Most individuals establishing an investment advisor do so by establishing an entity such as a corporation or limited liability company and then serving in their individual capacity as an investment advisor representative (“IAR”) of their investment advisory firm; however, individuals can also establish an investment advisor as a sole proprietor. The protection offered to owners 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.
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If a firm registers with the SEC as an investment advisor, but does not acquire $100 million in AUM within 120 days, the firm must deregister as an investment advisor with the SEC and transfer its investment advisor registration to the state securities regulator.
Should my firm register with the U.S. Securities and Exchange Commission (“SEC”) or with a state securities regulator as an investment advisor?
November 02, 2018
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. The SEC has provided exclusions for several common professions that provide investment advisory services as long as such services are “solely incidental” to the firm or individual’s main business. This category includes broker-dealers, lawyers, accountants, engineers, teachers, banks, bona fide publishers, and advisers limited to U.S. government securities. Because “solely incidental” can be open for interpretation, investment advisor firms falling under these exclusions should consider consulting with an outside professional to make sure their activities do not require investment advisor registration.
What is an “RIA”?
November 02, 2018
The term “RIA” is an abbreviation for “registered investment advisor” or “registered investment adviser”. “RIA” is not a professional designation. Most securities regulators prohibit the use of the term “RIA” by an investment advisor firm 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.
Is there a substantive difference between the terms “investment adviser” and “investment advisor”?
November 02, 2018
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.
What’s an investment advisor?
November 02, 2018
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.)
