A registered investment advisor (“RIA”) is a person or firm that, for compensation, provides advice, makes recommendations, issues reports or furnishes analyses on securities, either directly or through publications.  Typically, an RIA manages the assets of high net worth individuals and institutional investors.  RIAs have the highest standard of care as they are deemed fiduciaries.  As a fiduciary, RIAs owe their clients a duty of undivided loyalty and utmost good faith.  If you’re interested in becoming an RIA, you must first have the proper qualifications and registrations.

Qualifications

Before you can register as an RIA, you must first pass the Series 65 exam (Uniform Investment Advisor Law) or the Series 66 exam (Uniform Combined State Law Examination) which are administered by the Financial Industry Regulatory Authority (“FINRA”).  Currently, the Series 65 exam is a three hour exam comprised of 130 multiple choice questions including 10 pretest questions.  In order to pass the Series 65 exam, you must answer 72% of the questions correctly.  Unlike the majority of FINRA administered exams, it does not require sponsorship from a member firm. Often times, the exam requirement will be waived if you have an advanced professional certification such as being a Chartered Financial Analyst, or CFA.

The Series 66 exam is a two hour and thirty minutes exam comprised of 100 multiple choice questions and 10 pretest questions.   To get a passing score, you must answer 73% of the questions correctly.  If you decide to take the Series 66, you must also pass the Series 7 before registering with any state.   The Series 7 is not a prerequisite to the Series 66 but simply a co-requisite.

Registrations

In order to provide investment advice or asset management services, you must register with the Securities Exchange Commission (“SEC”) or the state in which you will do business and have clients.  Generally, you must register with the SEC in the following circumstances:

  • You manage $100 million or more in assets;
  • You serve as an investment advisor to a registered investment company; or
  • Your principal office of place of business is in a state without an investment advisor salute or that does not conduct examinations of advisors

Generally, you will register with the state if you manage less than $100 million.  However, New York is unique as it is the only state that does not require registration for small Advisers (less than $25 million in regulatory assets under management).  Mid-sized Advisors (those with more than $25 million but less than $100 million in regulatory assets under management) with their principal place of business in New York are required to register with the SEC.

To register, you must create an account with the Investment Adviser Registration Depository (“IARD”).   Once you open an IARD account, the FINRA will provide you with a CRD number and account ID information.  The CRD number and account ID information will allow you to access the official application, Form ADV.  Form ADV must be submitted online through the IARD system.  It is important to look into your state’s specific requirements as they may have additional conditions to registration.

Form ADV is made up of several parts.  Part 1 is submitted to the SEC or state government for approval.  Part 2 serves as a disclosure document that must be distributed to clients.  Once Part 1 is submitted, the SEC has 45 days to respond.  In some cases, states may respond sooner than 45 days.  Generally, upon review, the SEC or state regulatory coordinator will come back with several questions which may delay the application process.  However, once the Q&A stage is completed and you receive approval, you will be able to engage in business as an RIA.