CFP

Regulations and Requirements - State Securities and Insurance Laws

Blue Sky laws
Laws passed by individual states to protect investors against securities fraud. Requires sellers of new stock issues or mutual funds to register their offerings and provide financial detail.

State Authority over Federal Covered Securities
A State Administrator cannot require the registration of federal covered securities in the state. Federal covered securities include any of the securities listed below:
  • Exchange Listed Securities -This refers to any security listed on the New York Stock Exchange, American Stock Exchange or Nasdaq, as well as senior securities (such as preferred stocks and bonds of a company whose stock is so listed).
  • Investment Company Shares -This refers to mutual fund shares issued by a registered investment company and sold to qualified purchasers (an individual with at least $5,000,000 in investments or investment managers with at least $25,000,000 in assets under management).

Initial Public Offering - A state Administrator cannot require registration of IPOs, but they can require a notice filing in the state and a payment of a filing fee.

State Registered Investment Advisors
Some IAs must register with the state rather than with the SEC. If you register through your state, you are regulated by the Uniform Securities Act instead of the Investment Advisers Act of 1940. Under the Uniform Securities Act, you must register as an investment advisor if you provide any of the following services for compensation:
  • Engaging in the business of advising others, either directly or indirectly (such as via a newsletter), as to the value of securities or the advisability of investing in securities; OR
  • Issuing analyses or reports on a regular basis as part of a business; OR
  • Providing investment advisory services to others in a financial planning practice.

An IA must register in every state where he or she does business with clients, whether or not he/she actually maintains a place of business in the state. The only exemption is for advisors with no place of business in a state who:
  • Only deal with institutional investors; OR
  • Have five or less clients in that state.

If an existing client is temporarily visiting another state, the IA is not subject to registration requirements in the second state.

Insurance regulation
Regulation of insurance companies, brokers and agents is handled by individual states. Many states adopt regulations and laws developed by the National Association of Insurance Commissioners (NAIC).
  1. Licensing - Insurance agents who sell insurance products generally must obtain a license from their home state. Includes financial planners who sell insurance products.
  2. Licensing of financial planners - In some states, financial planners who make generic recommendations about insurance coverage for a client may be subject to state registration or licensing.




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