Series 66

Regulation of Investment Advisors and Investment Advisor Representatives - Registration with the SEC or with the State?

The National Securities Markets Improvement Act of 1996 (NSMIA), referenced in the Foundation for Regulatory Issues section, divides registration and oversight responsibilities between state and federal securities regulators.

  • The value of client assets under management is one key indicator of whether you must register with the SEC instead of with your individual state.
     
  • "Assets under management" means securities portfolios for which an investment advisor provides continuous and regular supervisory or management services.
     
  • Under the NSMIA, the SEC generally registers investment advisor firms with over $25 million in assets under management, while the states register investment advisor firms with under $25 million in assets under management.
     
  • If assets under management equal $30 million or more, an IA must register with the SEC.
     
  • Those with client assets under management between $25 and $30 million may register with the SEC or their individual state.
     
  • Those with a lesser amount of client funds must register with their state instead.

There are certain situations that require IAs with less than $25 million to register with the SEC instead of their state:

  • IAs whose only clients are other registered investment companies
  • IAs whose state does not regulate investment advisors
  • Pension consultants who provide advice to employer retirement plans with assets of at least $50 million
  • Newly formed IAs who reasonably believe they will become eligible for federal registration within 120 days

In addition, there are several categories of investment advisors who are required to register with the SEC instead of the individual State:

  • Nationally Recognized Statistical Rating Organizations (NRSROs)
  • Consultants who advise pension plans with assets over $50 million
  • Any advisor that believes it may be required to register with the SEC within 120 days of initial state registration
  • Investment advisors counseling registered investment companies

Please note that all IAs, even those not required to register, are subject to the anti-fraud provisions of both the USA and the Investment Advisers Act of 1940.




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