Investment Adviser and IAR Registration
The registration requirements for investment advisers (IAs) and investment adviser representatives (IARs) are more complex than those for broker-dealers and agents. The key complication is determining whether an adviser registers with the state or the SEC.
State vs. SEC Registration
The Dividing Line: Assets Under Management (AUM)
The National Securities Markets Improvement Act (NSMIA) divided investment advisers into two categories:
| Category | AUM Threshold | Registers With |
|---|---|---|
| State-Registered Adviser | Under $100 million | State Administrator(s) |
| Federal Covered Adviser | $110 million or more | SEC |
| Mid-Size Adviser | $100-110 million | Choice (state or SEC) |
Key Rule: Once an adviser reaches $110 million AUM, it MUST register with the SEC as a federal covered adviser. Below $100 million, state registration is required.
The Buffer Zone
To prevent advisers from constantly switching between state and SEC registration:
| Situation | Registration Status |
|---|---|
| State-registered IA reaches $110M AUM | Must register with SEC within 90 days |
| SEC-registered IA falls below $90M AUM | Must withdraw from SEC within 180 days |
| AUM between $90M and $110M | May maintain current registration |
Exam Tip: The buffer zone prevents "ping-ponging" between regulators. An adviser doesn't have to switch to state registration until falling below $90 million, and doesn't have to switch to SEC until exceeding $110 million.
120-Day Anticipation Rule
An adviser that reasonably expects to reach $100 million AUM within 120 days is eligible (but not required) to register with the SEC.
Federal Covered Advisers
Who Are Federal Covered Advisers?
| Type | Threshold/Requirement |
|---|---|
| Large Advisers | $110 million or more AUM |
| Pension Consultants | $200 million or more AUM (eligible) |
| Private Fund Advisers | $150 million or more AUM (required) |
| Multi-State Advisers | Required to register in 15+ states |
| Nationally Recognized Advisers | Listed as SEC registered |
State Authority Over Federal Covered Advisers
| State Power | Allowed? |
|---|---|
| Require SEC-registered IA to register with state | No |
| Require notice filing and fee | Yes |
| Investigate fraud | Yes |
| Enforce anti-fraud provisions | Yes |
| Require books and records | Limited |
Important: States cannot require federal covered advisers to register, but they CAN require notice filings, collect fees, and enforce anti-fraud provisions.
State-Registered Investment Advisers
Registration Requirements
To register as a state-registered investment adviser:
| Requirement | Description |
|---|---|
| Form ADV | Uniform Application for Investment Adviser Registration |
| Form ADV Part 2 | Brochure describing services, fees, conflicts |
| Consent to Service of Process | Allows Administrator to receive legal papers |
| Filing Fee | State-specific amount |
| Financial Requirements | Net worth or bonding requirements |
Effective Date
| Scenario | Effective Date |
|---|---|
| Standard Application | Noon on the 30th day after filing |
| Earlier Approval | Administrator may grant earlier effectiveness |
Investment Adviser Representative (IAR) Registration
Who Must Register as an IAR?
An IAR is any individual who, on behalf of an investment adviser:
| Activity | IAR Registration Required? |
|---|---|
| Makes investment recommendations | Yes |
| Manages client accounts or portfolios | Yes |
| Determines recommendations to be given | Yes |
| Solicits for advisory services | Yes |
| Supervises persons doing the above | Yes |
| Performs only clerical duties | No |
IAR Registration Process
| Requirement | Description |
|---|---|
| Form U4 | Same form used for agent registration |
| Qualification Exam | Series 65 or Series 66 (in most states) |
| Filing Fee | State-specific |
| Background Check | Fingerprints required |
Alternative Qualifications
Some states allow professional designations in lieu of the Series 65/66:
| Designation | Typically Accepted? |
|---|---|
| CFA (Chartered Financial Analyst) | Yes |
| CFP (Certified Financial Planner) | Yes |
| ChFC (Chartered Financial Consultant) | Yes |
| CIC (Chartered Investment Counselor) | Yes |
| PFS (Personal Financial Specialist) | Yes |
Notice Filing Requirements
What Is Notice Filing?
Federal covered advisers don't register with states but must make notice filings:
| Element | Requirement |
|---|---|
| Documents Filed | Copy of Form ADV and amendments |
| Fee | State-determined amount |
| Purpose | Provides state awareness of adviser activities |
| Renewal | Annual, coinciding with SEC renewal |
State Authority After Notice Filing
| Action | Permitted? |
|---|---|
| Deny the notice filing | Generally No |
| Collect filing fees | Yes |
| Investigate complaints | Yes |
| Enforce anti-fraud provisions | Yes |
IAR Registration for Federal Covered Advisers
Even though a federal covered adviser doesn't register with the state:
IARs of federal covered advisers MAY still be required to register with the state where they have a place of business or work with clients.
| Situation | IAR State Registration |
|---|---|
| IAR has place of business in state | Usually required |
| IAR solicits clients in state | Usually required |
| IA is SEC-registered | IAR still registers with state |
Key Takeaways
- Investment advisers register with SEC ($110M+ AUM) or states (under $100M AUM)
- Buffer zone ($90M-$110M) prevents constant switching
- Federal covered advisers make notice filings but don't register with states
- States retain anti-fraud enforcement over all advisers
- IARs must register in states where they have a place of business
- Form ADV is used for IA registration; Form U4 for IAR registration
An investment adviser has $115 million in assets under management. With which regulator must this adviser register?
A federal covered investment adviser with $200 million AUM operates in State X. Which of the following can State X require of this adviser?
An investment adviser representative works for a federal covered adviser that is registered with the SEC. Must the IAR register with the state where she has her office?
An SEC-registered investment adviser's AUM falls from $105 million to $85 million. What must the adviser do?
2.6 IA and IAR Exemptions
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