Investment adviser registration is mandatory for firms and individuals who provide personalized investment advice or portfolio management services for a fee. While the rules can seem complex, understanding the key requirements is critical for launching and operating a compliant advisory business.
In this comprehensive guide, we’ll walk through the essentials of investment adviser registration, including who needs to register, how to register, filing requirements, and exemptions. Whether you’re thinking about starting your own registered investment adviser (RIA) firm or simply want to learn more about the regulatory landscape, you’ve come to the right place.
Who Needs to Register as an Investment Adviser?
The first question that often comes up is – who actually needs to register as an investment adviser? The Investment Advisers Act of 1940 provides the main federal framework for investment adviser regulation.
Under the Advisers Act, an investment adviser is defined as any person or firm that:
- Provides investment advice about securities for compensation, whether directly or through publications; OR
- Is in the business of providing investment supervisory or management services.
This definition captures a wide range of financial professionals who offer personalized advice, including financial planners, money managers, wealth advisors, and portfolio managers.
However, simply calling yourself an “adviser” doesn’t make you subject to registration. The key triggers are providing specific investment advice and receiving compensation for those advisory services. General financial advice does not require registration.
In addition, advisers with less than $100 million in assets under management may be exempt from federal registration and subject to state regulation instead (see Exemptions section below).
Registering with the SEC vs. States
Assuming registration is required, the next step is to determine whether to register with the Securities and Exchange Commission (SEC) or individual state securities authorities.
The SEC generally oversees investment advisers with more than $100 million in assets under management. Advisers below this threshold must register in the states where they have a place of business and provide advice. Most states set the minimum assets for registration between $25 million and $100 million.
When calculating assets, advisers should include all discretionary and non-discretionary assets under their management, even those managed without receiving compensation. Assets of foreign clients also need to be counted.
For advisers required to register in multiple states, most states have adopted a system of “notice filings” for SEC-registered advisers to simplify the process. With notice filings, filing a single Form ADV with the SEC also registers the adviser in participating states.
Steps for Registering as an Investment Adviser
Registering as an investment adviser involves a few key steps:
1. Pass Required Qualification Exams
Most states require investment adviser representatives – the individual employees who provide advice – to pass the Series 65 exam. Some states allow the Series 7 and Series 66 combination instead. The Series 65 focuses specifically on adviser regulation, ethics, and investing strategies.
2. Prepare Registration Documents
The core registration document is Form ADV, which has two main parts:
- Part 1 provides information about the adviser’s business, ownership, clients, employees, business practices, and any disciplinary events. This section is filed electronically.
- Part 2, or the “brochure,” serves as the main disclosure document provided to clients. It outlines the firm’s services, fees, conflicts of interest, disciplinary information, and other details.
In addition to Form ADV, advisers may need to draft a client agreement, privacy policy, code of ethics, compliance manual, and other documents depending on their business model.
3. Submit Registration Documents
Once Form ADV and any other state-specific forms are complete, they can be submitted to the SEC and/or state securities regulators along with registration fees. The SEC registration fee ranges from $40 to $225 based on assets under management. State fees vary.
After filing, the SEC has up to 45 days to approve or deny an application. Most states provide notice of registration within 1-2 months.
4. Develop a Compliance Program
Registered investment advisers must implement an ongoing compliance program to meet regulatory requirements. This includes adopting policies and procedures, conducting annual reviews, designating a Chief Compliance Officer, and maintaining books and records. Compliance is a major responsibility that advisers must take seriously.
Key Ongoing Obligations for Registered Advisers
Once registered, investment advisers must meet certain ongoing regulatory obligations:
- Annual Updating Amendments: Form ADV Part 1 must be updated at least annually with any material changes. These “annual amendments” are filed electronically.
- Periodic SEC Filings: Registered advisers may need to make periodic filings with the SEC, such as Form PF for private fund managers.
- Client Disclosures: Part 2 of Form ADV must be offered initially to new clients and updated if material changes occur.
- State Notice Filings: Annual renewal filings and fees are required in most states where the adviser has clients.
- Compliance Reviews: Annual compliance reviews are mandatory to ensure the adviser’s practices adhere to securities laws.
Meeting these ongoing obligations is critical for investment advisers to remain compliant and continue operating legally.
Exemptions from SEC Registration for Investment Advisers
While many financial professionals need to register as investment advisers, certain exemptions from SEC registration may apply in limited cases:
- Advisers with less than $100 million in assets under management who register with their state regulator (see above).
- Advisers who solely advise registered investment companies like mutual funds. These advisers must register with the SEC under the separate Investment Company Act.
- Charitable organizations advising funds held for charitable purposes.
- Attorneys, accountants, engineers, and teachers whose advisory services are “solely incidental” to their profession.
- Broker-dealers who provide advice that is “solely incidental” to brokerage and for which they receive no special compensation.
- Publishers of newsletters and other general circulation publications that provide investment advice.
- Advisers registered with the Commodity Futures Trading Commission for their commodities advice.
Some other common exemptions apply for advisers to private funds, venture capital funds, small business investment companies, and family offices.
The exemptions for investment advisers are intentionally narrow. Unless a specific exemption applies, any individual or firm providing personalized securities advice for compensation should assume that SEC or state registration is required.
Working with Experienced Investment Adviser Counsel
The registration process can seem daunting, but breaking it down into more manageable steps makes it much more approachable.
The RIA compliance attorneys at My RIA Lawyer guide financial professionals through this process from start to finish. Their team has deep experience assisting with all aspects of SEC and state registration, ongoing compliance obligations, mock SEC audits, and more. They know this world inside and out.
Whether you want help assessing your registration requirements, drafting and filing registration documents, or establishing a fully compliant advisory firm, they can help.
If you need any guidance on registering or ongoing compliance as an investment advisor, please reach out to the team at My RIA Lawyer.
