SEC vs State Registration & Notice Filing Logistics

Part 1: When, Why, & How to Register or Notice File

In the United States, the regulation of investment advisers is intentionally divided between both Federal and state governments. This duality continues the through-line of Federalism borne out of the Constitution, but creates potentially very different experiences for advisers registered with (and therefore regulated by) the SEC as compared to those who register directly with one (or more) state securities authorities. Though while regulatory experiences will differ between SEC-registered advisers and state-registered advisers, there is potentially even more regulatory disparity among the 50 states (plus the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands) that impacts state-registered advisers registered in multiple states.

The genesis of such regulatory disparity is helpfully explained on the website of the North American Securities Administrators Association (NASAA):

States were the first authorities in the United States to regulate securities and the securities industry. Kansas adopted the first securities law in 1911, and other states soon followed. It was not until the 1930s that Congress began enacting federal securities laws. Today, all fifty states, the District of Columbia, and some U.S. territories have securities statutes. These laws, sometimes called “blue sky laws,” have existed alongside the federal securities laws for decades.

Because states adopted their securities acts at different times and with sometimes differing objectives or interests, state securities laws are not all identical. In order to bring a measure of uniformity, the Uniform Law Commission (formerly known as the National Conference of Commissioners on Uniform State Laws) has, over time, developed model acts that states can use as the basis for their own statutes.

While most states and U.S. territories have adopted various iterations of the Uniform Law Commission’s model securities acts over the years (the current model being the Uniform Securities Act of 2002, known simply as the “2002 Act”), others have largely disregarded such models and created their own securities acts. It is for this reason that advisers registered in multiple states typically shoulder the heaviest burden of regulatory complexity.

On the other hand, SEC-registered advisers (also known as “Federal covered investment advisers” to use the 2002 Act’s parlance) are beholden to the Investment Advisers Act of 1940 (the “Advisers Act”) and the rules promulgated thereunder. Notably, RIAs are registered with either the SEC or the states, but never both (although SEC-registered advisers are generally required to ‘notice file’ in applicable states, as discussed later).

Model Securities Act For State And SEC Registration

Exploring these Federal and state disparities is designed to guide advisers facing registration crossroads for the first time, as well as advisers transitioning from state to SEC registration (or vice versa). While a comprehensive state-by-state analysis has not been undertaken, the 2002 Act (used as the basis for the securities acts of many states) will be used for comparison purposes against the SEC-enforced Advisers Act. Select state-specific nuances will be noted for illustrative purposes as warranted.

Also – just as a reminder – the 2002 Act is simply a model rule and has no legal effect unless otherwise adopted, in whole or in part, by a particular state. Thus, any references to the 2002 Act are for illustrative purposes, and readers should always consult specific state statutes and rules to inform their registration posture.

Federal Vs State Definitions Of “Investment Adviser”

It should not necessarily be assumed that anyone rendering investment advice needs to register as an adviser at all. A person would be required to register at the Federal level (i.e., with the SEC) only if the definition of “investment adviser”, as provided in the Advisers Act, applies to them:

‘Investment adviser’ means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities […].

The definition goes on to list a series of potential exclusions applicable to banks, certain other professionals that provide such services that are “solely incidental” to the practice of their profession (including brokers or dealers that receive no special compensation for such services), bona fide publishers, those that only render services with respect to very limited types of securities, certain statistical ratings organizations, and family offices.

The 2002 Act, which provides model rules that can be used by state regulators, mostly tracks the Federal definition of ‘investment adviser’, but not in its entirety:

‘Investment adviser’ means a person that, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. The term includes a financial planner or other person that, as an integral component of other financially related services, provides investment advice to others for compensation as part of a business or that holds itself out as providing investment advice to others for compensation.

The most notable difference between the two definitions is that the 2002 Act explicitly includes certain financial planners that provide “investment advice” as an integral component of other financially related services. The 2002 Act also additionally excludes investment adviser representatives (since they are separately defined in the 2002 Act as certain individuals employed by or associated with an investment adviser firm) and Federal covered advisers from the state-level “investment adviser” definition.

Assuming a person meets both the state and Federal definitions of “investment adviser,” the next logical question is whether such a person needs to register with the SEC or one or more states.

Federal Vs State Investment Adviser Registration

Because of the divide between Federal and state authority, Section 203A(a) of the Advisers Act (the Federal act) actually prohibits any person from registering at the Federal level (unless they meet certain eligibility criteria):

No investment adviser that is regulated or required to be regulated as an investment adviser in the State in which it maintains its principal office and place of business shall register under [the Advisers Act] unless…

In other words, the Advisers Act relegates adviser registration to the states… unless the adviser is ‘not prohibited’ from registering with the SEC. And only if they meet one of the “exemptions” from the Federal prohibition would they then actually be expected to register Federally with the SEC.

EXEMPTIONS THAT PERMIT RIAS TO REGISTER UNDER THE SEC

The most common exemption from the prohibition against SEC registration is that an adviser has at least $100 million in regulatory assets under management. As a result, investment advisers with less than $100M are prohibited from registering with the SEC (and are state-registered) unless they qualify for another registration prohibition exemption (discussed below), while those that have more than $100M would be expected to register with the SEC instead. Notably, though, in order to qualify, the firm’s AUM must actually meet the regulatory definition of AUM, not merely an ‘Assets Under Advisement’ (AUA) structure.

In addition, there are several other prohibition exemptions that provide a path to SEC registration instead of state registration that can be found in Rule 203A-2 under the Advisers Act or the Advisers Act itself, as listed below. Importantly, each exemption has its own criteria and nuances not described above, so would-be advisers intending to rely on an exemption to pursue Federal registration over state registration should be sure to understand the nuances involved.

