Pursuant to Section 202(a)(11) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), an investment advisor means “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation as a part of regular business issues or promulgates analyses or reports concerning securities . . .” Although there are some exemptions to the requirements to register as an investment advisor, generally anyone meeting this definition must register as an investment advisor with the appropriate regulatory body. While an individual can file for investment advisor registration as a sole proprietorship, it is most common and typically recommended, that an entity (e.g., limited liability corporation [“LLC”], limited partnership [“LP’’]) is established to register as the investment advisor.
The first step in the registration process is determining which regulatory authority(ies) your investment advisor will be required to register with. Investment advisor registration is required with either the U.S. Securities and Exchange Commission (“SEC”) or the state securities commission or other similar state regulatory agency. Investment advisors that are required to register at the state level may be required to register with multiple state securities regulators. While investment advisors registered with the SEC are not required to register with the state regulatory agencies, notice filing with the appropriate state securities regulator(s) is typically required. Each investment advisor’s situation may be unique and should be individually examined since how you register as an investment advisor may be determined by several factors depending on your particular facts and circumstances. Determining the appropriate regulatory authority(ies) with which your investment advisor is required to register, and if applicable notice file, is extremely important and should be analyzed closely prior to filing the initial application for investment advisor registration.
Once you have determined whether your investment advisor needs to be registered with the SEC or a state regulatory authority(ies), you can begin the investment advisor registration process. The registration process for your investment advisor will vary depending on whether you are registering as an investment advisor with the SEC or a state regulatory authority. Additionally, if your investment advisor is required to register with a state regulatory authority, the registration requirements will vary from state to state. At a minimum, you should anticipate the following steps as part of the investment advisor registration process:
- Establishing the investment advisor’s Investment Adviser Registration Depository/Central Registration Depository (“IARD™/CRD®”) Account and funding it with the appropriate system user fees (if applicable) and state registration or notice and licensing fees
- Completing and filing Form ADV Part 1A (and Part 1B for investment advisors filing for state registration) and all applicable Schedules via the IARD System
- Preparing and uploading the Form ADV Part 2A (and Part 2B[s] for investment advisors filing for state registration) via the IARD System
If you are registering as an investment advisor with a state securities regulator, you will typically be required to submit additional documents directly to the state securities regulator as part of your investment advisor’s application to register (e.g., financial statements, sample client agreements, fingerprint cards, miscellaneous state forms). It is extremely important to review the investment advisor registration requirements of the state regulatory authority prior to submitting your investment advisor’s initial application for registration. Not submitting the appropriate paperwork can significantly slow down the process of applying for registration as an investment advisor.
In addition to registering your investment advisor with the SEC or appropriate state securities regulator(s), in most states your investment advisor should also anticipate licensing any individual(s) acting on behalf of your investment advisor that will meet the definition of an investment advisor representative. Investment adviser representative licensing is always handled with the state securities regulator regardless of whether you are an investment advisor registered with the SEC or a state securities regulator. However, the definition of an investment advisor representative and the investment advisor representative licensing requirements may differ depending on whether the investment advisor is required to register as an SEC or state investment advisor and may also vary depending on the state regulatory authority. While there are a few states that do not license investment advisor representatives, the majority of states securities regulators require investment advisor representative licensing and will require at least one individual to submit the application for licensing (Form U4) as an investment advisor representative along with the investment advisor’s initial application for registration or notice filing with the state securities regulator. Again, it is important that you review and understand the investment advisor registration or notice filing requirements as well as the investment advisor representative licensing requirements for your investment advisor’s governing regulator and any state(s) in which you have an office location or will conduct business.
The application process for registering as an investment advisor can be challenging for even an experienced compliance professional. Prior to beginning the investment advisor registration process, you must make sure that you fully understand the regulatory requirements for determining how and where your investment advisor must be registered and the investment advisor representatives must be licensed. Providing investment advice as an investment advisor and not being properly registered or not being properly licensed as an investment advisor representative can result in serious regulatory actions from the SEC or state securities regulatory authorities. You must ensure that you are fully aware of the regulatory requirements for registering and maintaining registration as an investment advisor firm.
RIA Compliance Consultants can assist you in registering as an investment advisor. Our compliance consultants can serve as your guide by explaining in detail the registration process and requirements, assisting you in structuring your firm’s investment advisory programs, preparing your investment advisor registration documents and serving as your liaison with the SEC or state securities regulators. By utilizing the expertise, experience and efforts of our consultants for such a significant undertaking, you will be able to better leverage your time and focus upon growing your new investment advisory business. Please click here to schedule a time to speak to one of our compliance consultants to see how we may best serve you.
Posted by Bryan Hill
Labels: How to become an investment advisor, How to become an RIA, Registration