If your goal as a financial professional is to help individual investors manage their assets or provide financial guidance, then you will typically need to become an investment adviser representative (IAR) at a registered investment adviser (RIA) firm. This will require registering with the appropriate regulatory authorities, such as the Securities and Exchange Commission (SEC) or state securities authorities, depending on the size of the firm’s assets under management.
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Who Needs to Register as an Investment Advisor?
Registered investment advisors (RIAs) must register with either the Securities and Exchange Commission (SEC) or state securities regulators, depending on the amount of assets under management, and adhere to regulatory requirements including filing Form ADV, maintaining accurate records and upholding fiduciary standards.
The Securities and Exchange Commission (SEC) generally requires investment advisors with assets under management (AUM) of $110 million or more to register with the SEC. Advisors with AUM below this threshold may need to register with the state securities authorities in the states where they operate.
In the United States, registration as an investment advisor becomes a legal requirement under certain conditions, primarily governed by the Investment Advisers Act of 1940. This piece of legislation defines an investment advisor as any person or entity that, for compensation, advises others on the merits of securities investments or the purchase or sale of securities.
The SEC supervises advisors who manage $110 million or more in client assets. Advisors with a smaller asset base, typically under $100 million, are subject to the regulatory purview of state securities authorities. Both the SEC and state regulators aim to protect investors and ensure that advisors adhere to the law, though their specific focuses and methods may differ.
Types of Registrations for RIAs
Registration types for RIAs include federal registration with the Securities and Exchange Commission and state registration with state securities regulators, depending on the total value of assets under management (AUM).
Federal Registration
Firms that manage assets exceeding $100 million are required to register with the Securities and Exchange Commission (SEC) and are referred to as federal advisors. The $100 million Assets Under Management (AUM) threshold is significant because it serves as the dividing line between federal and state jurisdiction.
This threshold was established to help allocate regulatory resources more effectively, ensuring that the SEC oversees the larger advisors that have the potential to impact a greater number of investors and the wider economy. Federal advisors are subject to SEC regulations and reporting requirements, which include periodic disclosures and adherence to compliance programs.
State Registration
Firms with an AUM below a certain threshold typically register with state securities authorities in the state where their principal office is located. For firms managing between $90 million and $110 million—known as mid-sized advisors—the choice to register with the SEC or state securities authorities is at their discretion. This flexibility allows mid-sized firms to choose the regulator that best aligns with their business model and client base.
The National Securities Markets Improvement Act of 1996 (NSMIA) played a pivotal role in the historical development of the registration process. It eliminated certain state registration requirements, thereby facilitating a more streamlined regulatory process for advisory firms operating across multiple states.
Enhancing Expertise Through Licensing and Certification
Beyond the basic registration requirements, individual advisors often seek further licensing and certifications to distinguish themselves and enhance their expertise. The Series 65 and Series 7 licenses for advisors who are also registered as brokers, for example, are indicative of an advisor’s comprehensive understanding of securities and the marketplace. Such licenses require advisors to demonstrate a rigorous understanding of financial instruments and a dedication to industry standards.
Professional designations like the Certified Financial Planner™ (CFP®) or Chartered Financial Analyst (CFA) also demonstrate an advisor’s commitment to furthering their knowledge and skill set.
What Advisors Need to Know About Form ADV
Mandated by the Securities and Exchange Commission (SEC), the Form ADV is an indispensable document in the regulatory framework governing investment advisors and ties into the firm’s registration requirements. It acts as a disclosure document that clients often refer to in order to understand the experience and past history of your firm. By outlining business practices, investment strategies, conflicts of interest and other critical information, it can significantly influence a client’s decision to engage an advisor’s services.
Maintaining the Form ADV requires regular updates to ensure all information is current and accurate. As an advisor, you are must amend your Form ADV at least once per year, within 90 days following the end of your fiscal year. Changes in contact details, custody of client assets, disciplinary information or alterations to the ownership structure of the advisory firm are just a few examples that could require prompt updating of the form.
Who Is Bound By Fiduciary Duty?
Fiduciary duty is the strict legal requirement for one party to act in the best interest of another, particularly when managing another person’s money or assets. In the financial industry, this obligation holds advisors, brokers and other financial professionals accountable to the highest ethical standards, placing the interests of their clients above their own. This duty serves as a safeguard against conflicts of interest and protects clients from potential malfeasance.
The fiduciary standard applies to a wide range of professionals and entities in finance. RIAs are bound by this standard, and obligated to prioritize their clients’ financial interests above their own. Trustees, who hold assets in trust for beneficiaries, are also fiduciaries, as they must manage these assets with due care and loyalty. In certain situations, stockbrokers and insurance agents may also meet fiduciary standards, especially when providing comprehensive financial planning services or under certain contractual agreements.
Bottom Line
To register as an investment advisor, individuals or firms must complete and file Form ADV Part 1 and Part 2 with the appropriate regulatory body, which is the SEC or state securities regulators for those managing a certain level of assets. Additionally, RIAs must adhere to specific recordkeeping, advertising and custody regulations, among other requirements. All RIAs must also uphold fiduciary standards, prioritizing the best interests of their clients.
Tips for Growing Your Firm
- Once you’ve registered as an advisor and your RIA is taken care of, the next best thing you can do is find ways to grow your firm. One option you might consider is using an online lead generation service. SmartAsset AMP (Advisor Marketing Platform) is our holistic marketing service that financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
- When people need a financial advisor, they typically go to one of two places: friends and family or an online search engine. If you haven’t searched for yourself, take time to do so and see what comes up. How easy is it to find your website or social media profiles, for instance? How quickly and clearly does your online presence convey what you’re about? You may want to consider implementing some important digital marketing strategies if you don’t like what you see.
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