Pension Consultant Exemption: A pension consultant “with respect to assets of plans having an aggregate value of at least $200,000,000” (permitting those who consult with pension plans to be SEC-registered);

Related-Adviser Exemption: An adviser “controlling, controlled by, or under common control with an adviser registered with the Commission” (permitting subsidiary/affiliate RIAs to be Federally registered as long as their parent/sister company is SEC-registered);

120-Day Exemption: “An adviser that, immediately before it registers with the Commission, is not registered or required to be registered with the Commission or a state securities authority of any State and has a reasonable expectation that it would be eligible to register with the Commission within 120 days after the date the investment adviser’s registration with the Commission becomes effective” (e.g., permitting firms that don’t initially have at least $100M because they’re just launching to get to $100M by 120 days to qualify for SEC registration);

Multi-State Adviser Exemption: “An adviser that, upon submission of its application for registration with the Commission, is required by the laws of 15 or more States to register as an investment adviser with the state securities authority in the respective states” (permitting firms that are required to register in 15 or more different states, but still don’t have more than $100M of AUM, to ‘simplify’ by consolidating into an SEC registration);

Internet Adviser Exemption: An adviser that “provides investment advice to all of its clients exclusively through an interactive website, except that the adviser may provide investment advice to fewer than 15 clients through other means during the preceding twelve months” (permitting online-only services that may not have individual advisers in individual states to register Federally instead);

Mutual Fund/Business Development Company (BDC) Adviser Exemption: An adviser to a registered investment company or Business Development Company (BDC);

Mid-Sized Adviser Exemption: An adviser with regulatory assets under management of at least $25 million, but less than $100 million, that is not subject to examination by the state securities authority of the state where it maintains its principal office and place of business (permitting advisers in that AUM range subject to the unique state laws of New York to qualify for SEC registration); and

Foreign Adviser Exemption: An adviser with its principal office and place of business outside of the U.S.

In practice, most of these exemptions that would lead to Federal registration do not apply to the typical individual financial adviser that provides personal financial planning advice, though some that expect to quickly launch to more than $100M of AUM may rely on the 120-day exemption (to start with the SEC with $0 in AUM and get to >$100M quickly), and established advisers that have grown a sizable multi-state clientele may trigger the multi-state exemption (though notably, the trigger is not based on having any clients across 15 or more states, but exceeding the de minimis requirements that would require the investment adviser to register in more than 15 states, which is typically a 5-clients-in-that-state threshold).

WHEN ADVISERS MUST REGISTER THEIR RIA AT THE STATE LEVEL

Unless an exemption applies that permits SEC registration, a person who otherwise meets the definition of “investment adviser” pursuant to one or more applicable state securities statute(s) will be required to register in such state(s). If this is the case, they will generally be required to register in the state(s) where:

They have a place of business; or
They have had more than a de minimis number (typically 5, but lower in a few states) of clients resident in such states during the preceding 12 months (even if the adviser has no place of business in the states in which it has had more than a de minimis number of clients within the preceding 12 months).

The 2002 Act defines “place of business” to include any office from which an adviser regularly provides investment advice or solicits, meets with, or otherwise communicates with clients, or any other location that is held out to the general public as a location at which the adviser provides investment advice or solicits, meets with, or otherwise communicates with customers or clients. This broad definition generally includes a home office from which a person regularly sends email to or receives email from, or otherwise has verbal or videoconference communication with, clients or prospective clients (such that even advisers who work with clients entirely remotely/virtually would still be deemed to have a “place of business” wherever their workspace is from which they conduct their virtual meetings).

The 2002 Act’s threshold number of clients for purposes of the de minimis threshold is 5, meaning that an adviser can generally work with up to 5 clients during a rolling 12-month period in a particular state in which the adviser maintains no place of business without having to register in that state. However, an adviser availing itself of this de minimis threshold must be approved and registered in a state before crossing the 5-client threshold (i.e., before taking on its 6^th client in such state).

State Registration Requirements For Investment Advisers

The 2002 Act’s de minimis threshold aligns with the national de minimis standard, which can be found in Section 222(d) of the Advisers Act and actually preempts a state from requiring the registration of advisers if they don’t have a place of business within such state and, during the preceding 12-month period, had fewer than 6 clients who are residents of such state:

No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser shall require an investment adviser to register with the securities commissioner of the State (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the investment adviser—

(1) does not have a place of business located within the State; and

(2) during the preceding 12-month period, has had fewer than six clients who are residents of that State.

One might justifiably think that this preemption prevents any state from regulating an adviser with no place of business within its borders and fewer than 6 resident clients within the past 12 months, but this is not the case. The Federal preemption only prevents states from requiring the registration of out-of-state advisers with de minimis state-resident clients. It does not prevent states from imposing other regulations upon such advisers, and – as Texas exploits – does not prevent states from imposing a notice filing requirement on such advisers.

WHEN STATE-REGISTERED ADVISERS MAY NEED TO NOTICE FILE IN TEXAS

In general, a “notice filing” is intended to refer to an SEC-registered investment adviser’s obligation to provide applicable state securities authorities copies of documents that are filed with the SEC; this is how the term “notice filing” is defined in the Glossary of Terms to Form ADV. A notice filing is accomplished by simply paying applicable state(s) a notice filing fee and checking applicable state(s’) boxes on Form ADV Part 1. In general, notice filing does not apply to state-registered investment advisers; if they exceed the applicable de minimis threshold, they must register in each applicable state, and only SEC-registered firms are required to notice file (as they’re already registered at the Federal level with the SEC).

However, one state – Texas – has famously appropriated the concept of a notice filing and expanded the term to apply even to state-registered advisers with no place of business within its borders and fewer than 6 resident clients within the past 12 months. Texas extends its extraterritorial jurisdiction to out-of-state, state-registered advisers with de minimis Texas-resident clients (i.e., equal to or less than the 5-client de minimis threshold) by requiring such firms to notice file in Texas if the adviser has but a single client residing in Texas.

A notice filing, as Texas construes the term, effectively requires such advisers to file notice of its Form ADV and at least one individual’s Form U4 in Texas through the Investment Adviser Registration Depository (IARD) and pay an initial and annual notice filing fee. (For reference, Form U4 is the document that associates an individual representative with a particular adviser and registers that individual as an investment adviser representative. Investment adviser representatives are discussed further below, and Form U4 is discussed further in Part 2 of this article.)

As long as the adviser has 5 or fewer Texas-resident clients and does not maintain any place of business in Texas, the adviser will see its “registration status” listed as “Conditional Restricted” with the IARD and its publicly available sister website, the Investment Adviser Public Disclosure website. Before contracting with its 6^th client or establishing a place of business in Texas, the state-registered adviser must then fully register in Texas (as the 5-client de minimis threshold is reached). To reiterate, a registration is different from (and more onerous than) a notice filing.

Check out the Texas State Securities Board’s FAQs for a helpful explanation, specifically question and answer 1.A.9:

Q: Didn’t NSMIA create a national de minimis exemption from investment adviser registration?

