Registrations of Persons - Investment Adviser: Initial Registration and Requirements

Initial registration for an investment adviser is similar to a broker-dealer. If a person or an entity falls under the definition of an investment adviser he/she/it MUST register with the Administrator.

SEC versus the state:

  • If an investment adviser manages less than $25 million, his or her registration is under the USA, at the state level.

  • Those managing more than $30 million are required to register with the SEC. If an investment adviser registers with the SEC, he or she must give notice to the state adviser and pay filing fees.

  • An investment adviser with assets of $25 million to $30 million may register with the SEC or with the state - the choice is left up to the firm. In addition, there are several categories of investment advisers who are required to register with the SEC instead of states. They include:
    • Nationally Recognized Statistical Rating Organizations (NRSROs)
    • Consultants who advise pension plans with assets over $50 million
    • Any adviser that believes it may be required to register with the SEC within 120 days of initial state registration
    • Investment advisers managing the portfolios of registered investment companies such as mutual funds

Investment Adviser: Financial Requirements
At any time, the Administrator holds the power to demand that investment advisers meet certain minimum financial requirements. Since the Series 63 exam is based on NASAA amendments as well as the 1956 USA, it is helpful to look at the Model Rule for IAs:

NASAA Minimum Financial Requirements for Investment Advisers
Model Rule 202(d)-1
Adopted April 3, 2000, Amended April 18, 2004

Rule 202(d)-1. Minimum Financial Requirements for Investment Advisers

  1. An investment adviser registered or required to be registered under the act who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000 except:

    1. Advisers having custody solely due to direct fee deduction and complying with the terms described under Rule 102(e)(1)-1(a)6 and related books and records, as described in Rule 203(a)(2), shall not be required to comply with the net worth or bonding requirements of this rule.

  2. Advisers having custody solely due to advising pooled investment vehicles and complying with the terms described under Rule 102(e)(1)-1(a)7 or Rule 102(e)(1)-1(b)(3) and related books and records, as described in Rule 203(a)(2), shall not be required to comply with the net worth or bonding requirements of this rule.

Essentially, Administrators have the ability to require investment advisers to carry bonds or insurance if the aforementioned persons/entities have discretionary authorization or hold client funds. In short, if the Administrator feels that a situation is risky to the client, he/she may require bonds to protect clients against potentially excessive losses. If you need to recognize a dollar figure on the exam, go with the $35,000.

Investment Adviser: Update
If at any time a broker-dealer has any material change in vital information (i.e. address), it is to notify the Administrator immediately.

Investment Adviser: Renewal
Investment advisers must pay annual dues, and are additionally subject to periodic examination by the Administrator. In addition, investment advisers must file annual financial statements.


Exam Tips and Tricks
Series 63 Exam Flash Card - Investment Adviser

Is a person that:
  1. Offers advice regarding specific security-related information,
  2. Receives compensation for securities-related advice, or
  3. Is considered to be in the business of securities-related advice,

The entity IS an investment Adviser and must be registered as such, unless exempt.
Exclusions:

  1. Investment adviser representative (IAR). These are the individuals who work for an investment adviser (IA).
  2. Individuals whose advice is incidental to their professional businesses. Think TEAL: teachers, engineers, accountants and lawyers
  3. Bona fide publications not issuing client-specific advice
  4. Broker-dealers providing advice as part of their normal business that DO NOT receive compensation for such. Note that often the exam will use the word, "remuneration," rather than compensation.
  5. Banks, savings institutions, or trusts. Notice, once again, how banks and bank-related entities are excluded.

Investment Adviser Representative (IAR): Definition
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