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RIA Registration Overview

Individuals and entities that provide securities investment advice for compensation are subject to state and federal investment advisor regulations. Anyone providing investment advice should consult an experienced investment management attorney to determine whether state or federal registration is required.

RIA registration requires compliance with complicated and rapidly evolving state and federal regulations, the violation of which entails significant legal consequences. Registration documents required for SEC and state registration are quite voluminous and have many moving parts. Generally, investment advisors with $100 million or more in assets under management are required to register with the SEC, while those with less than $100 million are required to register with their state of domicile.

Advisors to private investment funds (including hedge funds and private equity funds) are subject to fund-specific regulations and exemptions that will differ from the above. See our article: Must a Hedge Fund Register as an Investment Advisor?

Investment Advisor Representatives

In addition to registration of the RIA firm, most states require each individual performing advisory services on behalf of an RIA firm to register as an investment advisor representative. Most states require advisor representatives to submit a Uniform Application for Securities Industry Registration or Transfer (U-4), containing specific background information about the advisor representative.

Series 65 Examination

Most states require advisor representatives to pass the Series 65 examination (or an equivalent examination combination or professional designation). The Series 65 examination is a 130-question multiple choice test administered by FINRA covering the following primary topics: securities regulations, ethical guidelines, security products, methods for evaluating securities, securities trading strategies, principals of economics, and others.

Documents Required for Registration

The first step in the registration process is setting up accounts with the Investment Advisor Registration Depository (the “IARD”), and WebCD. Upon receiving the necessary login information (known as the entitlement package) investment counsel can begin to prepare the necessary registration documents.

ADV Parts I and II

The principal component of federal or state registration is the Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Advisers (ADV). The ADV has two parts: Part I requires disclosure regarding the business operations of the advisor and background information about the controlling individuals. Part II is a written disclosure statement discussing the services to be rendered, fees imposed, conflicts of interest, and other information material to clients. Part II must be given to advisory clients and potential clients and must be updated annually or more frequently if the RIA makes material changes. See our articles: ADV Part I and ADV Part II.

Code of Ethics/ Compliance Manual

The SEC requires the RIA to provide a code of ethics outlining internal policies relating to ethics matters, as well as a policies and procedures manual outlining the advisor’s policies to protect investor interests and comply with advisor regulations. Some states require RIAs to submit a code of ethics, and/or compliance manual.

Form Advisory Agreements

The SEC and many states require an RIA to submit a form advisory agreement at the time of registration. Advisory agreements set forth the terms of the advisory relationship and should be prepared by legal counsel.

Bonding Requirement

Most states require RIAs to either provide a surety bond, in a statutory amount. The bonding requirement can also be satisfied by providing proof of net assets of a statutory amount, accompanied by audited financials. RIAs that have custody of client assets are required to obtain a larger bond or show a higher net worth than non-custodial advisors.

Ongoing Compliance Obligations

Following registration, an RIA becomes subject to ongoing compliance obligations, including detailed recordkeeping and ongoing investor disclosure requirements. Investment advisors should work closely with an experienced investment management attorney to maintain compliance with its obligations.



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