A: Yes. See Section 18a of the Investment Advisers Act of 1940. If an investment adviser does not have a place of business (See FAQ 1.A.10) located in Texas and, during the preceding 12 month period, had no more than five clients (See FAQ 1.A.11) who are Texas residents, the investment adviser is not required to register with the Texas Securities Commissioner. See Rule 116.1(b)(2)(A)(iv). However, a notice filing and fee are required. See Rule 116.1(b)(2)(C) and FAQ 1.A.12. This is satisfied by filing Form ADV through the IARD system for the firm as well as filing Form U 4 for each investment adviser representative through the CRD system.

Touché Texas, touché.

WHEN STATE-REGISTERED ADVISERS MAY NEED TO REGISTER IN LOUISIANA

Similarly, Louisiana does not conform to the national de minimis standard with respect to state-registered investment advisers either, though its regulations flat-out don’t address any de minimis carve-outs like Texas (see Louisiana Securities Law Sections 702 and 703), which makes it unclear how its no-de-minimis registration requirement would be legally enforceable given the Federal preemption afforded by Section 222(d) of the Advisers Act.

Nonetheless, to the extent its statutes have not been legally challenged, Louisiana extends its extraterritorial jurisdiction to out-of-state, state-registered advisers with de minimis Louisiana-resident clients (i.e., equal to or less than the 5-client de minimis threshold) by requiring such firms to register in Louisiana if the adviser has but a single client residing in Louisiana. Setting aside the unique circumvention of the Federal preemption afforded by Section 222(d) of the Advisers Act by Texas and Louisiana, state-registered advisers can otherwise generally expect to register in any state in which they have a place of business or, during the preceding 12-month period, more than a de minimis number of 5 clients in that state.

WHEN SEC-REGISTERED ADVISERS MAY NEED TO NOTICE FILE IN A STATE

If an adviser is instead eligible or required to register with the SEC and not with any particular state, the states still retain jurisdictional authority insofar as they can require certain SEC-registered advisers to notice file in their state, collect associated state filing fees, and enforce their respective state anti-fraud statutes.

Such notice filing requirements generally apply unless the SEC-registered adviser has no place of business in the state and has had, during the preceding 12 months, no more than 5 clients that are residents in such state. This notice filing place-of-business and client-de-minimis threshold is thus effectively identical to the registration place-of-business and client de minimis threshold described earlier.

In other words, state-registered RIAs typically register in each state in which they have a place of business or where the 5-client de minimis thresholds are reached (with the exceptions of Texas and Louisiana as discussed above), while Federally registered RIAs (that meet an exemption to permit SEC registration, such as being over $100M of AUM) will have registered with the SEC but then notice filed in each state where the firm has a place of business or exceeds the 5-client (or in certain states as discussed below, lower) threshold.

State Notice Filing Requirements For SEC Registered Advisers

However, once again, there are a handful of states that don’t follow the same notice-filing threshold for SEC-registered advisers, including Texas, Louisiana, New Hampshire, and Nebraska.

New Hampshire’s statement with respect to Federal covered advisers is decidedly unambiguous in this regard:

Every federal covered adviser doing business in New Hampshire must file a notice and pay a fee prior to conducting investment adviser business in New Hampshire. There is no “de minimis” exception from the notice filing requirement.

Nebraska’s notice filing requirement, as stated in Nebraska Revised Statute 8-1103(2)(b), simply does not include the 5-or-fewer clients de minimis carve-out:

[…] it shall be unlawful for any federal covered adviser to conduct advisory business in this state unless such person files with the director the documents which are filed with the Securities and Exchange Commission, as the director may by rule and regulation or order require, a consent to service of process, and payment of the fee prescribed in subsection (6) of this section prior to acting as a federal covered adviser in this state.

The ultimate takeaway is that regardless of whether an adviser is state-registered or SEC-registered, it should regularly assess the states in which it is deemed to have a place of business and also in which its clients reside. Such an assessment will determine the states in which an adviser is required to register (as a state-registered RIA) or notice file (as an SEC-registered RIA), as applicable.

Federal Vs State Definitions Of “Investment Adviser Representative”

While investment advisers are subject to registration requirements at the Federal or state level, and SEC-registered investment advisers are generally also required to notice file at the state level, individual investment adviser representatives, too, may also be subject to registration obligations depending on their activities and functions. In other words, while advisers often refer to themselves as “RIAs”, in reality, the “investment adviser” is the firm (the entity), while the individual human being advisers who perform certain functions for the RIA are technically “investment adviser representatives” of the firm (i.e., they’re the individuals who represent the RIA entity).

To determine whether an individual representative of an investment adviser is subject to state registration, one must first look to the 2002 Act’s definition of an Investment Adviser Representative (IAR):

An individual employed by or associated with an investment adviser or federal covered investment adviser and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing.

For state-registered investment advisers, this definition means that an individual associated with or employed by a state RIA will be deemed an IAR if they perform any of the activities or functions described in the definition above and will generally be required to register with applicable states as an IAR.

However, while this may be true for individuals associated with or employed by state-registered investment advisers, the analysis does not end there for individuals associated with or employed by SEC-registered RIA firms. This is because the 2002 Act’s definition of IAR goes on to carve out any individual employed by or associated with an SEC-registered adviser that would otherwise be swept into the 2002 Act’s definition of IAR unless such individual has a “place of business” in a state (as that term is defined in Rule 203A-3(b) under the Advisers Act), and one of the following applies:

They are an “investment adviser representative” (as that term is defined in Rule 203A-3(a)(1) under the Advisers Act); or
They are not a “supervised person” (as that term is defined in Section 202(a)(25) of the Advisers Act).

