Quick Answer
Once registered, an investment adviser (IA) can face state-set minimum financial requirements and, if it has custody or discretionary authority, a surety bond. Registered IAs must also keep records the Administrator prescribes, respond to examinations, disclose required information to clients, and promptly correct any materially inaccurate filing.
Registration is not the end of an IA's obligations to the state. The Uniform Securities Act gives the Administrator ongoing authority over an IA's finances, records, and disclosures for as long as the registration stays active.
What Financial Requirements Can the Administrator Impose?
The Administrator may, by rule or order, establish minimum financial requirements for investment advisers. This authority is capped by the corresponding federal limitation on state regulation of a federal covered adviser's finances.
- Requirements may differ based on whether the IA has custody of client funds or securities, or discretionary authority over client accounts
- IAs with custody or discretion may face higher financial requirements than IAs without either
Exam Tip: Gotchas
Minimum financial requirements are not one-size-fits-all. Custody and discretionary authority are each independent triggers for a stricter standard; an IA can have one, both, or neither.
When Can the Administrator Require a Surety Bond?
The Administrator may require an IA who has custody of or discretionary authority over client funds or securities to post a surety bond.
| Rule | Detail |
|---|---|
| Who can be required to bond | IAs with custody or discretionary authority over client funds or securities |
| Bond alternative | An appropriate deposit of cash or securities must be accepted in lieu of a bond |
| Bond exemption | No bond may be required if the IA's minimum financial requirements already exceed the amount the Administrator sets |
| Required claim coverage | Every bond must allow suit by any person with a cause of action arising under the Uniform Securities Act |
| Optional claim coverage | The Administrator may also require the bond to cover suits by a person with a cause of action not arising under the Act |
| Suit deadline | No suit on the bond may be brought after the Act's own civil-liability time limit has run |
Exam Tip: Gotchas
An IA whose net worth or minimum financial requirement already exceeds the Administrator's bonding threshold cannot be forced to post a bond on top of it. The bond is a substitute safeguard, not a stacked one.
What Books and Records Must a Registered IA Keep?
Every registered IA must make and keep the accounts, correspondence, memoranda, papers, books, and other records the Administrator prescribes by rule or order, for the period the Administrator sets.
The detailed recordkeeping standard (what records, how long, in what format) is a NASAA model rule covered later in this course; this unit's takeaway is that the Administrator's underlying statutory authority to demand IA records comes from the same post-registration framework covered below.
The Administrator's rule-making authority over IAs also extends beyond recordkeeping to custody requirements, advisory-contract contents, unethical business practices, and client privacy and information security. Each of those is a separate NASAA model rule taught in depth in a later unit; this unit's job is only to establish that the Administrator's post-registration authority reaches all of them.
What Client Disclosure Can the Administrator Require?
The Administrator may require an IA to furnish or disseminate information to clients or prospective clients as necessary or appropriate in the public interest or for the protection of investors and advisory clients.
Compliance with the federal brochure rule (delivering Form ADV Part 2A and Part 2B) may satisfy this state disclosure requirement in whole or in part, so a state-registered IA that already complies with the brochure rule is not necessarily filing a separate disclosure document.
What Happens When a Filing Becomes Inaccurate?
If information in any document filed with the Administrator becomes inaccurate or incomplete in any material respect, the registrant must file a correcting amendment promptly.
For a federal covered adviser, the correcting amendment is due when the amendment is required to be filed with the SEC, not on a separate state clock.
Exam Tip: Gotchas
The correcting-amendment duty is triggered by materiality, not by any fixed calendar deadline. A minor, immaterial change does not require an amendment; a material inaccuracy must be corrected promptly.
What Examination Authority Does the Administrator Have?
All records an IA maintains are subject to reasonable periodic, special, or other examinations by the Administrator's representatives, conducted within or outside the state.
To avoid duplicating effort, the Administrator may cooperate with other state Administrators, the SEC, and national securities exchanges or associations when conducting examinations.
Are There IA-Specific Qualification Standards for Denial of Registration?
The full grounds for denying, suspending, revoking, cancelling, or withdrawing a registration are the same statutory grounds that apply to broker-dealers, agents, and IA representatives, and are covered in detail in the Administrator powers unit. A few qualification rules apply specifically to IAs:
- The Administrator may deny an IA's registration for lack of qualifications based only on the qualifications of the IA itself (if an individual) or the individuals who represent the IA in advisory activities, not on unrelated personnel
- An IA is not necessarily qualified solely on the basis of experience as a broker-dealer or agent; IA qualifications are evaluated on their own terms, and the Administrator may condition a BD applicant's registration on not also transacting business as an unqualified IA
- The Administrator may not deny solely for lack of experience if the applicant is qualified by training or knowledge
- The Administrator may by rule provide for an examination (such as the Series 65 or Series 66) to be taken by applicants, and may waive the requirement for a person or class of persons if the exam is unnecessary for the protection of advisory clients
Exam Tip: Gotchas
"This person was a successful broker-dealer agent for 20 years, so they're automatically qualified to be an IA" is a wrong answer. BD experience does not by itself establish IA qualification.
What Should You Check on Exam Day?
- Custody or discretionary authority is the trigger for both stricter minimum financial requirements and a possible surety bond; an IA with neither does not face either enhancement automatically.
- A bond is not required on top of minimum financial requirements that already exceed the Administrator's threshold, and cash or securities can substitute for a bond.
- The correcting-amendment duty turns on materiality, and a federal covered adviser's amendment clock follows its SEC filing obligation rather than a separate state deadline.
- IA-specific qualification denials can rest only on the IA's own qualifications or those of the individuals who represent it; broker-dealer or agent experience does not automatically transfer.