Regulations and Requirements - Registration and Licensing (Contd.)

Federal Registration Process
To register as an IA with the SEC, you are required to file Form ADV Part I and Part II.

  • Part I discloses basic information to regulators, such as contact and background information on the advisor and employees, number of accounts, compensation arrangements, etc.
  • Part II serves as a disclosure document to clients and potential clients. It can be used to satisfy the "Brochure Rule" discussed in Chapter 4 ("Client Communication").
  • The IA must amend Form ADV any time the information within it has changed.
  • The form must be resubmitted within 90 days of the end of each fiscal year.
  • If an advisor is no longer eligible for federal registration, it must withdraw its registration by filing a Form ADV-W Notice of Withdrawal from Registration within 180 days after the end of the fiscal year.
  • An IA also must file a Form ADV-W if it ceases to conduct business as an investment advisor.

The Investment Advisor Registration Depository (IARD)
All federal covered advisors are now required to register with the SECand file notice with the states via the Investment Advisor Registration Depository (IARD). The IARD is an electronic filing system for IAs, sponsored by the SECand the North American Securities Administrators Association (NASAA). This system collects and maintains data for both federal and state registered IAs.

Investment Advisors Representatives (IARs)
Employees of an IA who provide investment recommendations or advice, manage clients/portfolios, solicit or offer IA services, or supervise employees performing the aforementioned tasks.

Broker-Dealer Regulation
  1. Registration
    To sell securities, you must be associated with abroker-dealer. In addition to NASD registration under the Securities Exchange Act, both the broker-dealer firm and its employees (also referred to as agents or registered representatives) must be registered with each state where they transact business under the Uniform Securities Act. This Act is basically a model for state securities rules, often referred to as Blue Sky Laws. It was created in the 1950s so that broker-dealers and investment advisors could operate in multiple states and not have to fulfill different requirements in each state.
  2. The Registration Process
    The registration process is essentially the same for broker-dealers, agents, investment advisors, and investment advisor representatives. However, instead of the IARD system, broker-dealers and agents use the Central Registration Depository (CRD) system. While IA's use the IARD, their investment advisor representatives also use the CRD.

    To register, the applicant must file an application along with the consent to service of process and a filing fee. In addition, there may be a minimum net capital requirement and/or a bond to cover potential legal costs.

Reporting
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