV Part 1A and state registered investment advisor firms must complete Form ADV Part 1A and Part 1B.

Click here to view a recording of our compliance consultant explain the information reported by an investment advisor on Form ADV Schedules A, B and D and Form ADV Part 1B.

The Form ADV Part 2 is a narrative document that is shared with securities regulators and serves as the disclosure document provided to all clients.

Click here to view a recording of our compliance consultant provide an overview of the information disclosed by an investment advisor on the Form ADV Part 2A. (In particular, the Form ADV Part 2 must be given to clients in advance or at the time an agreement for investment advisory services is executed. The Form ADV Part 2 must also be provided, or offered, on an annual basis to all current clients.)  For additional guidance on drafting the Form ADV, please visit our webpage, Form ADV Drafting Tips.

Investment advisor firms sponsoring a wrap-fee program must also complete Appendix 1 of Form ADV Part 2A to provide specific information about the wrap-fee program. A single Appendix 1 brochure can be used to describe several wrap-fee programs.

Click here to view a recording of our compliance consultant discuss when an investment advisor is required to file a balance sheet with the Form ADV or prepare an Form ADV Appendix 1 for sponsoring a wrap-fee program.

The Form CRS/Form ADV Part 3 relationship summary is a written disclosure that provides a retail investor with succinct information about the relationships and services the firm offers to retail investors, fees and costs that retail investors will pay, specified conflicts of interest and standards of conduct, and disciplinary history, among other things.  See page 6 of https://www.sec.gov/rules/final/2019/34-86032.pdf . Click here for FAQs about the Form ADV Part 3.

All SEC and state registered investment advisor firms must electronically upload the Form ADV Part 2A through the IARD system using the text-searchable Adobe Portable Document Format (”PDF”). The Form ADV Part 2 uploaded through the IARD system will be available for public viewing through the IAPD system. SEC registered investment advisor firms are not required to file Form ADV Part 2B, but state registered investment advisor firms must upload the Part 2Bs in addition to the 2A.

For SEC registered investment advisor firms with “retail investors” as clients, the Form CRS/ADV Part 3 relationship summary must be uploaded and filed via the IARD system.  You can learn more about Form ADV Part 3 at https://www.ria-compliance-consultants.com/form-adv-part-3-faqs/ .

An SEC registered investment advisory firm does not have to register with state securities regulators. However, an SEC registered investment advisor firm is required to notice file with each state securities regulator where it maintains a place of business or if the investment advisor firm has more than 5 investment advisory clients. (It should be noted that certain state securities regulators, such as Texas State Securities Board, Louisiana, Nebraska and New Hampshire, do not recognize this de minimis exemption and require notification before or upon the first investment advisory client; this is for educational purposes and please check the regulations of the applicable regulator for specific requirements.) In most states, an SEC registered investment advisor firm can notice file with a state securities regulator by electronically submitting the Form ADV Part I via the IARD system and paying the state securities regulator its notice filing fee.

Similar to an SEC registered investment advisor firm, a state registered investment advisor firm is required to register as an investment advisor with each additional state securities regulator where it maintains a place of business or where the firm has more than 5 investment advisory clients. (It should be noted that certain state securities regulators, such as the Texas State Securities Board, do not recognize this de minimis exemption and require investment advisor registration before or upon the first client.) State registered investment advisor firms must go through the entire investment advisor registration process similar to the process required by their home state’s securities regulator.

An investment adviser representative (often referred to as an “IAR”) generally is defined by most states as a person who, for compensation (1) makes any recommendations regarding securities; (2) manages accounts of clients; (3) determines which recommendation or advice regarding securities should be given; (4) solicits or sells investment advisory services, or (5) supervises employees who perform any of the foregoing. Since the definition of an investment advisor representative, especially with respect to soliciting, can vary significantly from state to state, the rules of each particular state securities regulator should be consulted. If an individual meets the state’s definition of an investment advisor and maintains a place of business within a state or has a certain number of clients within the state, then most state securities regulators will require the individual to register as an investment advisor representative.

Click here to view a recording of our compliance consultant discussing registration of investment adviser representatives.

Most state securities regulators require that in order for an individual to become registered as an IAR, such individual must have successfully completed the Series 65 examination. In the event that an individual currently holds and maintains in good standing the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Personal Financial Specialist (PFS) or Charter Financial Consultant (ChFC), most states will waive the successful completion of the Series 65. Similarly, as long as an individual maintains both a Series 7 and Series 66 with a broker-dealer, most states will not require such individuals to obtain the Series 65.