The 2002 Act’s definition of IAR incorporates and cross-references several important Federal definitions found in the Advisers Act and the rules promulgated thereunder regarding IARs and supervised persons. These should be reviewed when assessing potential registration obligations in any state where business is conducted by individuals associated with or employed by SEC-registered advisers:

“Place of business”, as defined in Rule 203A-3(b) under the Advisers Act (the Federal act), is an office at which the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, and any other location that is held out to the general public as a location at which the IAR provides investment advisory services, solicits, meets with, or otherwise communicates with clients. This definition is effectively identical between the Advisers Act and the 2002 Act.
“Supervised person” as defined in Section 202(a)(25) of the Advisers Act is any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser. The 2002 Act does not separately define the term “supervised person,” so this particular definition only exists in the Advisers Act.
“Investment adviser representative”, as defined in Rule 203A-3(a)(1) promulgated under the Advisers Act, is a supervised person of an investment adviser who has more than 5 clients who are natural persons and not qualified clients, and more than ten percent of whose clients are natural persons who are not qualified clients (the term “qualified client” can be found in Rule 205-3(d)(1), and generally has a threshold of >$1.1M of AUM and a net worth of >$2.2M; this is the same definition used for purposes of determining eligibility to be charged performance fees). A supervised person does not, however, meet the (Federal) definition of IAR if the supervised person does not, on a regular basis, solicit, meet with, or otherwise communicate with clients, or if they provide only impersonal investment advice.

Notably, the definition of IAR under the Advisers Act is thus much narrower than the definition of IAR under the 2002 Act. To be deemed an IAR under the Advisers Act, and therefore satisfy one of the IAR registration conditions under the 2002 Act, an individual must be both a supervised person and also have more than a threshold number and percentage of clients other than qualified clients.

State And Federal Difinitions Of Investment Adviser Representative

As a result, at least under the model 2002 Act, an individual associated with an SEC-registered investment adviser that solely works with qualified clients, or works with less than the threshold number or percentage of clients other than qualified clients, is not subject to state IAR registration requirements, even if such an individual has a place of business in a particular state. Similarly, an individual associated with an SEC-registered RIA that works with enough clients to meet the thresholds but does not have a place of business in a particular state is not subject to state IAR registration requirements.

In summary, individuals associated with or employed by both state-registered advisers and SEC-registered advisers must look to the 2002 Act’s definition of IAR, but those associated with or employed by SEC-registered advisers must also look to the Federal definitions of “place of business,” “supervised person,” and “investment adviser representative” to determine whether state IAR registration is required for an adviser working at an SEC-registered RIA.

Federal Vs State Investment Adviser Representative (IAR) Registration

For those who are deemed an Investment Adviser Representative (IAR) by a state (because they have a place of business in that state and meet the applicable state or Federal requirements to be deemed an IAR), registering as an IAR in the applicable state typically requires 3 components:

Passage of an examination sponsored by NASAA (i.e., the Series 65) or the valid existence of a qualifying professional designation such as the CFA, CFP, ChFC, CIC, or PFS;
Filing of Form U4; and
Payment of a fee.

In practice, the exam or the professional designation is what qualifies an individual to register as an IAR in a particular state, while the U4 filing and fee payment are what completes the process to become registered as an IAR under the RIA in the applicable state.

With respect to state-registered advisers, the IAR registration requirement tracks the firm-level RIA registration requirement. In other words, if an RIA entity is required to register in a particular state based on the analysis described in the section above, generally speaking at least one IAR adviser working at that RIA is also required to register in the same state as well. In fact, an RIA’s state registration is generally not effective until at least one IAR’s state registration is effective, and an IAR’s state registration is generally not effective until the RIA’s firm registration is effective; in this sense, investment adviser and IAR state registrations are co-dependent.

Example 1: XYZ Advisors is a state-registered RIA with a single IAR – Bonnie – based in Missouri. XYZ Advisors and Bonnie are both registered solely in Missouri.

Due to the firm’s growth, XYZ Advisors needs to additionally register in Kansas because it has hit the 5-client de minimis maximum in Kansas and is expecting further client growth in the state.

Even though neither the firm nor Bonnie has any place of business in Kansas, both the firm and Bonnie must register in Kansas (as an RIA and IAR, respectively).

With respect to SEC-registered RIAs, the IAR registration requirement is based on the 2002 Act’s definition of IAR when read in conjunction with the Federal definitions of place of business, supervised person, and IAR. As a result, an IAR of an otherwise identically situated RIA may be subject to differing registration requirements if the RIA is SEC-registered instead of state-registered.

Example 2: ABC Advisors is an SEC-registered RIA with a single IAR – Clyde – and is notice-filed only in Missouri because of the firm’s and Clyde’s place of business there.

If the firm experiences the same client growth in Kansas as XYZ Advisors, as in Example 1 above, and hits the 5-client de minimis maximum in Kansas, the firm must notice file in Kansas.

However, unlike Bonnie in Example 1 above, Clyde has no place of business in Kansas, which means that Clyde need not register as an IAR in Kansas.

Furthermore, some states may deviate from the provisions modeled by the 2002 act and impose their own rules. For instance, Texas (of course) does not follow the same IAR registration logic and may still require an IAR associated with an SEC-registered adviser to follow different rules. For example, Texas requires notice filing for IARs who work with any Texas clients – even if they do not have a place of business in Texas. According to the Texas State Securities Board’s FAQs, “An IAR of an SEC-registered investment adviser, having a place of business (See FAQ 1.B.6) in Texas must register and qualify as an investment adviser representative with the Texas Securities Commissioner. An IAR without a place of business in Texas must notice file.”

Ultimately, though, while each state has its own IAR registration regime for the individual advisers who work at state- and SEC-registered RIA firms, the SEC itself does not have IAR registration requirements for individual advisers. Neither the Advisers Act nor the rules promulgated thereunder impose any registration obligations upon individual representatives of investment advisers, regardless of what activities and functions they perform. This is because the Federal regime does not bifurcate or distinguish between investment advisers (the RIA firm) and their representatives (the individual advisers) for registration purposes.

It is for this reason that all IARs are registered with one or more states and not the SEC itself, why the SEC does not require any separate exams or professional designations for individual advisers, why the Series 65 exam is referred to as the NASAA Investment Advisers Law Examination (and not the SEC Investment Advisers Law Examination), and similarly why the Series 66 exam is referred to as the NASAA Uniform Combined State Law Examination (and not the SEC Uniform Combined Federal Law Examination).

DETERMINING IN WHICH STATE(S) AN INDIVIDUAL MUST REGISTER

In summary, the following questions must be answered in order to properly identify the state(s) in which an individual should be registered:

Individual Associated with a State-Registered Investment Adviser

Does the individual meet the 2002 Act’s definition of IAR?
In what state(s) is the investment adviser required to register because they have a place of business and/or meet the client de minimis threshold?
Is the investment adviser required to notice file in Texas?

