Upfront And Ongoing RIA Compliance Obligations Of State Vs SEC-Registered Investment Advisers

Upfront And Ongoing RIA Compliance Obligations Of State Vs SEC-Registered Investment Advisers

In the United States, Registered Investment Advisers (RIAs) are required to register in one of 2 ways: with the Federal government (namely the SEC) or with one (or more) state securities regulatory agencies. While SEC-registered RIAs are governed by the Investment Advisers Act of 1940 (and its associated regulations), state-registered RIAs are subject to the individual rules of the states (which have their own securities laws and regulations) where they are registered. So RIAs not only face a different set of regulations depending on whether they are Federally or state-registered, but state-registered RIAs, in particular, can also face a widely varying set of rules depending on which state they are registered in.

In this guest post, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal, breaks down some of the key differences between the Federal and state registration application requirements, approval processes, and post-registration requirements for RIAs.

While there is some overlap between the specific documents to be submitted for those registering with the SEC as opposed to the states, the universe of documents is far from identical. To start, Form ADV is the foundational registration document that must be submitted by any advisor seeking to become registered with the SEC or the states, but submission requirements for its various sub-parts vary depending on the registration type. For instance, while firms applying for either SEC or state registration are required to submit Form ADV Part 2A (the brochure and wrap fee program brochure), Form ADV Part 2B (the brochure supplement) is required to be submitted only by state-registration applicants (though SEC applicants are still required to create, maintain and deliver a brochure supplement to clients). Notably, along with certain standardized forms (e.g., Form ADV and Form U4), state-registration applicants are almost always required to submit additional ancillary documents to the state(s) in which they are seeking registration as part of their application.

In addition to differing registration form requirements, firms applying for SEC or state registration typically will have different experiences in the approval process. For example, while the SEC is required to respond to an adviser’s application within 45 days of the initial filing date, state applicants can expect more variable and longer lead times during the registration process. Further, while the SEC’s review process usually tends to be straightforward and permissive, some states will respond with additional questions, follow-up requests, and required revisions to the contents of the documents submitted.

Once an adviser’s registration application has been approved, they can begin advice-rendering activities, but their regulatory obligations do not end there. Along with renewing their registration annually (for both SEC- and state-registered firms), firms face a variety of requirements related to their internal finances, fees, marketing activities, and advisor agreements depending on whether they are SEC- or state-registered.

Ultimately, the key point is that while both the SEC and individual states share the goal of protecting the public from financial predators, advisers typically face differing registration, approval, and ongoing supervision experiences, depending on how they are registered. But by being aware of the varying requirements and filing documents in an accurate and timely manner, new firms can navigate their way through the registration process and (finally) begin offering planning services to clients!

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