Investment Advisers: SEC vs. State Registration

Due to the Dodd-Frank legislation, as of mid-2012, there are rules for registration eligibility that are primarily determined by a firm’s assets under management (“AUM”). For all firms below $100 million AUM, registration is required with the appropriate state jurisdictions.  For firms above $100 million AUM, registration will be at the SEC level, unless a registration exemption exists. In order to account for fluctuations in AUM, the SEC has imposed, by rule, a buffer for Investment Advisers with AUM between $90 million and $110 million. An adviser may register with the SEC once it reaches AUM of $100 million. An adviser must register with the SEC if it’s AUM is $110 million or more at the time they file their annual ADV amendment. Once registered with the SEC, a mid-size adviser can remain registered with the SEC as long as its AUM is at least $90 million at the time they file their ADV amendment. 

 

There are some exemptions to the prohibition of small and mid-sized firms registering with the SEC.  For example, investment advisers in New York must register with the SEC if their AUM numbers exceed $25 million. Additional exemptions, to name a few, include internet advisers; related advisers that control, is controlled by, or is under common control with another SEC-registered investment adviser when their principal office and place of business is the same; and newly formed advisers expecting to be eligible for SEC registration within 120 days. Investment advisers may register with the SEC if they are required to register in 15 or more states.

There are other factors to consider, to determine whether a firm should be registered with the state or the SEC. Investment advisers will remain under SEC oversight, regardless of AUM, if the firm is exempt from reporting. Examples include: Foreign Private Advisers, Exempt Reporting Advisers, Venture Capital Funds, Qualifying Private Funds.  Even if a firm is exempt from registering with the SEC, there may still be filing requirements.

The SEC has taken enforcement actions against firms that miss-reported their numbers, and therefore were registered with the SEC when they should have been registered with the state. Making sure your firm is registered at the proper jurisdiction is a crucial regulatory requirement for all RIA firms.

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