Published on Aug 12th, 2019 | Posted in Articles

Guide to SEC IA Registration

Becoming a registered investment advisor (RIA) is not merely an industry best-practice. In most cases, it’s a regulatory obligation that stamps more than security and quality assurance onto your services — it means you or your advisory firm stay in operation.

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Under the Dodd-Frank regulatory act of 2010, updates were made on the registration qualifications and certification process for investment advisors. These updates now outline the parameters under which an investment advisor can’t merely rely on state registration and must enroll with the U.S. Securities and Exchange Commision (SEC) itself:

    1. You or your firm hold $100 million or higher in assets under management (AUM).
    2. You or your firm are internet-only advisors, regardless of your AUM.
    3. You or your firm are registered as multi-state and operate in 15 or more states regardless of AUM.
    4. You or your firm have a principal place of business or headquarters in New York City, with AUM at $25 million or higher.
    5. You or your firm are advisors to investment companies themselves regardless of AUM. These companies are qualified as such under the Investment Company Act of 1940.

If you meet any of the above criteria, you may be wondering what the full requirements are to be a registered investment advisor, and how you register with the SEC. This guide walks you through the process.

In this guide, you will find information on:

What Is the Purpose of the SEC Regarding RIAs?

The SEC plays a fundamental role in the shaping, regulation and oversight of investments and the market. This is mission-critical, and in the process of becoming an investment advisor, it is likely you were immersed in both the functional and social relevance of a body where public trust and security are the central tenets.

SEC Laws Apply to Individual Financial Advisors and Larger Firms

Whether you’re an individual financial advisor or part of a larger registered investment advisory firm, the SEC is the highest authority in the financial industry. It sets the standards, laws and ordinances to which you must comply, with these standards and laws ultimately curating how you manage and prioritize the needs of your clients.

Confusion occurs, though, when an individual investment advisor or new firm wonders if it’s compliant for them to register only at the state level. Yet given the governing nature of the SEC combined with the number of assets, employees or clients under management, it may seem inappropriate not to register with the SEC.

When It’s Beneficial to Become SEC Certified

There are a few instances where it may benefit the advisor to become SEC certified even if they fall outside of the Dodd-Frank Act’s SEC RIA requirements explicitly outlined above. Filing an SEC application form may be in your best interest based on the following considerations:

  • The services you wish to provide: If your primary mode of daily business is the asset management and asset advice of your clients, then an SEC — or at the very least a state registration — will be required. If investment advice is merely a tangential part of your daily operations, as is the case with bankers, accountants, attorneys, nonprofits or brokerage dealers, then registration is not expected.
  • The location of your clients: Individuals with five or fewer clients in a single state where they have a rooted business are likely to remain compliant at the state level. Individuals with five or fewer clients in only a handful of states can register in those states. However, individuals or investment advisory firms with more than five clients across states — with or without a flagship business presence in those states — will be more likely to avoid headaches and audits if they register at the federal SEC level.

As a broad rule of thumb, the larger your client pool and the higher your assets under management, the likelier it is you should become an SEC RIA to remain compliant. If you have registered with the SEC, it is not necessary for you to undergo additional state registration — though you will have to submit a notice with proper state agencies that you are now an SEC RIA.

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What Is the Purpose of the Financial Industry Regulatory Authority (FINRA) Regarding SEC RIAs?

What is the purpose of financial regulation

After parceling through state versus SEC filings, many financial and investment advisors face another registration layer — are registered investment advisors also regulated by the Financial Industry Regulatory Authority (FINRA)? Let’s cover how FINRA factors into your registration process.

Shared Set of Principles Between SEC and and FINRA

FINRA and the SEC share a core set of principles. They both protect investors and attempt to maintain stable market variables through regulations and acts. Where they differ are their administrative domains.

For RIA intents and purposes, the SEC manages the industry’s overarching direction, addressing the market and shaping the regulations and practices of key stakeholders in the securities and investment world. FINRA, by comparison, executes those regulations and practices. It is in charge of the licensing, auditing and most disciplinary procedures of investment advisors and representatives. It also publishes and manages SEC registration documents.