Individual Associated with an SEC-Registered Investment Adviser

Does the individual meet the 2002 Act definition of IAR?
Does the individual meet the Advisers Act definition of IAR or supervised person?
- How many clients does the individual work with, and how many are qualified clients?
In what state(s) does the individual have a place of business?
Does the individual work with any Texas clients?

Once an adviser has determined whether it must register with the SEC or one or more states, the specific state(s) in which it is required to register or notice file, and the specific state(s) in which its individuals are required to register or notice file, the adviser can next transition to the actual registration application process itself.

Ultimately, the key point is that there are significant differences between Federal and state-level registration requirements for investment advisers, and even more nuanced differences between how (and if) individuals associated with SEC- and state-registered investment advisers must register.

While beyond the scope of this discussion, it is important to recognize that the registration application process and the post-application regulatory experience can vary dramatically between advisers registering with the SEC and one or more states, as well as among state-registered advisers registered in multiple states. But by understanding the differences in how these terms are defined, and the unique registration (and state notice filing) rules that may apply to them, advisers can be better positioned to maintain their compliance requirements based on their changing individual circumstances!

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Part 2: SEC Vs State Application & Post-Registration Differences

Navigating an adviser’s registration and notice filing decision matrix can be challenging enough given the duality of state and Federal regulatory regimes described in Part 1 of this two-part article series. But, as this Part 2 will underscore, registration and notice filing determinations are only the tip of the Federalism iceberg. From the moment an adviser embarks on the actual registration process itself, and throughout an adviser’s registration tenure, the real-world experience of an adviser will continue to diverge based on whether the adviser is registering with the SEC or with one or more states.

Federal Vs State Registration Application Differences For RIAs

In order to become registered as an investment adviser, both the SEC and the states require certain documents to be submitted through the Investment Adviser Registration Depository (IARD). While there is certainly overlap between the specific documents to be submitted to the SEC as opposed to the states, the universe of documents is far from identical.

PARTS OF FORM ADV FOR RIAS

Form ADV is the foundational registration document that must be submitted by any investment adviser seeking to become registered with the SEC or the states. The term “Form ADV” is actually an umbrella term that encompasses four sub-parts:

Part 1 (not deemed worthy of a nickname)
Part 2A (aka the “Brochure”) and/or Part 2A Appendix 1 (aka the “Wrap Fee Program Brochure”)
Part 2B (aka the “Brochure Supplement”)
Part 3 (aka “Form CRS” or the “Relationship Summary”)

Each part, in turn, is comprised of multiple sub-parts, items, schedules, Disclosure Reporting Pages (DRPs), and, with respect to the Brochure, a potential appendix. Some Form ADV parts, sub-parts, items, schedules, DRPs, and its potential appendix are required to be submitted solely by SEC-registered advisers, some are required to be submitted solely by state-registered advisers, and some are required to be submitted by both SEC and state-registered advisers. For a glossary of terms used throughout the Form ADV, refer to this Appendix C to Form ADV.

Form ADV Part 1

Both state- and Federal-registered advisers are required to submit Form ADV Part 1, which is largely comprised of boxes to check, radio buttons to select, and form fields to complete. It is effectively a statistical and demographic data gathering form that, unlike the other parts of the Form ADV, does not generally require any narrative (explanatory written) responses.

Part 1A of Form ADV Part 1 (classic government nomenclature, which is not confusing at all) applies equally to SEC and state-registration applicants. However, not all items of Form ADV Part 1A are to be completed by state-registration applicants. Item 2, for example, asks SEC-registration applicants to select the basis upon which the applicant is eligible for SEC registration (see Part 1 of this article for the list of SEC eligibility options). There is no equivalent eligibility question applicable to state-registration applicants.

Part 1B of Form ADV Part 1 is required only of state-registration applicants and asks for additional information regarding bond/capital information (if applicable), other (i.e., “outside”) business activities, financial planning services, custody, and information specific to sole proprietorships. State-registration applicants are also required to respond to additional DRPs regarding bonds, judgments/liens, arbitrations, and civil judicial actions.

When initiating the registration application process through the IARD system online, the first question the IARD system prompts an applicant to answer is whether it is seeking registration with the SEC or one or more states. Based on the response, the IARD system will generate a specific version of the Form ADV Part 1 for the applicant to complete such that inapplicable sub-parts and items generally will not be included.

The Brochure And Wrap Fee Program Brochure – Form ADV Part 2A

Like the Form ADV Part 1, both state- and SEC-registered advisers are required to submit Form ADV Part 2A, otherwise known as the Brochure. Unlike Part 1, the Brochure is entirely narrative (i.e., written out by the RIA in paragraphs to explain the key information in a readable format) and must be uploaded to the IARD system in a text-searchable PDF format. If the adviser sponsors a wrap fee program (i.e., generally, a program in which brokerage transaction charges are bundled or ‘wrapped’ with an adviser’s advisory fee into a single consolidated fee), the adviser must also submit a Wrap Fee Program Brochure. The Brochure and Wrap Fee Program Brochure are largely focused on the adviser itself, and not necessarily the individuals associated with the adviser.

Also like the Part 1, the contents of the Brochure will differ based on whether the applicant is seeking SEC or state registration. Specifically, Item 19 of the Brochure and Item 10 of the Wrap Fee Program Brochure are only required of state-registration applicants, and include additional information about the formal education and business background of principal executive officers and management persons, other business activities, performance-based fees, arbitration actions, legal proceedings, and relationships with issuers of securities.

The Brochure Supplement – Form ADV Part 2B

The Brochure Supplement is the sister disclosure document to the Brochure. Instead of focusing on the adviser itself, though, the Brochure Supplement focuses on the individual supervised persons of the adviser that 1) formulate investment advice for clients and have direct client contact, or 2) have discretionary authority over client assets, even if they have no direct client contact.

Importantly, both SEC-registered and state-registered investment advisers must create, maintain, and deliver a Brochure Supplement to clients; however, the Brochure Supplement need only be submitted through the IARD system for state-registration applicants and not for SEC-registration applicants.

Like the Brochure (Part 2A), the Brochure Supplement (Part 2B) has one additional section (Item 7) that is solely applicable to state-registration applicants. This section imposes additional disclosure requirements with respect to arbitration actions, legal proceedings, and bankruptcy petitions.

