Investment Adviser Regulation

The whole unit on one sheet: who counts as an adviser, where they register, notice filing, post-registration duties, exempt reporters, and IAR supervision.

The One-Liners That Win Points

• The three-part test (ABC) must be met fully: Advice about securities, in the Business (regular, need not be primary), Compensation (any economic benefit, direct or indirect).
• "Compensation" is read broadly: a referral fee for steering clients to products counts, not just a direct advisory fee.
• Excluded persons (LATE): Lawyers, Accountants, Teachers, Engineers, excluded when advice is solely incidental to their profession (the no-special-compensation condition belongs to the broker-dealer exclusion, not to LATE professionals).
• Banks, savings institutions, and trust companies are excluded, but their subsidiaries and affiliates are NOT.
• Broker-dealers and their agents are excluded only when advice is solely incidental to brokerage AND they receive no special compensation.
• A federal covered adviser registers with the SEC, not the state; states may only require notice filing (unless the de minimis exception applies).
• Registered-investment-company advisers MUST register with the SEC regardless of AUM (no minimum); BDC advisers MUST register once at $25M+ AUM. Pension consultants ($200M+ plan assets), affiliated advisers, 120-day-eligibility advisers, multi-state advisers (15+ states), and internet advisers are merely ELIGIBLE to register with the SEC regardless of AUM. NRSROs are NOT a current SEC-registration category.
• Once SEC-registered, an adviser is not required to withdraw to state registration until AUM drops below $90M, a separate floor below the $100M/$110M registration line.
• Notice filing is NOT registration: states collect a fee and keep records, but cannot add substantive requirements, extra applications, or exams.
• States keep antifraud authority over federal covered advisers and exempt advisers; notice filing limits registration power, not enforcement power.
• Exempt Reporting Adviser (ERA) is exempt from full registration but must still file an abbreviated Form ADV with the SEC.

Numbers to Lock In

Definitions and Exclusions

• Advice covers recommendations, reports, and analyses, not just buy/sell calls.
• "In the business" means ongoing and consistent, even if advising is not the primary occupation (a CPA advising on securities as part of planning qualifies).
• A lawyer who holds herself out as offering advisory services or charges separately for securities advice loses the exclusion.
• Publishers are excluded under the USA when advice is not based on each client's specific situation (the federal "general and regular circulation" standard is separate).
• Investment adviser representatives (IARs) are excluded from the firm-level adviser definition; they're regulated under their own IAR provisions.

Notice Filing

• SEC-registered advisers file notice with each state where they do business; state-registered advisers fully register with the state administrator.
• There is no single national notice filing: each state may set its own fee and filing.
• States cannot elevate notice filing into de facto registration; extra substantive requirements are preempted.
• No notice filing is required in a state where the adviser has no place of business AND no more than 5 non-institutional clients there in the preceding 12 months.

Registration and Post-Registration

• State registration files Form ADV with the administrator, pays fees, and may require a qualifying exam (Series 65, or Series 66 plus Series 7).
• Form ADV parts: Part 1 administrative (via IARD); Part 2A the brochure (services, fees, conflicts); Part 2B the brochure supplement (individual providers).
• Post-registration: keep books and records, file annual amendments, meet financial reporting, deliver the brochure.
• State brochure rule (initial delivery): deliver 48 hours ahead (no cancellation right) OR at signing with a 5-business-day cancellation right; SEC advisers deliver before or at signing (no 48-hour rule). Annually, state-registered advisers must deliver or offer the current brochure regardless of changes; SEC-registered advisers instead follow the 120-day, material-changes-summary rule and may skip delivery entirely if nothing changed.
• Custody triggers a $35,000 minimum net worth (audited balance sheet); discretion without custody triggers a $10,000 minimum (unaudited balance sheet); prepaid fees over $500 six-plus months out trigger a positive-net-worth requirement plus an audited balance sheet. Falling below the required minimum requires notice by close of business the next business day, then a financial condition report the business day after that; required financial statements are due within 90 days of fiscal year end.

