Registration and Post-Registration
This section consolidates the key registration rules for investment advisers: assets under management (AUM)-based registration thresholds, exempt reporting advisers, books and records requirements, Form ADV maintenance, and financial requirements.
Federal vs. State Registration: AUM Thresholds
The Dodd-Frank Act (2010) divided investment adviser (IA) regulation between the SEC and state administrators based on AUM thresholds:
| AUM Level | Registration |
|---|---|
| Under $25 million | Must register with the state (prohibited from SEC registration) |
| $25 million - $100 million | "Mid-size adviser": registers with the state where principal office is located (unless state does not examine/inspect, then may register with SEC) |
| $100 million - $110 million | Eligible but not required to register with SEC |
| $110 million and above | Must register with SEC as a federal covered adviser |
The $90 million/$110 million buffer prevents advisers from constantly switching between state and SEC registration due to small AUM fluctuations. You must register with the SEC at $110M but only must de-register at $90M.
Switching Timelines
| Trigger | Action Required | Deadline |
|---|---|---|
| State-registered IA reaches $110 million AUM | Must register with SEC | Within 90 days of filing annual Form ADV update |
| SEC-registered IA falls below $90 million AUM | Must withdraw SEC registration and register with state | Within 180 days |
| IA expects to reach $100 million AUM | May register with SEC | Within 120 days of expected threshold |
Federal Covered Advisers Not Subject to AUM Test
Certain IAs register with the SEC regardless of AUM:
- Advisers to registered investment companies (mutual funds, ETFs)
- Multi-state advisers required to register in 15 or more states (may opt for SEC registration)
- Internet advisers providing advice exclusively through an interactive website (SEC Rule 203A-2)
- Pension consultants with $200+ million in plan assets under advisement
- Advisers affiliated with an SEC-registered adviser (expected to register within 180 days)
Exam Tip: Gotchas
- Mutual fund advisory contract = federal covered, period. Even an adviser with $10M AUM must register with the SEC if it advises a mutual fund.
- The thresholds are asymmetric. Must register with SEC at $110M but only must de-register at $90M. The buffer prevents constant switching.
- 90 days up to SEC, 180 days down to states, 120 days if expecting to reach $100M.
Exempt Reporting Advisers (ERAs)
ERAs are investment advisers exempt from full SEC registration but required to file a partial Form ADV (Part 1 only). They are not "registered" advisers and may not call themselves "registered."
Two Categories of ERAs
| ERA Type | Requirement |
|---|---|
| Venture capital fund adviser | Solely advises venture capital funds; no AUM cap |
| Private fund adviser | Solely advises private funds; AUM under $150 million |
Key ERA Rules
- ERAs must file Form ADV (abbreviated sections) and report annually
- ERAs are still subject to SEC antifraud provisions
- States may require ERAs to register or notice file at the state level
Exam Tip: Gotchas
- Venture capital ERA has no AUM cap. Private fund ERA caps at $150M. Do not mix these up.
- ERAs still file Form ADV and are still subject to SEC antifraud provisions. "Exempt from registration" does not mean "exempt from oversight."
Books and Records Requirements (Rule 204-2)
Records IAs Must Maintain
- Cash receipts and disbursements journal
- General and auxiliary ledgers
- Order memoranda: Purchase/sale orders, client instructions
- Bank records: Statements, canceled checks
- Written communications: Relating to advice and recommendations
- Discretionary account records and powers of attorney
- Written advisory agreements (client contracts)
- Advertising file: Any communication sent to 2 or more persons
- Personal securities transaction records for the IA and all investment adviser representatives (IARs) (deters scalping and front-running)
- Solicitor records: Written agreements with solicitors, disclosure documents
- Compliance records: Code of ethics, compliance policies, trade blotters
Retention Periods
| Record Type | Retention Period | Accessibility |
|---|---|---|
| Most books and records | 5 years from end of fiscal year | First 2 years: must be at the principal office and readily accessible |
| After first 2 years | Same 5-year total | May be offsite, electronic, or microfilm |
Exam Tip: Gotchas
- 5-year retention for IAs. This differs from the 3-year period for broker-dealers. The exam specifically tests this distinction.
- The 5-year rule starts from end of fiscal year, not from the date of creation.
Registration Maintenance Requirements
Form ADV Parts and Filing
| Part | Content | Who Files |
|---|---|---|
| Part 1A | Regulatory filing (ownership, business, disciplinary history, custody) | All advisers (SEC and state) |
| Part 1B | Additional state-specific questions | State-registered advisers only |
| Part 2A (Brochure) | Plain-English client-facing disclosure (fees, services, methods, conflicts) | All advisers |
| Part 2B (Brochure Supplement) | Specific supervised persons (investment adviser representatives, or IARs) who work with the client | All advisers |
| Part 3 (Form CRS) | Client Relationship Summary: concise summary of services, fees, conflicts, disciplinary history | SEC-registered (with SEC) or state-registered (with state); must be delivered to retail investors |
All filings are made through the IARD (Investment Adviser Registration Depository), operated by FINRA.
Brochure Delivery (Part 2A)
| Timing | Condition |
|---|---|
| At least 48 hours before signing the advisory agreement | No further condition |
| At the time of signing | Client has right to terminate without penalty within 5 business days |
Brochure Supplement (Part 2B) Delivery
- Part 2B brochure supplement must be delivered before or at the time a supervised person begins providing advice to a client
Annual Brochure Delivery to Clients
Within 120 days of fiscal year end, deliver either:
- Updated brochure, or
- Summary of material changes with an offer to provide the full brochure
If no material changes occurred, no delivery is required.
Updating Form ADV
| Update Type | Deadline |
|---|---|
| Annual updating amendment | Within 90 days of fiscal year end |
| Material change | Promptly upon discovery (approximately 30 days in practice) |
Financial Reporting
- State-registered advisers may be required to file audited balance sheets with the state administrator
Continuing Education for IARs
IARs in adopting states must complete 12 credits annually:
| Component | Credits | Content |
|---|---|---|
| Products and Practice | 6 credits | Investment trends, risk management, regulatory developments |
| Ethics and Professional Responsibility | 6 credits | Fiduciary conduct, client protection, ethical standards |
Key continuing education (CE) rules:
- Credits cannot be interchanged between the two categories
- Professional designation CE (CFP, CFA, ChFC, CIC, PFS) may count if courses meet content standards
- Failure to complete CE by year-end results in CE Inactive status. The IAR cannot conduct advisory activities until CE is completed and a new Form U4 is submitted
- The IAR CE requirement was added to the Series 65 exam content outline effective June 2023
Exam Tip: Gotchas
- Annual ADV amendment = 90 days. Annual brochure delivery to clients = 120 days. Different deadlines for different purposes. Do not confuse them.
- Brochure delivery is either/or: 48 hours in advance OR at signing with a 5-business-day cancellation right. Not both.
- CE credits are split 6/6 and cannot be swapped. 12 hours of ethics but zero products credits does NOT satisfy the requirement.
Financial Requirements (State Law)
States may require IAs to maintain minimum net worth or post a surety bond, especially if the IA has custody of client assets or discretion over client accounts:
| Condition | Requirement |
|---|---|
| IA has custody of client assets | Minimum net worth of $35,000 (or surety bond) |
| IA has discretion (no custody) | Minimum net worth of $10,000 (or surety bond) |
| IA has neither custody nor discretion | No minimum net worth requirement |
Exam Tip: Gotchas
- Custody = $35,000. Discretion = $10,000. The exam loves testing these thresholds paired with the specific condition that triggers each.
- No custody or discretion = no net worth requirement.