Click here to view a recording of our compliance consultant discussing the qualifications necessary for an individual to register as an investment adviser representative.

It depends upon the state securities regulator.  At present, most state securities regulator will not recoginze a Series 65 if the individual has not been registered with a firm as an investment adviser representative for over 2 years.  However, there are certain states which do not impose such limitations.

The North American Securities Administors Association (“NASAA”) recently started the Exam Validity Extension Program (“EVEP”) which allows investment adviser representatives to extend their NASAA qualification exams (Series 65 and 66) for a period up to five years by opting in to the program, paying an annual fee and maintaining certain continuing education requirements.  If the applicable state securities regulator has adopted EVEP program, an investment adviser representatives who opts in to the EVEP can extend the validity of their exams past the standard two years when not registered with the jurisdiction.  You can check with NASAA as to whether your state  is participating in the EVEP.

Yes, certain state securities regulators will allow exceptions to the IAR qualifications based on the candidate’s prior financial industry experiences.  Some state securities regulators also accept professional designations in addition to those listed in the previous question. State securities regulators will require a written request for a qualification waiver.

No. Unlike an individual seeking to take the Series 7, a sponsoring investment advisor firm is not required for an individual to open a Series 65 exam window and take the Series 65 exam.

Yes, associated persons of an SEC registered investment advisor firm that fall within the SEC and the applicable state’s definition of an IAR are required to register with the state securities regulator as such.

Almost all state securities regulators require a firm registering with the state as an investment advisor to also include at least one individual within such firm to serve as an investment adviser representative (“IAR”). In other words, a firm applying to become registered with its home state as an investment advisor must also have an IAR before it the firm’s investment advisor application will be approved by the state securities regulator.

With respect to a firm registering with the SEC as an investment advisor, there is no federal requirement that there be an IAR affiliated with the firm; however, the Investment Advisers Act of 1940 as amended (“IAA ’40”) does define which supervised persons affiliated with a SEC registered firm can be required by a state to register as an IAR. When a SEC registered investment advisor firm notice files with the firm’s home state, the investment advisor firm’s home state securities regulator will note that there are no individuals registered as IARs and therefore require the investment advisor firm to register any individuals acting as IARs as defined by the IAA ’40.

Most state securities regulators require an individual who is a direct or indirect owner of a state registered investment adviser firm to register as an investment adviser representative.  However, certain state securities regulators may have exceptions or grant waivers depending upon the particular circumstances, roles and activities of the owner.  An existing or prospective state registered investment adviser firm should consult with its state securities regulator for specific guidance.  For additional guidance, RIA Compliance Consultants offers a checklist, Non-Licensed Owner – Checklist of Compliance Issues, which is included in the compliance forms library for our annual compliance program clients or can be purchased on a la carte basis through our online store.

For information about the most current topics covered in the Series 65 examination, the North American Securities Administrators Association (NASAA) website is an excellent resource. The website contains an outline of the topics covered in the exam. Click the following link to be directed to the NASAA website – http://www.nasaa.org/content/Files/Series65ExamSpecs.pdf

The Resources page on our website contains links to some of the better known study guide service providers.

Assuming an individual serving as the chief compliance officer of an SEC registered investment advisor firm does not regularly solicit, meet or otherwise communicate with investment advisory clients, the Investment Advisers Act of 1940 (“Investment Advisers Act”) and SEC do not specifically require such individual to be registered as an investment adviser representative. (Please see SEC Rule 203A-3 for additional details.) However, the individual serving as the CCO of an SEC registered investment advisor must be a supervised person of the investment advisor firm. Under the Investment Advisers Act, an SEC registered investment advisor firm is required to appointment a CCO to administer the investment advisor firm’s required compliance policies and procedures. The CCO is typically responsible for overseeing ongoing compliance and provides a resource for giving guidance and answering questions of its supervised persons. The individual serving as the CCO should have a good understanding of applicable investment advisory rules and regulations, and the investment advisor firm should grant the CCO with sufficient authority to enforce the investment advisor firm’s compliance policies and procedures. Although the SEC may not specifically require the CCO of a federally registered investment advisor firm to register as an investment adviser representative, certain state securities regulators may take a contrary interpretation. Consequently, it is recommended that an SEC registered investment advisor firm also review the investment advisory rules of the state securities regulator where the CCO is located. Likewise, a state registered investment advisor firm should consult its state’s investment advisory rules for more information whether an individual serving as the CCO of a state registered investment advisor is required to register with the state securities regulator as an investment adviser representative.