The Client Relationship Summary (CRS) – Form ADV Part 3

The Client Relationship Summary (also known as “Form CRS”) is only applicable to SEC-registration applicants that serve retail investors (with the odd exception of advisers seeking state registration in Rhode Island) and is also a wholly-narrative document to be uploaded to the IARD system in a text-searchable PDF format. The Relationship Summary does not contemplate any differences applicable to SEC versus state applicants, and was implemented as part of Regulation Best Interest in 2020.

FORM U4

Form U4 (aka the Uniform Application for Securities Industry Registration or Transfer) is used to establish an individual’s registration with applicable states as an Investment Adviser Representative (IAR) of a registered investment adviser (i.e., the IAR individuals who work for the RIA firm), and applies regardless of whether the IAR works for an SEC- or state-registered investment adviser. Notably, this same form is also used in connection with the registration of registered representatives of broker-dealers, which means that certain sections of Form U4 are inapplicable to those individuals that are registered solely as IARs and not also as registered representatives. However, as between IARs of state-registered advisers and SEC-registered advisers, the Form U4 requires effectively the same questions to be answered.

As further explained in Part 1 of this article, neither the Advisers Act (i.e., Investment Advisers Act of 1940, which applies to SEC-registered advisers) nor the rules promulgated thereunder impose any registration obligations upon individual representatives of advisers, regardless of what activities and functions they perform. The Federal registration regime does not bifurcate or distinguish between investment advisers and their representatives. Thus, all else being equal, the SEC will approve the registration application of an investment adviser without requiring the adviser to file a Form U4 for at least one IAR.

This is not to say that an SEC-registered adviser need not register any of its IARs at the state level (again, see Part 1 of this article), but simply that the Form U4 and IAR registration of an adviser of the firm is not a prerequisite for SEC registration approval.

An adviser’s registration approval in a state, however, is generally contingent upon the filing of a Form U4 for at least one IAR. In other words, even if a state-registration applicant has fully satisfied all application requirements via the Form ADV and the other ancillary documents described in the section below, a state will generally not approve an adviser’s registration unless one IAR is also registered in such state to be the individual adviser for/representing that RIA firm to clients (typically the adviser founder/owner).

THE REGISTRATION APPROVAL EXPERIENCE FOR NEW RIAS

Section 203(c)(2) of the Advisers Act statutorily requires the SEC to either approve or institute proceedings to deny an adviser’s application for registration within 45 days of the initial filing date of the application. Compared to the state registration approval process, the SEC’s process is usually predictable, straightforward, and permissive. To quote Section 203(c)(2) of the Advisers Act:

The Commission shall grant such registration if the Commission finds that the requirements of this section are satisfied and that the applicant is not prohibited from registering as an investment adviser under section 203A. The Commission shall deny such registration if it does not make such a finding or if it finds that if the applicant were so registered, its registration would be subject to suspension or revocation under subsection (e) of this section.

Thus, within 45 days of submitting the Form ADV Part 1 and Brochure (and, if serving retail investors, the Relationship Summary), the SEC will generally approve the application for registration (or “deem the registration effective,” to use the SEC’s parlance) unless there is a fundamental deficiency related to the materials submitted, the adviser is not in fact eligible to register with the SEC, or the applicant would otherwise be subject to censure, activity limitations, suspension, or revocation.

During the registration application process, the SEC staff generally does not critique or wordsmith the ADV Part 1, the Brochure, or, if applicable, the Relationship Summary; the deep dive review is effectively deferred until the adviser’s first SEC audit (which may come as early as a few months after the initial registration date, or as late as several years after the initial registration date) during which examiners review the RIA’s business and compliance practices.

The registration approval process at the state level, however, is another story entirely, and can vary dramatically by state. Some states can take weeks, if not months, to pore over each document submitted and respond in the form of an initial deficiency letter with a litany of additional questions, follow-up requests, and required revisions to the contents of the documents submitted. The ball is then in the applicant’s court to either make the revisions noted and re-submit for review, or to push back and argue against deficiencies believed to be erroneous or unreasonable.

From there, it can sometimes seem like a veritable game of ping pong as the applicant and the state go back and forth until the state is satisfied that the application materials are to its liking. Applicants to states that require fingerprints to be submitted should be prepared to jump through a few additional hoops as well.

During this process, some states are responsive, helpful, and genuinely trying to facilitate new, duly qualified advisers to do business in their state. Others… less so. I’ve personally been involved with state registration applications that have been approved within 24 hours of submission, and others that have dragged on for six months. State turnaround times can ebb and flow based on the volume of applications received, the staff available to review such applications, and other seasonal variations.

Unlike the SEC’s statutory time limit of 45 days to approve or institute proceedings to deny an application, some states are not statutorily time bound and will respond to application submissions and re-submissions when they’re good and ready. I know of at least one state that is statutorily required to respond to applications within a certain timeframe, but essentially requires adviser applicants to sign a waiver to indefinitely extend the time afforded to the state to respond.

To be fair, state governments are rarely well funded, and can be understaffed relative to their investment adviser population. The job of state application review staff is to protect their constituents from financial predators and scam artists, and to serve an important gatekeeping function that should not be undervalued.

Furthermore, the burden imposed on state application review staff is heavier by design, since states will almost always respond to an adviser’s application with a letter that identifies deficiencies to be remedied, follow-up questions to be answered, and additional information to supply (while the SEC staff tasked with registration application reviews typically defers that work to the Division of Examinations that engages at a later date).

The takeaway is that state-registration applicants should expect more variable and longer lead times during the registration application process than SEC-registration applicants, who can typically expect their registration to be deemed effective within 45 days of application submission.

Federal Vs State Post-Registration Differences

Once an adviser’s registration application has been approved, the adviser and its duly licensed personnel are permitted to engage in the client solicitation and advice-rendering activities that were previously off-limits during the pre-registration phase. SEC-registered advisers are thereafter subject to the Advisers Act and the rules promulgated thereunder, and state-registered advisers are thereafter subject to the securities act(s) and rules respectively promulgated thereunder of the state(s) in which it is registered.

The registrations of both SEC- and state-registered advisers expire at the end of each calendar year unless renewed as part of the annual registration renewal process, which generally kicks-off in October or November of each year. As long as the adviser continues to timely renew its registration before the end of each calendar year (and assuming the SEC or a state does not earlier terminate the adviser’s registration due to a failure to remain eligible for registration or as a result of a disciplinary action), the adviser’s registration will remain in effect until voluntarily withdrawn by the adviser.

