In our previous blog on Registered Investment Advisors (RIAs), “How to Register as an RIA: What is a Registered Investment Advisor?”, we discussed some important basics of RIAs – how does one define an RIA, what is Fiduciary Duty, why do RIAs need to register, what is the difference between state registration and SEC registration, etc. Today, we will return to the topic of state registration vs. SEC registration in order to provide a more thorough examination of the issue.
Assets Under Management
As we mentioned previously, RIAs must register with either the SEC or with state securities authorities. In most cases, whether a firm should be registered as an investment advisor with the SEC or with a state is determined by the amount of regulatory assets the firm has that receive continuous and regular supervision or management. These assets are collectively known as a firm’s “assets under management” or “AUM”.
If a firm has less than $100 million of Regulatory AUM at the time of registration and does not anticipate having $100 million or more of Regulatory AUM within 120 days from the date of registration, the firm must register with the state in which its principal office and place of business are located. Depending upon the business and client base of the firm, additional state registrations may be required as well.
Note: A mid-sized advisor (between $25 million and $100 million of Regulatory AUM) with its principal office and place of business in New York is not subject to examination by the New York Investor Protection Bureau. The firm must register with the SEC instead. Mid-size advisors with their principal office and place of business in any other state are subject to examination by their home state and must register with that state securities division.
In order for a firm to register with the SEC as an investment advisor, the firm must have (or anticipate having) greater than $100 million of Regulatory AUM either at the time of registration or within 120 days from the date of registration. If a firm registers with the SEC but is not able to acquire $100 million of Regulatory AUM within 120 days of registration, the firm must de-register with the SEC and transfer its investment advisor registration to the applicable state securities regulator(s).
If an investment advisor has less than $100 million of Regulatory AUM but is exempt from registration in the state in which its principal office and place of business is located or is not subject to examination as an adviser by the state in which its principal office and place of business is located, the investment advisor firm must register with the SEC (unless the firm is also exempt from SEC registration).
Increases and Decreases of Regulatory AUM
Once an investment advisor firm reaches $110 million or more in Regulatory AUM, the firm is required to register with the SEC. Similarly, if an investment advisor is registered with the SEC, the firm is required to withdraw its registration if it Regulatory AUM drops below $90 million.
Other Registration Options
In addition to Regulatory AUM, there are certain other factors, which, if met, will automatically trigger registration with the SEC, as opposed to a state or states. For instance, if a firm acts or will act as the investment advisor to an investment company registered under the Investment Company Act of 1940, the firm must register with the SEC regardless of Regulatory AUM. In addition, firms that would be required to be registered in 15 or more states will generally register with the SEC regardless of Regulatory AUM. Finally, internet-only advisors may also register with the SEC regardless of Regulatory AUM.