FINRA Factors into RIA Registration Requirements

FINRA is a self-regulated agency that works with the government but is not the government itself. It acts as an arm to both enforce rules and keep operations transparent in the financial, investment and brokerage world. In your process of becoming an RIA, FINRA plays a functional more than a statutory role, since you’ll be taking tests and filing paperwork with this organization but applying to another. In total, FINRA factors into RIA registration requirements because:

  • FINRA administers registration tests: FINRA produces the Series 65 Uniform Investment Advisor Law Examination, the major exam you will need to take when becoming an SEC-registered investment advisor. More detail on this exact exam, including test length, cost and purpose, is provided in the sections below.
  • FINRA manages the Investment Adviser Registration Depository (IARD): The IARD is the central account where you will funnel subsequent SEC registration materials. Whether you’re applying at the SEC level or merely registering with states, documents and application paperwork are mostly submitted through the IARD platform. FINRA stands as the mediating body for these registration materials.
  • FINRA pursues ethical and legal actions against incompliant RIAs and registered investment advisory firms: FINRA is most often responsible for the accountability, fines and even litigation against SEC-registered advisors found practicing their roles and responsibilities inappropriately. Cases are filed directly with FINRA, most often for disputes on fiduciary breaches, advisor suitability, advisor negligence or overarching failure to supervise client assets. Case resolutions become public records and are searchable on FINRA’s website.

SEC Registered Investment Advisor Requirements

SEC RIA registration requirements break down into a few crucial prerequisites. Very little prohibits individuals from registering with the SEC. That is, you do not need to have a specific number of years of experience, be employed or sponsored by a registered firm or carry other professional benchmarks to start the application process.

Those wishing to understand their SEC-registered investment advisor requirements should, however, review the following:

1. Fiduciary vs. Suitability

All RIAs registered under the SEC carry fiduciary obligations. This is not to be confused with suitability responsibilities, though, which apply primarily to broker-dealers, and assert that broker-dealers must only provide “suitable” financial advice reasonably justifiable to their clients — not necessarily put the client’s interests unconditionally above their own.

In some instances where industry professionals balance both investment advisor and broker-dealer roles, fiduciary and suitability requirements need to be reviewed under the new tenants of SEC registration to ensure mismanagement and breaches of interest do not occur.

2. Advisor’s or Firm’s Financial Condition

The SEC does not have defined net worths, cash flow or other stringent financial requirements for a firm or individual to meet to gain registration. However, the course of the application will introduce a financial stability assessment in which the SEC reviews the monetary conditions of the advisor or the firm, ensuring its soundness and viability as a qualified, compliant body through a minimum net capital requirement.

3. RIA Registered Documents

Finally, an advisor in the process of registering with the SEC must complete and submit the following forms:

    • Form ADV: Form ADV serves as the base paperwork for RIA registered documentation. It comes in two parts and provides the key overview of the advisor’s work, including AUM, asset mix, client pool, associates, affiliates, professional and educational background, certifications and more. Both Part I and Part II of Form ADV must be submitted during the registration process.
    • U4 and U5 Forms: Once your IARD account is activated, you can file Forms U4 and U5. These documents relay personal and professional information about the investment advisor looking to register, including details on employment history, residential history, outside employment activities, professional designations and more.
    • Disclosure Forms: During your RIA registration, you will need to notify clients about your or your firm’s changing registration. This ensures clients are up-to-date on the nature of your new registration, effects on services, transparency with business practices as well as what kind of obligations you are now under given your SEC RIA standing.
    • Comprehensive Written Compliance Program: Registration may include a Comprehensive Written Compliance Program. This further proves your current business practices comply with SEC mandates — from sales and marketing to trading tactics to administration and internal disciplinary actions.

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How to Register With the SEC to Become a Licensed RIA

With all considerations made and proper RIA registration documents accounted for, you can move on to beginning the formal SEC RIA registration process. The steps to becoming a registered investment advisor are as follows:

1. Assess State Requirements

First and foremost, it is important to consult the exact licensing and certification laws for investment advisors in your state of business. Different states follow different standards. You may be able to skip some of the traditional SEC registration steps if you hold previous certifications.

