The Investment Advisers Act of 1940 and the associated SEC rules do not require the solicitor to register as an investment adviser as long as the solicitor’s activities are strictly limited to merely referring clients to a registered investment adviser in compliance with SEC Rule 206(4)-3. However, the majority of state securities regulators define the solicitation or referral of investment advisory clients as an investment advisory activity requiring the registration of the solicitor as an investment adviser or investment adviser representative. A registered investment adviser considering a solicitor arrangement should verify whether the intended solicitor’s activity is included under the state securities regulator’s definition of an investment adviser representative.
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Can the third-party solicitor’s referral fee be paid from the investment advisory fee charged by the registered investment adviser?
November 02, 2018
Yes, the investment advisor firm can pay a portion of the ongoing investment advisory fee charged to the client each billing period as long as such payments are consistent with the Form ADV and separate written solicitor disclosure given to the client and in accordance with the requirements of SEC Rule 206(4)-3.
What information must be included in the separate written solicitor disclosure that the third-party solicitor must provide a client?
November 02, 2018
As outlined by SEC Rule 206(4)-3, the separate written solicitor disclosure must include the following information:
What are the basic regulatory requirements for a solicitor referral arrangement between an SEC registered investment adviser and a third-party (non-employee)?
November 02, 2018
Under SEC Rule 206(4)-3, a solicitor referral arrangement between the investment adviser and third-party (non-employee) solicitor must be in writing, which needs to include provisions related to the following: (a) the scope of the solicitor’s activities; (b) a covenant by the solicitor to perform such activities consistent with instructions of the investment adviser and in compliance with the Investment Advisers Act of 1940 and associated rules; and (c) a covenant by the solicitor to provide the client with a copy of the investment adviser’s Form ADV Part 2A and a separate written solicitor disclosure.
Yes, an SEC registered investment adviser firm may pay cash referral fees to a third-party (non-employee) that solicits investment adviser clients on behalf of the registered investment adviser firm only if such a solicitor arrangement is in compliance with SEC Rule 206(4)-3 under the Investment Advisers Act of 1940.
How long will the registration process take?
November 02, 2018
The amount of time needed to register varies depending on the size of the firm. RIA Compliance Consultants estimates that it takes several weeks to a month to prepare all forms and up to 45 days for the SEC to approve or deny the registration request.
Will the individuals at the firm need to register as investment adviser representatives?
November 02, 2018
No, individuals do not necessarily need to register as investment adviser representatives. Registering the organization as a corporation or limited liability company is the most common option but individuals can establish the investment adviser as a sole proprietor.
How much are the fees for filing as an investment adviser with the SEC?
November 02, 2018
FINRA charges a fee to file using the IARD system. The fee for filing under the IARD for exempt advisers is $150. The fee for nonexempt investment advisers to register is $225 and to file quarterly and annual reports is $150.
Will advisers need written compliance manuals?
November 02, 2018
All advisers that do not qualify for the registration exemptions are subject to the same requirements as other SEC-registered investment advisers. So yes, firms will need written compliance manuals.
Are there any reporting requirements for exempt advisers?
November 02, 2018
Advisers that rely on the venture capital exemption and the private fund with less than $150 million in assets under management exemption are considered “exempt reporting advisers,” are still subject to certain reporting requirements and may be subject to state reporting requirements. These advisers will be required to file the same registration form (i.e. Form ADV Part 1) as registered investment advisers. However, they will not be required to complete the entire Form ADV Part 1. Rather, they will have to provide basic identifying information, information about the fund and any conflicts of interest that could present risks to the fund’s clients, and include any disciplinary history. These reports will need to be filed through the SEC’s Investment Adviser Registration Depository (IARD). The first report was due in the first quarter of 2012.