Exempt Reporting and Private Fund Advisers

• Private fund advisers (solely to qualifying private funds) are exempt below $150 million U.S. AUM but must file as an ERA.
• Venture capital fund advisers are exempt regardless of size and file as an ERA.
• ERAs file a subset of Form ADV Part 1, report private fund activity, and update annually; "exempt" does not mean invisible.
• States may (not automatically) adopt their own private-fund exemption; federal ERA status does not by itself preempt state registration, and states always retain antifraud authority over exempt advisers.

IAR Supervision

• The registered (state or SEC) adviser must establish, maintain, and enforce written supervisory procedures that are reasonably designed to prevent and detect violations.
• Written procedures must be both adopted AND implemented, not just filed in a drawer; a designated chief compliance officer and at least annual review are required, with minimum categories including proxy voting, cybersecurity/privacy, code of ethics, and business continuity/succession.
• Advisers can be liable for IAR violations even without personal knowledge: failure to supervise is the issue, and enforced procedures can provide a defense.

Top Gotchas

• The $100M-under-$110M buffer is a MAY-register zone; the $25M-under-$100M exception is a MUST-register zone. Below $25M is state-only, $25M-under-$100M is generally state EXCEPT the home state doesn't require IA registration or examination (then SEC registration is MANDATORY, not optional), $100M-under-$110M means the adviser may register with the SEC, and $110M-plus makes SEC registration mandatory.
• Registered-investment-company advisers must register with the SEC at any AUM; BDC advisers must register once at $25M+ AUM. Pension consultants, affiliated advisers, 120-day-eligibility advisers, multi-state advisers, and internet advisers are merely eligible to; NRSROs aren't on the list at all.
• The $90M withdrawal floor is separate from the registration line. An SEC-registered adviser stays SEC-registered all the way down to $90M before it must switch back to the state.
• Notice filing is never registration. States can charge a fee and keep records of a federal covered adviser, but they cannot add a state application, an extra exam, or state-specific compliance procedures.
• "Exempt" ERAs are not invisible. They still file an abbreviated Form ADV and report private fund activity; only venture capital fund advisers escape the $150M AUM threshold entirely.
• Written supervisory procedures must be enforced, not just adopted. A policy sitting in a drawer does not satisfy the "reasonably designed" standard, and the adviser can be liable for an IAR's violation even without personal knowledge of it.

Memory Aids Worth Keeping

• ABC for the three-part test: Advice, in the Business, Compensation.
• LATE for the incidental-professional exclusion: Lawyers, Accountants, Teachers, Engineers.

One-Breath Recap

An Investment Adviser (IA) is anyone who, for compensation, is in the business of advising on securities (the ABC test), unless they fall into an exclusion like the LATE professionals giving solely incidental advice or a bank itself (never its subsidiary).

Assets Under Management (AUM) draw the registration line: $110M-plus goes to the SEC as a federal covered adviser (with an optional $100M-to-under-$110M buffer), and the $25M-to-under-$100M zone generally registers with the state (except a mandatory SEC fallback for certain home states).

Federal covered advisers merely notice file (fee and records, never a second registration) in each state where they have a place of business or more than 5 non-institutional clients, though states keep antifraud power everywhere.

Registered-investment-company advisers must register with the SEC regardless of AUM, while BDC advisers must register once at $25M+ AUM; pension consultants, affiliated advisers, 120-day-eligibility advisers, multi-state advisers, and internet advisers are merely eligible to. An SEC-registered adviser need not withdraw to the state until AUM drops below $90M.

State registration takes effect at noon on the 30th day, while the SEC must grant or institute denial proceedings within 45 days (not automatic), Form ADV Part 2A is the client brochure with its (state-only) 48-hour-or-5-day delivery choice and its 120-day annual update, and records run 5 years with the first 2 on-site.

Finally, advisers solely to private funds under $150M and venture capital advisers of any size file as Exempt Reporting Advisers rather than register fully at the federal level, though a separate state exemption still has to apply, and every registered adviser must adopt, implement, and enforce reasonably designed written procedures to supervise its investment adviser representatives (IARs).

Need more than the recap? This is a condensed summary. If it is not enough, read the full Investment Adviser Regulation unit for the complete lesson.