The regulatory obligations to which an adviser will be subject during this period of registration will vary based on whether the adviser is registered with the SEC or registered with one or more states. Below are a few examples.

RIA FINANCIAL REQUIREMENTS

The SEC doesn’t have a prescriptive statutory requirement that obligates an adviser to maintain a certain minimum net worth, post a surety bond, or submit annual financial statements. Though Section 203(c)(1)(D) of the Advisers Act contemplates the possible adoption of a rule that requires the submission of a balance sheet certified by an independent public accountant and “other financial statements,” the SEC has to-date not adopted such a rule.

SEC-registered advisers are still required to maintain certain financial records for inspection by SEC staff during the course of an examination (such as a cash receipts and disbursements journal; general and auxiliary ledgers reflecting asset, liability, reserve, capital, income, and expense accounts; checkbooks; bank statements; canceled checks and cash reconciliations; bills or statements – paid or unpaid – relating to the business; trial balances; and internal audit working papers), but they generally need not submit any financial statements either in connection with the initial registration application or on a recurring basis thereafter.

There are two exceptions to this general rule as described in Item 18 of the Brochure: an adviser that requires or solicits prepayment of more than $1,200 in fees per client, 6 months or more in advance, is required to include an audited balance sheet prepared in accordance with Generally Accepted Accounting Principles (GAAP) as part of Item 18 of its Brochure. This is why most advisers do not collect more than $1,200 in fees per client, 6 months or more in advance, so as to avoid the requirement to prepare and publicly report their balance sheet.

In addition, an adviser that has discretionary authority or custody of client funds or securities, or that requires or solicits prepayment of more than $1,200 in fees per client, 6 months or more in advance, must disclose any financial condition that is reasonably likely to impair its ability to meet contractual commitments to clients.

Thus, if an adviser with custody, discretionary authority, or that imposes certain client pre-payment obligations is in such dire financial straits that it may not have the ability to fulfill the services it has agreed to deliver to clients in its advisory agreement, it is required to disclose this fact in Item 18 of its Brochure.

State-registered advisers can generally replace “$1,200” in the exceptions above with “$500”, as the balance sheet and financial disclosure obligation dollar threshold is lower for state-registered advisers (with at least the exception of Nebraska, which follows the $1,200 threshold instead).

Additionally, state-registered advisers are often subject to some combination of requirements that impose an ongoing minimum net worth, surety bond, and/or financial reporting requirement. Specifics will vary from state to state as expected, but most states impose more stringent requirements if the adviser has discretion and/or custody of client funds or securities.

NASAA Model Rule 202(d)-1, for example, generally pegs the minimum net worth threshold at $35,000 for advisers with custody, $10,000 for advisers with discretion over client funds or securities, and $0 (i.e., not negative) for advisers that accept prepayment of more than $500 per client, 6 or more months in advance. These tiers are commonly found in actual state securities rules (as many, albeit not all, states have implemented the aforementioned Model Rule).

Practically speaking, this means that most state-registered advisers – especially those with discretion and/or custody of client funds or securities – must be prepared to demonstrate compliance with such requirements both at the time of initial application and for so long as they are state-registered. Falling below a state’s minimum net worth threshold will likely trigger an immediate reporting obligation to the state securities authority, and failure to do so will likely have consequences if discovered during the course of an examination.

It is for these reasons that all advisers – but especially those that are state-registered – stay on top of the financial health of their businesses and ensure that their balance sheets remain current. It should also be noted that, at least for state-registered advisers, financial statements must typically be prepared in accordance with GAAP. This means that financial statements must be maintained on an accrual basis and not on a cash basis, and that advisory fees paid in advance should not be recorded as fully earned income at the beginning of the billing period (it should instead initially be recorded as unearned income, and then transferred to earned income at the end of the billing period).

Bottom line: check with your tax professional or CPA with respect to the maintenance and presentation of your financial records, especially if required to maintain/present such records in accordance with GAAP.

RIA FEE ITEMIZATION AND SURPRISE CUSTODY AUDITS

Both SEC and state-registered advisers with custody over client funds or securities are generally required to undergo an independent verification of client assets on an annual basis as performed on a surprise basis by an independent certified public accountant (colloquially referred to as the “annual surprise exam”). However, if an adviser is deemed to have custody of client funds or securities solely as a consequence of its authority to make withdrawals from client accounts to pay its advisory fee (i.e., fee deduction authority), it can avoid the annual surprise exam.

For SEC-registered advisers, the analysis effectively stops there, as there are no conditions imposed on the annual surprise exam carve-out if custody is only triggered by fee deduction authority (so long as the adviser is otherwise in compliance with the custody rule).

However, for state-registered advisers, the ability to avoid the annual surprise exam is usually conditioned on the adviser jumping through three additional hoops as described in NASAA Model Rule 102(e)(1)-1:

The adviser must have written authorization from the client to deduct advisory fees from the account held with the qualified custodian;
Each time a fee is directly deducted from a client account, the adviser concurrently:
1. Sends the qualified custodian an invoice or statement of the fee to be deducted from the client’s account; and
2. Sends the client an invoice or statement itemizing the fee. Itemization includes the formula used to calculate the fee, the amount of assets under management the fee is based on, and the time period covered by the fee.
The adviser discloses its compliance with these conditions in its Brochure.

The first and the third condition described above are fairly non-controversial, but the fee itemization condition can sometimes be tricky to accomplish without third-party advisory fee billing software.

There is no equivalent fee itemization requirement in the SEC’s custody rule, which means that SEC-registered advisers are not subject to the additional conditions described above.

RIA MARKETING ACTIVITIES (INCLUDING TESTIMONIALS)

Yours truly has already written – at excruciating length – about the SEC’s (new) Marketing Rule and the fact that it now permits the use of client testimonials in SEC-registered adviser advertisements.

The states, on the other hand, fall into one of three categories:

Those that still explicitly prohibit client testimonials in advertisements;
Those that defer to the SEC’s Marketing Rule (and therefore permit client testimonials in advertisements); and
Those that have rules that do not specifically prohibit testimonials and do not specifically defer to the SEC’s Marketing Rule.

The first two categories of states are the most common, as they track the two alternative provisions contained in NASAA Model Rule 102(a)(4)-1 (which enumerates unethical business practices of investment advisers and their representatives).

