Background
Over the last decade, there has been increasing interest on the part of entities and individuals to form investment advisers. This is evident based on statistical evidence and experiences of FIC. The following paragraphs provide some basic information on starting an investment adviser.
Regulatory Agencies
The primary regulator(s) with whom you will seek approval with as an investment adviser depends largely on assets under management, types of activities, and geographic location of your home office. In 1996, responsibility was split between states and the SEC as to who serves as the primary regulator for investment advisers. In most cases, responsibility as to whom a firm may need to register is decided upon by assets under management. If a firm has $100 million or more in assets under management, the firm must register with the SEC. However, other exceptions and regulations can apply that affect with whom a firm seeks registration.
Registering with the SEC
Investment advisers who are required to register with the SEC are not required to register with states. However, such firms are required to notice file with subject states. This generally consists of a fee and submission of certain documents that the SEC already requires firms to complete. Notice filing requirements often mirror registration requirements; however, many states have unique provisions regarding notice filings. Individual representatives of investment advisers are subject to state registration.
Registering with States
Determining which states a firm needs to be registered with can be a little tricky. A state cannot require an investment adviser to register with its state if such investment adviser does not have a place of business located within the state and during the preceding twelve-month period has had fewer than six clients who are residents of that state. Thus, states can require registration if a firm one of the requirements. Each applicable state’s regulations must be consulted as requirements vary among states.
How is Registration Commenced?
After a firm has obtained entitlement to the IARD, the electronic system for registration, a firm will have to file a Form ADV Part 1A, Part 2A, and in the case of state registrants, the Form ADV Part 1B and the ADV Part 2B are also required. Individual states will frequently require state registrants to provide additional information for review. Common records are:
- Form U-4s for individual representatives;
- investment advisory contracts;
- attestations about activity and/or to agree to comply with the applicable state’s regulations;
- evidence of net capital and/or financial statements; and
- evidence of a surety bond, etc.
The requirements of individual states vary so each state’s requirements should be consulted.
Length of the Process
Registration with the SEC and most states take generally 45 days from the date the Form ADV is filed with the regulator. However, in registering with some states, the process sometimes takes up to three months.
How Can FIC Help?
FIC has guided the registration of numerous investment advisory firms. FIC can help new firms that are seeking registration with the SEC or state(s) or an existing firm that is changing from a state to a SEC registrant or vice versa.
Among the services that can be provided are:
- guidance on the registration process;
- creation and review of Form ADVs,
- development of compliance and operational forms and policies;
- development of sample agreements; and
- communications with various regulators.
We can offer these as part of a comprehensive package.