It usually takes three to four weeks to prepare the investment advisor application and the associated documents. Once you submit the investment advisor application, it will take approximately three to four weeks for the SEC or state to review your application. However, this can vary significantly due to the particular volume and staffing associated with each securities regulator. In the event that you or your firm has a disciplinary history with securities regulators or is currently subject to a regulatory inquiry or investigation, the investment advisor registration process will be considerably longer or delayed.

State and SEC registered investment advisory firms are required to file an annual amendment to the Form ADV via the IARD system within 90 days of the close of the investment advisor’s fiscal year. Additionally, an investment advisor should promptly update its Form ADV within 30 days of any material changes.

For SEC registered investment advisor firms, the answer is “yes”. The SEC, under Rule 206(4)-7, requires all federally registered investment advisor firms to develop and maintain written compliance programs. The policies and procedures should be designed to prevent violations from occurring, detect violations that have occurred, and promptly correct any violations that have occurred. While the SEC did not delineate all the procedures that must be made part of a written compliance program, the SEC does expect an investment adviser’s policies and procedures, at a minimum, to cover the following issues:

• Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients’ investment objectives, disclosures by the adviser, and applicable regulatory restrictions;
• Trading practices, including procedures by which the adviser satisfies its best execution obligation, uses client brokerage to obtain research and other services (“soft dollar arrangements”), and allocates aggregated trades among clients;
• Proprietary trading of the investment adviser and personal trading activities of supervised persons;
• The accuracy of disclosures made to investors, clients, and regulators, including account statements and advertisements;
• Safeguarding of client assets from conversion or inappropriate use by investment advisory personnel;
• The accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction;
• Marketing investment advisory services, including the use of solicitors;
• Processes to value client holdings and assess investment advisory fees based on those valuations;
• Safeguards for the privacy protection of investment advisory client records and information; and
• Business continuity plans.

For state registered investment advisor firms, the answer is that it’s “likely” your state securities regulator expects a compliance program in some form. Most state securities regulators require state registered investment advisor firms to maintain and enforce written procedures which set forth the procedures adopted by the firm in order to comply with the state’s rules and regulations and properly supervise its associated persons.

SEC and state registered advisor firms and their investment advisor representatives are subject to initial and annual state licensing fees. A listing of such investment advisor fees can be found on the IARD’s public website at http://www.iard.com/fees.asp. In addition, the IARD system charges an initial and annual $30 fee for each investment advisor representative licensed through the IARD/Web CRD system.

State investment advisor registrations and notice filings expire every year on a calendar basis. All renewal fees are paid during the IARD renewal season which takes place during November and early December each year.

The SEC does not charge an initial or annual investment advisor registration renewal fee; however, SEC firms failing to file their Annual Form ADV Part 1 Amendment in a timely fashion may have their investment advisor registrations withdrawn.

The SEC does not currently have a specific net worth/net capital or bonding requirement for an investment advisor. However, the SEC will heavily focus on the financial condition of an investment advisor during a regulatory examination. The following are the specific financial records that must be kept as part of an investment advisor’s books and records. Most states require the same or similar records.

• A journal or journals, including cash receipts and disbursements, records, and any other records of original entry forming the basis of entries in any ledger.
• General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts.
• All check books, bank statements, cancelled checks and cash reconciliations of the investment adviser.
• All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment adviser as such.
• All trial balances, financial statements, and internal audit working papers relating to the business of such investment adviser.

Firms registering as an investment advisor directly with a state securities regulator will likely be subject to a net worth/net capital and/or bonding requirement. Typically, the level of net worth, net capital or amount of bond is based on the procedures of the investment advisor firm. A common approach many state securities regulators have adopted is to require an investment advisor firm with custody of client funds and/or securities to maintain a net worth in the amount of $35,000; an investment advisor firm maintaining discretionary authority, but not custody, over client funds and/or securities must maintain a net worth in the amount of $10,000; and an investment advisor firm not meeting the net worth requirement often must then attain a surety bond in the amount of the net worth deficiency rounded plus $5,000.

Because the rules of state securities regulators vary widely on this requirement, it is important that your investment advisor firm check with its home state securities regulator to see if it has such requirements and how the requirements affect your investment advisor firm.

Click here to view a recording of our compliance consultant explain the net worth requirements to register as an investment advisor with a state securities regulator and the SEC.

It’s recommended that you contact your local commercial insurance agent as soon as possible since this can be a relatively slow process. Please refer to the particular requirements published by your firm’s home state securities regulator. Your state securities regulator will likely have a surety bond form or affidavit that will need to be executed by the surety and/or its agent.

Click Here to Learn More About Our Investment Advisor Registration Services.