Quick Answer
Assets under management set the line between state and SEC registration, with a mid-size band and a $90 million/
Quick Answer: Assets under management set the line between state and SEC registration, with a mid-size band and a $90 million/$110 million buffer against constant switching. Registered advisers file Form ADV, deliver brochures on a fixed schedule, keep records for five years, and may owe minimum net worth, bonding, or balance-sheet filings.
10 million buffer against constant switching. Registered advisers file Form ADV, deliver brochures on a fixed schedule, keep records for five years, and may owe minimum net worth, bonding, or balance-sheet filings.This section works through the AUM thresholds and switching deadlines, exempt reporting advisers, books-and-records rules, ongoing Form ADV and brochure obligations, continuing education, and the financial requirements a state may impose.
What AUM Thresholds Separate State and SEC Registration?
Federal AUM thresholds divide investment adviser (IA) regulation between the SEC and state administrators:
| 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.
What Are the Deadlines for Switching Between State and SEC Registration?
| Trigger | Action Required | Deadline |
|---|---|---|
| State-registered IA reaches $110 million AUM and is not relying on the private-fund or venture-capital adviser exemptions | 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 registered nowhere reasonably expects to become SEC-eligible | May register with SEC now, on an undertaking to withdraw if it turns out not to be eligible | Must withdraw on Form ADV-W within 120 days after its SEC registration becomes effective, if it is not eligible by then |
Which Advisers Register With the SEC Regardless of AUM?
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 to all of their clients exclusively through an operational interactive website, at all times while relying on the exemption
- Pension consultants with $200+ million in plan assets under advisement
- Advisers under common control with an SEC-registered adviser, provided both share the same principal office and place of business. Control means holding 25% or more of the voting rights, or entitlement to 25% or more of the profits. No time limit attaches to this category.
- Advisers not yet registered anywhere that reasonably expect to become eligible for SEC registration within 120 days, on an undertaking to withdraw if they do not
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.
- The common-control category has no deadline. Unlike the other rows in this list, it is not tied to a 90-day, 120-day, or 180-day clock.
Does Client Count or Office Count Change Who an Adviser Registers With?
Once an adviser is federal covered, it registers with the SEC only, no matter how many clients it has or how many states it has offices in. That outcome is fixed by AUM and adviser category, not by the adviser's preference and not by how many clients happen to fall in any one state.
States still have a role, but a narrower one: they can require a federal covered adviser to notice file (not register) in a state where the adviser has a place of business, or 6 or more clients who are residents of that state in a 12-month period. See Notice Filing Requirements for the full mechanics.
Exam Tip: Gotchas
- The client-count and office-count thresholds decide whether a notice filing is owed in a given state, not who the adviser's registrant is. A federal covered adviser with 50 clients spread across 10 states still registers with the SEC only. The 6-or-more-clients test just answers a separate question: which of those states can also collect a notice filing and fee.
- Don't confuse this with the de minimis exemption from state registration (5 or fewer retail clients AND no office, see Definitions of Investment Advisers). That test applies to a small adviser before it is registered anywhere. This one only applies after the adviser is already SEC-registered, and uses OR instead of AND.
When Does IA Registration Become Effective?
The effective date for IA registration differs depending on whether registration is at the state or federal level:
| Registration Level | Effective Date |
|---|---|
| State IA registration (under the USA) | At noon on the 30th day after filing (unless the Administrator acts sooner) |
| SEC IA registration (under the Advisers Act) | On the 45th day after filing (unless the SEC acts sooner) |
Exam Tip: Gotchas
- State registration = noon on the 30th day. SEC registration = 45th day. The exam tests this distinction directly.
- Both agencies can grant earlier effectiveness or deny the application before the deadline. The date marks the outer limit, not a required wait.
What Is an Exempt Reporting Adviser?
ERAs are investment advisers exempt from full SEC registration but required to file Form ADV with abbreviated sections.
What Are the Two ERA Categories?
| 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 |
What Rules Still Apply to an ERA?
- 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."
What Books and Records Must an IA Maintain?
Which Records Must an IA Keep?
- 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: All advertisements, performance calculations, marketing materials
- Personal securities transaction records for the IA and all investment adviser representatives (IARs)
- Solicitor records: Written agreements with solicitors, disclosure documents
- Compliance records: Code of ethics, compliance policies, trade blotters
How Long Must Records Be Retained?
| 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 |
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.
What Ongoing Filings Keep a Registration Current?
What Are the Parts of Form ADV?
| Part | Content | Who Files |
|---|---|---|
| Part 1A | Regulatory filing (ownership, business, disciplinary history) | 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 | An SEC requirement (SEC-registered advisers); state-registered advisers generally do not file it; delivered to retail investors |
All filings are made through the IARD (Investment Adviser Registration Depository).
When Must the Brochure Be Delivered?