Some states allow those who already hold financially relevant certifications to bypass initial screening exams. These relevant certifications include:

  • Certified Financial Planner (CFP)
  • Chartered Financial Analyst (CFA)
  • Chartered Investment Counselor (CIC)
  • Chartered Financial Consultant (ChCF)
  • Personal Finance Specialist (PFS)

If you carry one of these, you may be eligible for a streamlined registration process.

Individualized state and SEC-related requirements will affect the nature of the rest of your application. Ensure you know early exactly what you qualify for and what’s expected of you based on your states of practice.

2. Take the Series 65 Uniform Investment Advisor Law Examination

Administered by FINRA, Series 65 is the first tangible step in becoming a registered investment advisor. This initial 140-question exam quantifies your knowledge on the primary domains and principles of a career in investment advising. Namely, it assesses your understanding of fiduciary responsibilities, portfolio management techniques, investment vehicles and strategies and the operating laws or procedures governing the industry, including ethical and unethical behavior.

Unlike other certifications, you do not need to be sponsored by an SEC or FINRA-registered firm to take Series 65. You can sign up for the test as an individual, simply filling out the qualifying Form U-10.

The most pertinent exam information surrounding Series 65 includes:

  • Test Format: 130 multiple-choice questions and 10 “pre-test” questions
  • Test Time: 3 hours
  • Passing Score: 72 percent, or 94 correct answers
  • Test Locations: Based on your local exam center
  • Test Price: $175, though prone to variability

3. Create Your Account With the IARD

Some states do not require you to fill out an IARD profile if your clients and operations exist solely within their borders. However, many still do. It’s in your best interest once again check with appropriate state bodies and note discrepancies or exceptions to an IARD account.

Once you’ve secured a FINRA-monitored IARD profile, you can begin to fill out the series of registration forms outlined above. Most notably, the IARD will facilitate filing:

  • Form ADV Part I: Submit your most recent Form ADV to provide the SEC’s review board an accurate and transparent look into your current professional practices. In a few cases of advisors in the earliest stages of their careers, this may be the first Form ADV drafted. In such scenarios, particular attention should be paid to elements like AUM and your professionally relevant background. There will be opportunities for both fill-in-the-blank answers as well as longer, detailed responses to the Form’s first section.
  • U4 Forms and U5 Forms: The IARD portal will also allow you to submit your U-series forms. These bolster the information from Part I of Form ADV to give the SEC a complete, thorough picture of your professional and personal qualifications.

Note you will use IARD to submit these forms electronically. There is only one additional appended form you will need to provide to the SEC that cannot be delivered online, and that is Form ADV Part II.

4. Submit a Hard Copy of Form ADV Part II

Part II of Form ADV is essentially a copy of your Client Disclosure Forms mentioned above. It plainly states the kinds of services you provide to clients and your fiduciary understanding of those services, as well as gives insights on your or your firm’s code of ethics and a review of your compensation fees. Once again, all this ensures the SEC has a complete understanding of your professional expertise and industry accountability.

5. Receive SEC Results

On average, it takes most prospective registered investment advisors three to four weeks to research, compile, draft and submit their registration package through IARD and mail Part II of Form ADV. Expect a few extra weeks in the beginning if you are taking the Series 65 Exam, as well as a few extra weeks post-submission to respond to regulatory comments and provide requested supporting materials, such as a Comprehensive Written Compliance Program.

After submission, the SEC has 45 days to review and issue a response. If the ruling is in your favor, you can now officially begin marketing yourself as an SEC-registered investment advisor.

RIA Registration and Compliance Services for Your Continued Success

RIA Registration

Anything less than full federal registry compliance leaves you and your firm at risk — and your clients in the dark.

Lend yourself the same protection and diligence you afford clientele through full-protocol compliance and registration-process partnership. Vigilant provides some of the most comprehensive and significant services in the investments management industry, including full RIA registration with the SEC.

Our offices in Boston, Dallas, New York, Philadelphia and Washington, D.C., are ready to assist your financial compliance and registration processes. Call or contact us online today. For domestic inquiries, reach us at 1-888-229-1855. For international queries, please contact us at 011-44-207-183-2028.


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Modified: October 28, 2022