Adviser Registration

Federal regulatory framework established by the Bank Secrecy Act (1970) and USA PATRIOT Act (2001) requiring financial institutions to detect and prevent money laundering. Requires Suspicious Activity Reports (SARs) for transactions $5,000+ with suspect identified or $25,000+ without suspect, Customer Identification Program (CIP) verification at account opening, and comprehensive AML compliance programs. FinCEN 2024 rule extends SAR filing requirements to SEC-registered investment advisers effective January 1, 2028.

Example: An investment adviser notices a client making multiple wire transfers of $4,800 each to offshore acc...

The requirement that investment advisers deliver Form ADV Part 2A (the "brochure") to clients at least 48 hours before entering an advisory contract or at contract signing with a 5-day penalty-free cancellation right. SEC Rule 204-3 under the Investment Advisers Act of 1940.

Example: An adviser meeting with a prospective client on Friday must deliver the brochure by Wednesday to avo...

Rule 206(4)-2 under the Investment Advisers Act of 1940 and corresponding state regulations governing investment advisers who have custody or possession of client funds or securities. Custody includes direct possession, any authority to withdraw funds/securities, or acting as trustee or with power of attorney. Advisers with custody must use qualified custodians, provide account statements at least quarterly, and undergo annual surprise examinations by an independent public accountant.

Example: An investment adviser that has authority to automatically deduct advisory fees directly from client ...

State registration exemption for out-of-state investment advisers who have no place of business in the state and 5 or fewer retail clients in that state during the preceding 12 months. Institutional clients are unlimited and do not count toward the 5-client threshold. Does NOT apply to broker-dealers or agents.

Example: An investment adviser based in California with no office in Nevada can advise 4 individual clients a...

An account where the investment adviser or IAR has written authorization to make trading decisions without obtaining prior client approval for each transaction, including selecting the security, number of shares or units, and whether to buy or sell. Investment advisers may accept oral discretionary authorization but must obtain written authorization within 10 business days of the first discretionary trade. Broker-dealers must obtain written authorization before exercising any discretion. Time and price discretion (deciding when to execute within a day) is not considered discretion.

Example: An adviser with written discretionary authority can decide to sell 500 shares of Apple and buy 300 s...

The uniform registration form used by investment advisers to register with the SEC or state regulators. Part 1 contains business information filed with regulators; Part 2A is the narrative disclosure brochure delivered to clients; Part 2B contains brochure supplements for individual advisory personnel. Part 1 must be filed with regulators within 90 days of fiscal year end; Part 2A must be delivered to clients within 120 days of fiscal year end. Material changes must be filed promptly when information changes.

Example: An investment adviser with a December 31 fiscal year end must file its annual Form ADV update by Mar...

Any person or firm that, for compensation, engages in the business of advising others about securities (the three-prong test: Advice, Business, Compensation). Must register with SEC if AUM ≥$110M; may choose SEC or state if $100M-$110M AUM; must register with state if <$100M. Owes clients fiduciary duties of care and loyalty.

Example: A financial planner charging fees for portfolio recommendations is an investment adviser....

An individual who provides investment advice or manages client accounts on behalf of a registered investment adviser (RIA). IARs must pass the Series 65 exam (or Series 66 with Series 7) and register with state securities regulators, never with the SEC. IARs owe fiduciary duty to clients.

Example: A portfolio manager at an RIA firm who meets with clients to discuss investment strategies and make ...

Simplified state filing procedure under NSMIA for federal covered securities (primarily mutual funds, closed-end funds, and UITs) and federal covered advisers. Requires filing copies of SEC registration documents, consent to service of process, and payment of fees, but is not full registration. States retain anti-fraud authority but cannot impose merit review or deny effectiveness. Federal covered advisers must notice file in states where they have retail clients.

Example: Vanguard Total Stock Market Index Fund is a mutual fund registered with the SEC under the Investment...

A third party (now termed "promoter" under the SEC's 2020 Marketing Rule) who provides testimonials or endorsements for an investment adviser in exchange for compensation. The Marketing Rule, effective November 2022, requires a written agreement between the adviser and promoter, plus clear disclosure of the compensation arrangement within the testimonial or endorsement itself. The promoter cannot be subject to SEC or state disciplinary disqualifications.

Example: A certified financial planner refers clients to an RIA in exchange for 20% of the first year's advis...

A bundled fee arrangement where investment advisory, brokerage, and custodial services are provided for a single all-inclusive fee, typically based on a percentage of assets under management. Investment advisers offering wrap fee programs must provide clients with Form ADV Part 2A Appendix 1, a specialized brochure supplement describing the program, fees, services, and conflicts of interest. The "wrap" fee covers transactions, advisory services, and often custody, eliminating separate commissions.

Example: An adviser offers a wrap fee program charging 1.50% annually on a $500,000 account ($7,500 per year)...