State Registered Investment Advisors Can Choose to Notice File or Register with the Texas State Securities Board

September 12, 2012

State registered investment advisors located outside of Texas but conducting business with at least one client residing in Texas and less than six Texas residents can choose whether they would rather notice file or register with the Texas State Securities Board, the state securities regulator in Texas. The fee to notice file or register is the same, but if the state registered investment advisor chooses to notice file, there is less paperwork and the process is completed more quickly.

To register as an investment advisor with the Texas State Securities Board, the Texas Administrative Code requires an investment advisor to submit the following through the Investment Adviser Registration Depository (IARD):

  • Form ADV including the Form ADV Part 2A Firm Brochure and Form ADV Part 2B Brochure Supplements ;
  • Form U-4 for the designated officer and a Form U-4 for each investment advisor representative or solicitor to be registered;  and
  • The appropriate investment advisor registration fee(s).

An investment advisor must also submit the following directly to the Texas Securities Commissioner:

  • A copy of articles of incorporation, partnership agreement, articles of association, trust agreement, or other documents which indicate the form of organization, certified by the jurisdiction or by an officer or partner of the investment advisor;
  • A balance sheet prepared in accordance with generally accepted accounting practices reflecting the financial condition of the investment advisor as of a date not more than 90 days prior to the date of such filing;
  • A copy of the investment advisor’s standard advisory contract;
  • Fee schedule; and
  • Any other information deemed necessary by the Texas Securities Commissioner to determine an investment advisor’s financial responsibility or an investment advisor’s or investment advisor representative’s business repute or qualification.

If the investment advisor has a branch office located within Texas, as discussed earlier, the investment advisor must also register the branch office with the Texas State Securities Board.

If the investment advisor chooses to notice file with the Texas State Securities Board, the following actions are required:

  • The investment advisor must still submit the entire Form ADV by checking Texas on Form ADV Part 1B; 
  • A Form U4 for each investment advisor representative who will render services, for compensation, on behalf of the advisor must still be filed in Texas; and
  • In addition to the electronic notices, the investment advisor must send written confirmation (via regular mail or fax) explaining the basis for eligibility of the exemption to registration for the investment advisor and its representatives. The notice must include a statement that the investment advisor understands it must register with theTexas State Securities Board if it no longer can rely on the exemption (i.e. attains more than five clients).

As you can tell, there is much less information required of the investment advisor to notice file with the Texas State Securities Board than to register. But if the investment advisor believes it will grow its client base, it might be a better and safer idea to register as an investment advisor with the Texas State Securities Board to be proactive. State registered investment advisors located outside of Texas must switch from notice filing to registering with the Texas State Securities Board before exceeding the five client threshold.  Investment advisors who were registered and had more than five clients but now have less can choose to notice file with the Texas State Securities Board. The Texas State Securities Board charges investment advisers a $25 fee to switch from notice filing to registration and from registration to notice filing. 

Each investment advisor representative providing investment advisory services to a Texas resident must also either register or notice file with the Texas State Securities Board. Pursuant to the Texas Administrative Code, investment advisor representatives must register through the Central Registration Depository System (“CRD”) using Form U4. The Texas State Securities Board requires that investment advisor representatives pass either the Series 65 or the Series 7 and 66 which are administered by the Financial Industry Regulatory Authority (“FINRA”)unless the person has completed the required examinations and whose registration with another state securities regulator has not lapsed for more than two years. Alternatively, the investment advisor representative can take the Texas Securities Law Examination which is administered by the Texas State Securities Board. Individuals with certain professional designations can receive waivers from examination by the Texas State Securities Board.

If your investment advisor has questions about notice filing or registering with the Texas State Securities Board, RIA Compliance Consultants can help. If you are an existing client of RIA Compliance Consultants, please contact your consultant. If you have not worked with us before, contact us to set up a time to speak with one of our knowledgeable consultants.

Posted by Bryan Hill
Labels: How to become an investment advisor, Investment Advisor Registration, Texas Investment Advisor