To Register or Not to Register – To Notice File or Not – What does it all mean for Investment Advisers?

For investment advisers, there are a number of terms that are used to describe a firm’s or an individual’s ability to conduct business. Let’s try to define them so they make some sense.

What does it mean to be registered? Registration of a firm or an individual typically means that some level of qualifications have been met. Qualifications can come in the form of an exam, submission of documents and/or the payment of a fee. An entity (corporation, LLC, limited partnership or sole proprietorship) must typically be registered in order to conduct investment advisory business.

To be SEC registered means that the firm has determined that it has met certain criteria:

• either a certain amount of assets under management ($100 million* in most instances), or
• is required to be registered to conduct business in 15 or more states,
• or is affiliated with another SEC registered firm,
• or is the adviser to a mutual fund, to name a few.

In addition to being registered with the SEC, the firm then must consider what states it will be doing business in. Notice Filing is the term used for filing in states when the firm is SEC registered. The firm will be required to Notice File in, at a minimum, its home state. If the firm has an office or business location in any other state, Notice Filing is also required. Many states (exception TX, LA, NE, NH) allow for firms to rely on a de minimis exemption from Notice Filing if they have five clients or less. The four states mentioned do not have a de minimus exemption for SEC registered firms. Therefore, Notice Filing is required at the time you obtain a client.

State registration is required if the firm does not qualify to be SEC registered. For the investment advisory firm, most of the same requirements apply as noted for SEC firms. The firm must be registered in its Home State and any other state in which it has a place of business. There are only two states that do not have a de minimus exemption if you are state registered – Texas and Louisiana. While the State of Texas doesn’t have a de minimis exemption, it does allow firms with five or less clients to file what they refer to as a limited registration. That means that fees are paid to the state but they do not require that a full set of registration documents be submitted. Texas also refers to this as a Notice Filing, which is not to be confused with the Notice Filing discussed above for SEC registered firms. The firm must complete a full registration once it is determined that they will have more than 5 clients in Texas.

Now let’s discuss investment adviser representative (“IAR”) registration. It goes without saying, but I will say it anyway; An individual cannot be registered without being affiliated with a firm. In other words, the firm/entity is always considered first. Also, there is often confusion about whether there is a de minimis exemption per IAR. Answer – NO: The de minimis exemption applies to the total number of clients of the firm.

Registering an individual in almost all states is accomplished by filing a Form U4 and paying a fee. Many states require an IAR to have either the Series 65, or 7 and 66, or a professional designation such as CFA, ChFC, CFP, CIC or PFS. There are a few states that require fingerprints and/or other specific paperwork. SEC registered firms also are not required to register an IAR in almost all states (exception Texas and Louisiana) if the firm is Notice filed and the IAR does not have a place of business in the state.

Finally there is one state that oddly enough requires the individual to have a Series 65, or 7 and 66, or professional designation but does not “register” investment adviser representatives. The State of New York requires individuals doing business with state registered investment advisers to have certain credentials (referenced above) and file a Form NY-IAQ. Once the NY-IAQ is filed the advisory representative is technically able to conduct business in New York. Nevertheless, they are not referred to as being registered. SEC firms that are domiciled in New York, or have business locations in New York, are not required to file anything with respect to the individuals doing business in the state, and there are no exam or professional designation requirements.

*New York requires firms with assets under management of $25 million or more to register with and be regulated by the SEC. Wyoming does not have firm or IAR registration requirements for investment advisers.