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.

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 in order to determine whether an investment advisor registration exemption applies to the firm.

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.

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 firm that choose to register in additional states if the firm is not also required to register. 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 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.

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.