13.2 Registration Requirements

Registration Requirements for Investment Advisers

Investment advisers must register either with the SEC (federal) or with state securities regulators, depending primarily on their assets under management (AUM). This split was created by the National Securities Markets Improvement Act of 1996 (NSMIA), which added section 203A to the Advisers Act; the Dodd-Frank Act (2010) moved most mid-sized advisers ($25 million to $100 million) to state registration.

SEC vs. State Registration Thresholds

AUM-Based Registration Requirements

$110 million+: Must register with SEC.

$100-$110 million: May register with SEC (buffer zone).

$25-$100 million: Must register with state(s).

Under $25 million: Must register with state(s).

The Buffer Zone ($90-$110 Million)

The SEC created a buffer to prevent advisers from constantly switching between state and federal registration:

Reaches $110M: Must register with SEC within 90 days of annual filing.

Falls below $90M: Must withdraw from SEC within 180 days and register with state.

Between $90M-$110M: May remain with current regulator.

Calculating Regulatory AUM (RAUM)

Include: Securities portfolios with continuous supervision.

Include: Proprietary assets managed as if client assets.

Include: Family assets if required to report.

Exclude: Assets for which adviser provides no ongoing advice.

Exclude: Assets under sub-adviser management.

Exclude: Impersonal advisory services.

RAUM is calculated and reported annually in Form ADV.

SEC Registration Categories

Must Register with SEC (Regardless of AUM)

Advisers to Registered Investment Companies: Mutual funds, ETFs, closed-end funds.

May Register with SEC (Exempt from the Prohibition, Regardless of AUM)

Multi-State Advisers: Would otherwise be required to register in 15 or more states.

Pension Consultants: Advise on at least $200 million of plan assets.

Internet Advisers: Advise all clients exclusively through an operational interactive website.

Cannot Register with SEC

Under $25 million AUM: Too small (unless other exemption applies).

Under $100 million in fewer than 15 states: State-registered only.

On the Exam: Remember the key thresholds: $25M (minimum for SEC consideration), $100M (may register), $110M (must register), $90M (must withdraw if falls below).

Form ADV

Form ADV is the primary registration document for investment advisers.

Form ADV Part 1

Part 1A: SEC-registered advisers (business info, AUM, clients, disciplinary history).

Part 1B: State-registered advisers (additional state-required information).

Schedules: DRPs (Disclosure Reporting Pages) for disciplinary events.

Form ADV Part 2 (Brochure)

Part 2A: Firm Brochure - plain English description of services, fees, conflicts, disciplinary history.

Part 2A Appendix 1: Wrap Fee Program Brochure (if applicable).

Part 2B: Brochure Supplement - information about supervised persons providing advice.

Filing Through IARD

System: Investment Adviser Registration Depository (IARD).

Annual Updating Amendment: Within 90 days of fiscal year-end.

Material Changes: Prompt amendment required.

Part 1 Updates: Promptly when specified items become inaccurate (Form ADV General Instruction 4).

Part 3 (Form CRS): Within 30 days of becoming materially inaccurate (SEC-registered advisers).

Client Delivery Requirements

Form ADV Part 2 Delivery

Initial: Before or at time of entering advisory contract.

Annual: Within 120 days of fiscal year-end, if the brochure has materially changed (summary of material changes OR updated brochure).

Material Changes: Promptly, if disciplinary information (Part 2A Item 9) is added or materially revised: amended brochure or a statement of the change.

Part 2B (Brochure Supplement) Delivery

Initial: Before or at time supervised person begins providing advice.

Updates: Promptly if disciplinary information (Part 2B Item 3) is added or materially revised.

State Registration Requirements

State-Registered Advisers

Home State: Must register in state of principal office.

Other States: Register where clients are located (unless de minimis exemption applies).

Filing: Form ADV through IARD.

State-Specific: Some states have additional requirements.

Key Takeaways

1. $110M+ = must register SEC; $100-$110M = may register SEC; under $100M = state.

2. Buffer zone prevents constant switching: stay until below $90M or above $110M.

3. Form ADV Part 1 = registration info; Part 2 = client brochure.

4. Part 2 must be delivered before or at time of entering advisory contract.

5. Annual updating amendment due within 90 days of fiscal year-end.