A Basic Guide To RIA State Registration Guidelines for Investment Advisors

As an investment advisor you are most likely required* to register with the state(s) in which your main office is located or with the Securities and Exchange Commission (SEC). If an advisor has over $100 million in aum they are required to register with the SEC and if they have under $100 million they are required to register with the state where their principle office is located and state(s) where they over a certain amount of clients.

This piece is focused on the smaller investment advisors that have under $100 million in aum and the state registration rules that that may apply. Federal registration rules have a focus on aum while state registration rules tend to focus on the amount of clients an investment advisor has in each state.  Therefore, state registration requirements will focus on each state’s de minimis rule and who counts as a client in that state. Investment advisors will most likely have to register in states where they have an office and more than 5 clients. There are some instances where certain states have a higher or lower number of clients required for registration.

The majority of states require investment advisors to register in the state where the advisor has its main office and/or a place of business in that state to register.  This registration requirement supersedes each states de minimis rule. NY, NJ, GA and IL are states that choose to keep the di minimis rules in place and therefore do not require state registration with a place of business. In PA, as long as an investment advisor does not hold themselves out to the public as an investment advisor they are not required to register unless they have more than 5 clients. LA has a 15 client de minimis rule as long as the advisor is not holding him/her out as an investment advisor in LA.  As you can see, each state has different rules that apply to investment advisor registration requirements for in state advisors.

RIA National De Minimis Standard

As for investment advisors that do not have a place of business in that state and do not hold themselves out as investment advisors the rule of thumb for registration requirements is 5 clients**.  This rule of thumb received its origins from “The National Securities Markets Improvement Act of 1996” (NSMIA). Within the NSMIA is the creation of a national de minimis standard which set limits on when states have the ability to regulate investment advisors that do not have a place of business in a state. Some states have chosen to raise the amount of clients required for registration.  FL for example does not require registration until the advisor has north of 15 in-state clients.  An important note is that even though you are not required to register you may be responsible for filing and filing fees. TX for example requires advisors too file and pay state filing fees in TX if the investment advisor has a client in the state. TX requires the firm to file Form ADV’s, U4’s and pay filing fees.

As you can see, rules may vary from state to state and it is important that your Chief Compliance Officer (CCO) and/or compliance firm are on top of your firms activities and the rules for each and every state in which you conduct business.  This information may change at any time for any reason and as with all information, it is out of date as soon as it is published. If you are considering becoming an RIA and would like assistance with state registration, contact Aurora Compliance Solutions online or by phone @ (860) 856-8862.  Written by Edward E. Romanowsky, Sr, President and CEO of AuroraCompliance.Solutions

 

*Not required if you only manage private funds; have a very limited number of clients and/or a very limited amount of aum.

**Always verify registration requirements with each state in which you have clients or wish to conduct business