For a state-registered adviser registered in multiple states – some of which prohibit testimonials and some of which do not – this has the practical effect of imposing the lowest common denominator of regulation (i.e., the most restrictive state’s rules) on such an adviser and therefore making the utilization of client testimonials de facto prohibited.

Unless the adviser can segment its advertising on a state-by-state basis (such that advertisements containing client testimonials only appear within states that permit the use of testimonials), or solely operates in state(s) that permit testimonials, the testimonial permissibility in some states is of no use.

RIA ADVISORY AGREEMENTS

Yours truly has also already written at excruciating length about client advisory agreement requirements and best practices (see Part 1 and Part 2 of that recent article series), but a few state nuances are worth summarizing below:

Many states prohibit advisers from accomplishing an assignment or modification of the advisory agreement via negative/passive consent, and instead require clients to affirmatively consent in writing to any assignment or modification of the advisory agreement in advance.
Many states impose various restrictions with respect to dispute resolution clauses and may require that the choice of law be based on the client’s state of residence and the venue be a location most convenient for the client. Some even outright ban mandatory arbitration.
Some states take a rather ‘creative’ position with respect to what constitutes an ‘unreasonable’ fee and may either explicitly or implicitly prohibit certain types of fee arrangements, especially with respect to flat or hourly fees for financial planning. At least two states have even been known to cap the hourly rate an adviser may charge.
Some states (e.g., Washington and Maryland) require the re-submission of advisory agreements if they have been materially amended after the adviser is first registered.
Some states construe any attempt by an adviser to limit its liability as an unethical business practice and ban such contractual attempts outright.

The SEC has also recently started to more heavily scrutinize liability limitation or ‘hedge’ clauses in advisory agreements, as evidenced by a recent settlement involving an investment adviser in January 2022, 2 recent SEC Risk Alerts (the January 2022 Private Fund Risk Alert and the November 2021 Electronic Investment Advice Risk Alert), and the 2019 SEC Interpretation Regarding Standard of Conduct for Investment Advisers.

However, on balance, the SEC is generally more permissible with respect to the content of advisory agreements, and – with the exception of the hedge clause skepticism referenced above – has not been known to prohibit the other above-referenced practices that some states have.

OTHER NOTABLE ISSUES FOR ONGOING RIA COMPLIANCE (STATE VS SEC)

In addition to the more material differences described in the preceding sections, there are a few other miscellaneous SEC versus state nuances that are worth mentioning, at least in brief:

A few states (e.g., Illinois) require advisers with multiple places of business within the state to file a form and pay a fee for each such additional “branch office”. The concept of filing separate forms or paying separate fees for branch offices does not exist at the Federal level (though the SEC did recently publish a risk alert regarding the supervision expectations imposed on “advisers operating from numerous branch offices and with operations geographically dispersed from the adviser’s principal or main office”).

The current SEC thresholds for determining whether a client is a “qualified client” (a key prerequisite for an adviser that charges performance fees) is currently $1.1 million under the management of the adviser or $2.2 million in net worth (excluding the value of the client’s principal residence). The dollar thresholds triggering qualified client status may differ in certain states, as the automatic inflationary adjustments made by the SEC do not automatically apply to the states. In other words, state securities rules may include a different definition of what constitutes a qualified client, and/or still be using ‘prior’ thresholds not in line with more recent SEC adjustments. This poses a potentially awkward scenario in that a particular client may be charged a performance fee while an adviser is state registered, but not if the adviser later transitions to SEC registration.

Rule 204A-1 under the Advisers Act (the Federal act) requires SEC-registered advisers to establish, maintain, and enforce a written code of ethics that contains very specific and technical contents – including requirements related to the reporting and review of personal securities accounts of access persons. Not all state rules technically require a code of ethics or the reporting and review of personal securities accounts.

A few states break from the norm in their interpretations of how certain questions to Form ADV should be answered. I’ve seen this borne out as described in the following sections (which reflect a non-exhaustive list of examples):
- Form ADV Part 1, Item 9(A), which addresses custody of client assets: SEC-registered advisers and most state-registered advisers can answer this question “no” if the sole reason they are deemed to have custody is due to client fee deduction authority. A handful of states require this question to be answered in the affirmative, even if the adviser is deemed to have custody solely due to their client fee deduction authority.
- Form ADV Part 1, Item 6 is intended to cover the other business activities (besides rendering investment advice) of the adviser, and Form ADV Part 1, Item 7 is intended to cover the adviser’s financial industry affiliations and activities (i.e., if a related person of the adviser engages in one of the enumerated activities). I’ve experienced a small number of states that seem to believe Item 7 covers other business activities of the firm as well (not just those of the adviser’s related persons).
- The states can differ dramatically in how broadly they construe the term “soft dollars” as referenced in Form ADV Part 1, Item 8(G), and Form ADV Part 2A, Item 12. Certain states take a very liberal interpretation of what constitutes soft dollars, and construe standard, off-the-shelf services provided by a custodian to all investment advisers to be soft dollars (e.g., a web-based advisor portal, educational webinars and whitepapers, etc.). Others more closely track the SEC’s more literal interpretation as found in the SEC’s 1998 Inspection Report on the Soft Dollar Practices of Broker-Dealers, Investment Advisers and Mutual Funds: “arrangements under which products or services other than execution of securities transactions are obtained by an adviser from or through a broker-dealer in exchange for the direction by the adviser of client brokerage transactions to the broker-dealer”.

While the voluminous pre- and post-registration requirements may seem intimidating at first, the good news is that the paths through state registration and SEC registration are well worn. Tens of thousands of investment advisers have successfully registered and thereafter maintained their registrations. If all of this is simply too much to digest alone, there are a host of compliance consulting firms, law firms, adviser membership organizations, and other vendors that stand ready to chart the path and lead the way through. State-registration applicants also have the opportunity – depending on their state – to directly engage with the person or person(s) responsible for reviewing and approving investment adviser applications to learn directly from the registration gatekeeper. Don’t be afraid to reach out.

With the right team and the right resources (which hopefully includes this article), investment advisers can confidently register, remain compliant, and focus on serving their clients.

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Both parts of this article originally appeared in Michael Kitces’ Nerd’s Eye View on October 19, 2022 and November 2, 2022, respectively.