2.5 Investment Adviser and IAR Registration
Key Takeaways
IAs under $100M AUM register with states; $110M+ register with SEC.
The 90-110M buffer zone prevents constant switching.
Form ADV is required for IA registration; Form U4 for IARs.
Federal covered advisers make notice filings with states.
IARs register with states where they have a place of business.
The registration requirements for investment advisers (IAs) and investment adviser representatives (IARs) are more complex than those for broker-dealers and agents. The key complication is determining whether an adviser registers with the state or the SEC.
State vs. SEC Registration
The Dividing Line: Assets Under Management (AUM)
The National Securities Markets Improvement Act (NSMIA) divided investment advisers into two categories:
| Category | AUM Threshold | Registers With |
|---|---|---|
| State-Registered Adviser | Under $100 million | State Administrator(s) |
| Federal Covered Adviser | $110 million or more | SEC |
| Mid-Size Adviser | $100-110 million | Choice (state or SEC) |
Key Rule: Once an adviser reaches $110 million AUM, it MUST register with the SEC as a federal covered adviser. Below $100 million, state registration is required.
The Buffer Zone
To prevent advisers from constantly switching between state and SEC registration:
| Situation | Registration Status |
|---|---|
| State-registered IA reaches $110M AUM | Must register with SEC within 90 days |
| SEC-registered IA falls below $90M AUM | Must withdraw from SEC within 180 days |
| AUM between $90M and $110M | May maintain current registration |
Exam Tip: The buffer zone prevents "ping-ponging" between regulators. An adviser doesn't have to switch to state registration until falling below $90 million, and doesn't have to switch to SEC until exceeding $110 million.
120-Day Anticipation Rule
An adviser that reasonably expects to reach $100 million AUM within 120 days is eligible (but not required) to register with the SEC.
Federal Covered Advisers
Who Are Federal Covered Advisers?
| Type | Threshold/Requirement |
|---|---|
| Large Advisers | $110 million or more AUM |
| Pension Consultants | $200 million or more AUM (eligible) |
| Private Fund Advisers | $150 million or more AUM (required) |
| Multi-State Advisers | Required by 15+ states to register (eligible, not required, to register with the SEC) |
| Internet Advisers | Advise clients only through an interactive website (eligible) |
State Authority Over Federal Covered Advisers
| State Power | Allowed? |
|---|---|
| Require SEC-registered IA to register with state | No |
| Require notice filing and fee | Yes |
| Investigate fraud | Yes |
| Enforce anti-fraud provisions | Yes |
| Require books and records | Limited |
Important: States cannot require federal covered advisers to register, but they CAN require notice filings, collect fees, and enforce anti-fraud provisions.
State-Registered Investment Advisers
Registration Requirements
To register as a state-registered investment adviser:
| Requirement | Description |
|---|---|
| Form ADV | Uniform Application for Investment Adviser Registration |
| Form ADV Part 2 | Brochure describing services, fees, conflicts |
| Consent to Service of Process | Allows Administrator to receive legal papers |
| Filing Fee | State-specific amount |
| Financial Requirements | Net worth or bonding requirements |
Effective Date
| Scenario | Effective Date |
|---|---|
| Standard Application | Noon on the 30th day after filing |
| Earlier Approval | Administrator may grant earlier effectiveness |
Investment Adviser Representative (IAR) Registration
Who Must Register as an IAR?
An IAR is any individual who, on behalf of an investment adviser:
| Activity | IAR Registration Required? |
|---|---|
| Makes investment recommendations | Yes |
| Manages client accounts or portfolios | Yes |
| Determines recommendations to be given | Yes |
| Solicits for advisory services | Yes |
| Supervises persons doing the above | Yes |
| Performs only clerical duties | No |
IAR Registration Process
| Requirement | Description |
|---|---|
| Form U4 | Same form used for agent registration |
| Qualification Exam | Series 65 or Series 66 (in most states) |
| Filing Fee | State-specific |
| Background Check | Fingerprints required |
Alternative Qualifications
Most states accept these professional designations in place of the Series 65 (NASAA's list, updated May 2024). A designation never waives the Series 66.
| Designation | Awarded By |
|---|---|
| CFP (Certified Financial Planner) | CFP Board |
| ChFC (Chartered Financial Consultant) or MSFS | The American College |
| CFA (Chartered Financial Analyst) | CFA Institute |
| PFS (Personal Financial Specialist) | AICPA |
| CIMA (Certified Investment Management Analyst) | Investments & Wealth Institute |
Notice Filing Requirements
What Is Notice Filing?
Federal covered advisers don't register with states but must make notice filings:
| Element | Requirement |
|---|---|
| Documents Filed | Copy of Form ADV and amendments |
| Fee | State-determined amount |
| Purpose | Provides state awareness of adviser activities |
| Renewal | Annual, coinciding with SEC renewal |
State Authority After Notice Filing
| Action | Permitted? |
|---|---|
| Deny the notice filing | Generally No |
| Collect filing fees | Yes |
| Investigate complaints | Yes |
| Enforce anti-fraud provisions | Yes |
IAR Registration for Federal Covered Advisers
Even though a federal covered adviser doesn't register with the state:
IARs of federal covered advisers MAY still be required to register with the state where they have a place of business or work with clients.
| Situation | IAR State Registration |
|---|---|
| IAR has place of business in state | Usually required |
| IAR solicits clients in state | Usually required |
| IA is SEC-registered | IAR still registers with state |
Key Takeaways
- Investment advisers register with SEC ($110M+ AUM) or states (under $100M AUM)
- Buffer zone ($90M-$110M) prevents constant switching
- Federal covered advisers make notice filings but don't register with states
- States retain anti-fraud enforcement over all advisers
- IARs must register in states where they have a place of business
- Form ADV is used for IA registration; Form U4 for IAR registration
An investment adviser has $115 million in assets under management. With which regulator must this adviser register?
Only with the states where it has clients
Only with the SEC
Both the SEC and all states where it has clients
Either the SEC or the states, at the adviser's choice
A federal covered investment adviser with $200 million AUM operates in State X. Which of the following can State X require of this adviser?
Full registration with the state Administrator
A minimum net worth higher than SEC requirements
Notice filing, fee payment, and compliance with anti-fraud provisions
State X has no authority over federal covered advisers
An investment adviser representative works for a federal covered adviser that is registered with the SEC. Must the IAR register with the state where she has her office?
No, because the employing adviser is SEC-registered
No, because IARs register only with the SEC
Yes, IARs typically must register with states where they have a place of business
Yes, but only if she manages more than $100 million personally
An SEC-registered investment adviser's AUM falls from $105 million to $85 million. What must the adviser do?
Immediately withdraw SEC registration and register with states
Withdraw SEC registration within 180 days and register with states
Maintain SEC registration until AUM falls below $90 million
Nothing; once registered with SEC, always registered with SEC
Sections you finish are checked off in the contents.