Colorado Investment Advisor Firm & Investment Adviser Representative State Registration Requirements

Similar to other states, a firm seeking to register as a state registered investment advisor in Colorado is required to file the Form ADV Part 1 and Part 2 along with any applicable schedule or appendix through the Investment Adviser Registration Depository (“IARD”) system and correspondingly pay in advance the registration fees via the IARD system. Additionally, a firm applying for state registration as an investment advisor in Colorado is required to send the miscellaneous documents identified below directly to the Colorado Division of Securities. Here is a brief summary of certain requirements of an investment advisor firm registering in Colorado.

Registration Fees

• Initial State Registration of Investment Advisor Firm: $80
• Renewal State Registration of Investment Advisor Firm: $80
• Investment Adviser Representative Registration: $16

Initial Forms and Information Required to Register

• Investment Advisor Firm
  • Form ADV; and
  • Investment advisory client agreement(s).
• Investment Adviser Representative
  • Form U4

Recent Change to Licensing Requirements

Colorado recently enacted House Bill 26-1188 which amended the Colorado Securities Act by removing the place-of-business limitation from the general licensing and notice-filing requirements.

The Colorado Industry Alert states that:

• A state-registered investment adviser transacting business in Colorado must be licensed in Colorado unless an exemption applies; and
• A federal covered adviser transacting business in Colorado must make a Colorado notice filing unless an exemption applies.

However, under the amended statute, a federal covered adviser with no place of business in Colorado is exempt from Colorado’s notice-filing requirement if, during the preceding twelve-month period, it has had no more than five Colorado clients other than the institutional clients identified in the statute.

While House Bill 26-1188 potentially expands firm-level filing obligations, Colorado also provided important relief concerning the licensing of investment adviser representatives associated with federal covered advisers.

According to the Division’s accompanying guidance and Interpretive Order No. 2026-IN-001, an investment adviser representative of a federal covered adviser who does not maintain a place of business in Colorado generally is not required to become licensed in the state. The order excludes such an individual from Colorado’s definition of an investment adviser representative of a federal covered adviser for licensing purposes.

Chief Compliance Officer

Colorado requires investment advisor firms to designate a supervised person as the chief compliance officer responsible for administering the investment adviser’s policies and procedures. The Chief Compliance Officer must be registered as an investment adviser representative and must have the background and skills appropriate for fulling the responsibilities of the position.

Net Capital and Bonding Requirements

Minimum Liquid Net Worth for Investment Advisers with Discretionary Authority. An investment adviser with discretionary authority over client funds or securities must maintain a minimum liquid net worth of ten thousand dollars ($10,000) at all times, unless the investment adviser is subject to the greater requirements of an adviser with custody below.

Minimum Liquid Net Worth for Investment Advisers with Custody. An investment adviser with custody of client funds or securities must maintain a minimum liquid net worth of thirty-five thousand dollars ($35,000) at all times, except investment advisors with custody solely because the investment adviser has fees directly deducted from client accounts and the investment adviser complies with the safekeeping requirements in 51- 4.10(IA) and the recordkeeping requirements of 51-4.6(IA);

Exception for Out-of-State Advisers. An investment adviser with its principal place of business in a state other than Colorado, properly licensed in that state must maintain the minimum capital required by that state.

Additional Bond Requirement. An investment adviser with discretionary authority or custody who does not meet the minimum liquid net worth requirements above must also be bonded for the amount of the liquid net worth deficiency rounded up to the nearest five thousand dollars ($5,000) and file a Form U­SB with the Commissioner.

Custody Requirements

The only investment advisor firms required to file financial statements with the Colorado Securities Division are those firms that have custody of client funds and/or securities or those firms that have been specifically requested to submit financial statements by the Colorado Securities Division.

Colorado also follows the U.S. Securities and Exchange Commission’s custody requirements for an investment advisor:

No investment advisor with its principal office and place of business in this state or investment adviser representative of a licensed investment adviser with a place of business in this state shall take or maintain custody or possession of any funds or securities in which any client of such person has any beneficial interest unless:

(a) All of the securities of each client are segregated, marked to identify the particular client with any beneficial interest therein, and held in safekeeping in some place reasonably free from risk of loss, damage, or destruction; and

(b) (I) All of the funds of each client are deposited in one or more accounts, containing only clients’ funds, at a depository institution; and

(II) Each account is maintained in the name of the investment adviser or a federal covered adviser as agent or trustee for such clients; and

(III) A separate record is maintained for each such account that shows the name and address of the depository institution where the account is maintained, the dates and amounts of deposits to and withdrawals from the account, and the exact amount of each client’s beneficial interest in the account; and

(c) Written notification is sent to the client giving the place and manner in which the client’s funds or securities will be maintained immediately after the investment adviser or investment adviser representative accepts custody or possession of such funds or securities from the client and thereafter, if and when there is any change in the place or manner, written notification is sent to the client explaining the change; and

(d) An itemized statement is sent to each client, at least once every three months, that shows the client’s funds and securities in the custody or possession of the investment adviser or investment adviser representative at the end of the period and all debits, credits, and transactions affecting the funds and securities during the period; and

(e) A certified public accountant or, with the prior written consent of the client, a public accountant verifies all funds and securities of clients at least once during each calendar year through an actual examination. Such examination shall be at a time chosen by the accountant without prior notice to the investment adviser or investment adviser representative. The investment adviser shall file with the securities commissioner promptly after each such examination a certificate from the accountant in which such accountant avers to the commissioner that the accountant has performed an examination of the funds and securities accounts, and in which the accountant describes the nature and extent of the examination, and the results and conclusions reached.

(f) The investment adviser or investment adviser representative who has custody of client funds or securities posts bonds in amounts and with conditions the securities commissioner may by rule prescribe, subject to the limitations of section 222 (c) of the federal “Investment Advisers Act of 1940”. Any equivalent deposit of cash or securities shall be accepted in lieu of any bonds so required. Every bond shall provide for suit thereon by any person who has a cause of action under section 11-51-604 (3) and (5).

Additional Information

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