The Securities and Exchange Commission, or SEC, is a federal government agency that regulates various areas of the investment industry. This includes securities brokers and dealers, investment advisors, mutual funds, securities exchanges and more. According to USA.gov, the SEC’s mission is to “promote fair dealing, the disclosure of important market information, and to prevent fraud.” Naturally because of this, the SEC regulates registered investment advisors (RIAs) – firms that help clients manage their investments. Depending on the size of the firm and where they operate, investment advisors may be required to register with the SEC.
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Who Is Required to Register With the SEC?
The SEC outlines a number of situations in which an investment advisor must register, which you’ll find below. Note that outside of these, other investment advisors are prohibited from registering with the SEC and must register with any state securities authorities with jurisdiction over them.
- When an investment advisor has $110 million or more in assets under management (AUM)
- If an investment advisor has $25 million or more in AUM and has its principal office and place of business in a state where it is exempt from registration, or a state that requires registration but does not subject investment advisors to examination (this currently only applies to New York)
- When an investment advisor advises registered investment companies or business development companies
- If the advisor is a foreign investment advisor with aggregate AUM of $25 million or more attributable to 15 or more U.S. clients or investors in private funds managed by the advisor
- If the advisor is otherwise permitted to register with the SEC by rule or order
Here are some notable exceptions to these guidelines:
- Firms that operate in 15 or more states must register with the SEC, even if they manage less than $100 million
- Firms with between $90 million and $110 million can generally choose whether to register with the SEC or at the state level
- Newly established firms that expect to have $100 million in AUM within 120 days of registering as an RIA must also do so with the SEC
- Provide investment advice exclusively through an interactive website
In general, individuals establishing an investment advisor do so by establishing an entity such as a corporation or limited liability company (LLC). However, it is possible that an individual can register with the SEC as a sole proprietor.
Benefits of Registering With the SEC
Registration with the SEC as an investment advisor can be beneficial in several ways. It establishes credibility to your practice, as well as provides access to educational resources and regulatory assistance.
First and foremost, SEC registration can foster trust between an RIA and the public. Potential clients can access a firm’s Form ADV, view its regulatory history and read about any past infractions, learn about the fees it charges and more. Advisors who register with the SEC are also held to the fiduciary standard and must act in their clients’ best interests.
Registration also comes with access to the SEC’s Compliance Outreach Program, a platform that provides compliance resources, self-inspection checklists and fast answers series on frequently touched SEC compliance topics.
How to Register With the SEC as an Investment Advisor
Registering as an investment advisor with the SEC is a multi-step process with ongoing annual registration requirements.
Keep in mind that in most cases, it’s the advisory firm itself that must register with the SEC, not the individual people who work with clients on behalf of the firm. These professionals, known as investment advisor representatives (IARs), may need to pass certain examinations like the Series 65 exam.
Here are some of the main steps in the registration process:
Create an IARD account
The first step for registering with the SEC as an investment advisor is creating an Investment Advisor Registration Depository (IARD) account. The IARD is the online system RIAs use to file and update Form ADV. Members of the public can use this system to look up and research investment advisors registered with the SEC or state regulatory authorities.
Submit Your Form ADV to the SEC
Using the IARD system, you’ll submit your initial Form ADV to apply for SEC registration. This form provides details about an investment advisor’s business, including ownership, clients, employees, business practices and disciplinary events.
Form ADV Part I is a fill-in-the blank form that discloses basic information about the firm – how many clients it works with, where it’s located, assets under management and other details. Form ADV Part II is a narrative brochure that offers a more detailed description of the firm’s services, ownership, investment approach and conflicts of interest.
The SEC charges an initial registration fee of $225 for firms with $100 million in AUM or more; $150 for firms with between $25 million and $100 million; and $40 for those with under $25 million in AUM.
Wait for Registration Approval
Within 45 days of registering, the SEC is required to approve the application for registration or begin proceedings for denying it. If the Form ADV was incomplete or submitted incorrectly, the SEC will give the firm an additional 45 days to resubmit its documentation.
Update Form ADV Annually
The SEC requires firms to amend their Form ADV no later than 90 days after the end of each firm’s fiscal year, as well as during the year to reflect “material changes” as they occur. So for example, firms operating on a calendar year have until March 31 to amend their annual amendment. The SEC then charges its annual registration fees broken down by firm size, in the same amounts as mentioned earlier.
Maintain Your Books
According to the Investment Advisers Act of 1940, investment advisors must maintain “true, accurate and current” books and records related to their investment advisory business.
Under Rule 204-2 of the law, investment advisors who are registered or required to register with the SEC must keep bank statements, bills, cash receipts, among other records. This includes “a memorandum of each order given by the investment adviser for the purchase or sale of any security.”
Navigating the process of registering as an investment advisor with the SEC first requires an understanding of what constitutes a registered investment advisor (RIA) and whether it’s the SEC or state authority with whom to register. Firms that require SEC registration will need to create an IARD account, submit Form ADV, pay a registration fee and update their documentation on an annual basis.
Tips for Finding a Financial Advisor
- With so many advisory firms and professionals to choose from, looking for a financial advisor can be overwhelming. But finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Before you hire an advisor, be sure to interview multiple candidates. You’ll want to ask some important questions, like are they a fiduciary and how do they get paid. Here’s a list of questions you should ask an advisor to increase the chance you find a good fit.
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