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.

Additional Information


Related Articles
  1. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  2. Term

    What's an Investment Advisor?

    An investment or financial advisor makes investment recommendations and analyzes securities.
  3. Trading Strategies

    Is Your Broker Legit? 6 Steps to Take

    The Great Recession may have ended, but broker wrongdoing hasn't. Here's how to make sure you don't get stuck with the next Bernie Madoff.
  4. Financial Advisors

    Is Your Financial Advisor Looking Out for You?

    Financial advisors sometimes aren't looking out for clients' best interests. Regulators are scrutinizing their practices; investors should too.
  5. Financial Advisors

    What Triggers an SEC Audit for Financial Advisors?

    Advisors looking to avoid an SEC audit should pay heed to this list of what may catch the regulator's attention.
  6. Professionals

    How To Get A Job At The SEC

    Want to make a good living taking on those renegade trading rascals on Wall Street? Here are some tips to help you get in the door at the SEC.
  7. Options & Futures

    Series 63, Series 65 Or Series 66?

    When joining the world of investment professionals, you must take the right exams.
  8. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  9. Financial Advisors

    Essential Questions for a Financial Advisor

    If you're a prospective financial advisor client (or an adviser), here are some questions you should ask ... and be prepared to answer.
  10. Professionals

    Ethical Standards You Should Expect From Financial Advisors

    Professional ethics in the financial services profession can be confusing. Here are some ways to ensure you are getting the best out of your advisor.
RELATED TERMS
  1. Registered Investment Advisor - ...

    An advisor or firm engaged in the investment advisory business ...
  2. Investment Advisor

    As defined by the Investment Advisors Act of 1940, any person ...
  3. SEC Form 1

    An application for and amendments to an application for registration ...
  4. SEC Form S-6

    A filing with the Securities and Exchange Commission (SEC), which ...
  5. Effective Date

    The date, declared by the Securities & Exchange Commission ...
  6. SEC Form SB-1

    A filing with the Securities and Exchange Commission (SEC) that ...
RELATED FAQS
  1. Are hedge funds registered with the Securities and Exchange Commission (SEC)?

    Learn the conditions that require hedge fund advisors to register with the U.S. Securities and Exchange Commission. Read Answer >>
  2. The de Minimis clause for investment advisers means:

    A. An investment adviser must register with the state if it holds less than $25 million in assets.B. An investment adviser ... Read Answer >>
  3. How do I know if I am buying unregistered securities or stocks?

    All securities, including stocks, bonds and notes, must be registered with the Securities and Exchange Commission (SEC) before ... Read Answer >>
  4. Investment advisors must register with the SEC when their assets under management ...

    A. More than $20 millionB. More than $25 millionC. $25 million to $30 millionD. More than $30 million Correct Answer: DFirms ... Read Answer >>
  5. What is an unregistered security scam?

    Each year, millions of Americans lose money to con artists who convince them to invest in companies through "private offerings" ... Read Answer >>
  6. How are asset management firms regulated?

    Find out how the asset management industry is regulated and how those regulations fit within the broader scope of financial ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center