The two regimes diverged in 2010, and the exam tests the state one.
| Adviser Type | Timing |
|---|---|
| State-registered | At least 48 hours before signing the advisory agreement, or at the time of signing if the client has the right to terminate without penalty within 5 business days |
| Federal covered | Before or at the time of entering the contract. The SEC removed the 48-hour alternative in 2010; there is no 48-hour advance option for federal covered advisers |
When Must the Brochure Supplement Be Delivered?
- Part 2B brochure supplement must be delivered before or at the time a supervised person begins providing advice to a client
What Is Required for Annual Brochure Delivery?
Within 120 days of fiscal year end, deliver either:
- Updated brochure (if material changes occurred), or
- Summary of material changes with an offer to provide the full brochure on request
When Must Form ADV Be Updated?
| Update Type | Deadline |
|---|---|
| Annual updating amendment | Within 90 days of fiscal year end |
| Material change | Promptly upon discovery |
What Financial Reporting Do State-Registered Advisers File?
State-registered advisers may be required to file a balance sheet with the state administrator:
| Trigger | Filing Required |
|---|---|
| Adviser has custody of client funds or securities, OR requires prepayment of advisory fees six months or more in advance and in excess of $500 per client | Audited balance sheet |
| Adviser has discretion over client funds or securities, but not custody | Balance sheet that need not be audited |
The balance sheet must be filed with the state administrator within 90 days after the end of the adviser's fiscal year.
Exam Tip: Gotchas
- Custody triggers an audited balance sheet; discretion alone does not. A large prepaid-fee arrangement (six months or more in advance, over $500 per client) triggers the same audited requirement as custody.
- This 90-day balance-sheet deadline is separate from the 90-day annual Form ADV update deadline. Same number, two different filings.
What Continuing Education Must IARs Complete?
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, of which at least 3 must cover ethics | The category is "Regulatory and Ethics" content: fiduciary conduct, client protection, ethical standards, plus regulatory material |
Key continuing education (CE) rules:
- Credits cannot be interchanged between the two categories
- Professional designation CE (CFP, CFA, ChFC, CIMA, PFS) may count if courses meet content standards
- Failure to complete CE by year-end results in CE Inactive status. The IAR may continue advisory business while completing the missing CE, and becomes ineligible to register or renew only if still CE Inactive at the close of the next calendar year
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 differs by adviser type. State-registered advisers get an either/or: 48 hours in advance OR at signing with a 5-business-day cancellation right. Federal covered advisers do NOT get the 48-hour option; they must deliver before or at the time of signing.
- CE credits are split 6/6 and cannot be swapped. 12 hours of ethics but zero products credits does NOT satisfy the requirement.
- There is also a floor inside the ethics category. It is "Regulatory and Ethics" content, and at least 3 of its 6 credits must specifically cover ethics. Six credits of general regulatory material alone does not satisfy it.
What Net Worth or Bonding Requirements Apply to IAs?
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 |
How Is the Surety Bond Amount Calculated?
An IA that falls short of its required minimum net worth can stay compliant by posting a surety bond instead. The bond amount is not simply the shortfall:
- Calculate the deficiency: required minimum net worth minus actual net worth.
- Round the deficiency up to the nearest $5,000. That rounded figure is the bond amount.
Example: An IA with custody (required minimum: $35,000) has an actual net worth of $22,000. The deficiency is $35,000 - $22,000 = $13,000. Rounded up to the nearest $5,000, the required bond is $15,000, not the raw $13,000 deficiency.
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.
- The bond is the deficiency rounded UP to the nearest $5,000, not the raw deficiency. A $13,000 shortfall requires a $15,000 bond, not a $13,000 bond. This rounding step is the exam's favorite trap.
What Should You Check on Exam Day?
- Know the AUM breakpoints: under $25M is state-only, $25M-$100M is the mid-size band, $110M and above is mandatory SEC registration.
- Remember the $90 million/$110 million buffer and its asymmetric deadlines: 90 days up to the SEC, 180 days back down to the state.
- Remember mutual fund advisers, internet advisers, large pension consultants, and common-control affiliates of an SEC-registered adviser register with the SEC regardless of AUM.
- Know the two ERA categories and their AUM caps: no cap for venture capital fund advisers, under $150 million for private fund advisers.
- Remember state registration becomes effective at noon on the 30th day after filing; SEC registration on the 45th day.
- Remember the 5-year records retention period, with the first 2 years kept at the principal office.
- Know the brochure delivery choices: state-registered advisers get 48 hours before signing, or at signing with a 5-business-day cancellation right; federal covered advisers only get before-or-at-signing, with no 48-hour option.
- Remember the 90-day annual Form ADV update deadline is separate from the 120-day annual brochure delivery deadline.
- Know the net worth thresholds: $35,000 for custody, $10,000 for discretion without custody, and that a surety bond can substitute for either.
- Remember the surety bond amount is the net worth deficiency rounded up to the nearest $5,000.
- Remember the balance-sheet filing trigger (custody, or six-plus-months prepaid fees over $500 per client) and its own 90-day filing deadline.
- Know the CE requirement: 12 credits a year split 6/6 between the two categories, with at least 3 of the ethics-category credits actually covering ethics.