RIA Registration: The Nuts, Bolts, and Must-Knows

Today’s guest post is by RIA in a Box. RIA in a Box is a leading provider of registration and compliance services to registered investment adviser firms. They’ve helped over 2,000 fellow entrepreneurs establish their own RIA firms and remain in constant compliance with regulatory guidelines by pairing our team of former regulators with cutting-edge compliance software. Learn more at www.riainabox.com.

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RIA Registration 101: Setting Proper Expectations

Starting a registered investment adviser (RIA) firm, just like any new business, requires incredible determination and patience. While the registration process itself generally takes between 2-4 months, registering the firm is only part of the formation process. To be most efficient, advisers should be figuring out a number of other key business decisions during the registration process. Some of these steps include:

· Establish business entity

· Building a proper business plan

· Developing a marketing/branding strategy

· Determine custodian(s)

· Determine key technology providers (customer relationship management (CRM), portfolio management/reporting, financial planning, email, phone, website, document storage, etc.)

· Identify asset management solutions or strategies

· Find office space, secure a lease, and purchase furniture

· Decide on employee benefits and payroll administration

Perhaps your RIA firm just got its registration approved but you’ve yet to select a custodian? Or maybe your website isn’t ready? It happens all the time and unfortunately can greatly slow a firm’s ability to begin conducting business. Each of steps can take significant time and the drag the formation process long past 2-4 months if not prioritized and managed properly so budget your time appropriately. Most successful new RIA firms lean heavily on the expertise of outside consultants to help streamline the creation of an RIA. Mistakes made upfront can unfortunately be quite costly financially and absorb valuable time to repair in the future.

Understanding the Registration Process

1) Determine if your firm needs to register at the state or SEC level

In general, RIA firms with less than $100 million in regulatory assets under management (AUM) are required to register with the relevant state(s) and an RIA firm with $100 million or greater in AUM is required to register with the SEC. However, there are a number of common RIA registration exceptions.

2) Understand the role FINRA plays in the RIA registration process

FINRA administers the web IARD portal online filing system, facilitates filing fee payments to the SEC and states, and manages the FINRA entitlement application which is required as part of the RIA registration process. However, FINRA does not regulate RIA firms. All RIA firms are regulated by the relevant state(s) or the SEC.

3) Determine in which states your firm needs to register or notice-file

In general, an RIA firm must register or notice file in a state when of the following scenarios applies:

· The RIA firm has a physical presence in the state

· The RIA Firm has more than 5 clients who are located in the state (Important note: There are some states that require registration or notice-filing before serving a single client.)

· The RIA firm is actively soliciting business in the state

4) Understand how the state and SEC registration process differ

The registration process generally takes between 2-4 months. It is common for each state to have some different registration requirements relating to supplementary state filing requirements, particular Form ADV language, an advisor experience requirement, or the ability to be dually registered to multiple investment firms. When registering with the SEC, an RIA firm has 120 days to reach SEC registration “eligibility”. In other words, if the firm is relying upon reaching $100 million in AUM to be able to register with the SEC, the firm has 120 days to reach $100 million in AUM or it must “down-transition” to the relevant state(s). It’s also important to note, that regardless if the RIA firm itself is registered at the state or SEC level, the individual investment adviser representative (IAR) registration process is always administered at the state level.

5) Understand the individual IAR registration requirements

If you do not have an active Series 7/66 license combination or do not have a qualifying professional designation, than it is likely that you will need to successfully pass the Series 65 examination. Once an individual Form U10 or U4 is filed, a testing window will open to schedule the Series 65 exam. We generally recommend that an adviser budget a minimum of 10 hours to study for this examination although others may require many more hours of study.

6) Have patience and realistic expectations

A series of documents need to be prepared and potentially submitted to the state(s) or SEC. Some of these include the Form ADV Part 1, Part 2A, and Part 2B(s), Form U4(s), investment advisory contracts, privacy policy statement, policies and procedures manual, code of ethics, and business continuity plan. It is common for the state(s) or SEC to issue a number of deficiency letters after reviewing the initial set of documents leading to quite a bit of correspondence back and forth. Every state has its own process and response time.

Remember that the states and the SEC are just trying to do their job to the best of their ability. However, preparing thorough and accurate the documentation as part of the initial application submission can greatly expedite the process.

RIA Registration 101: The Rewards

The good news is that a cumbersome registration process is often quickly forgotten once the adviser begins to enjoy the benefits of the independent RIA model.

Today, the RIA industry remains a nascent niche within the massive investment management world; yet the constant, rapid evolution of the ecosystem supporting independent RIA firms is remarkable. We take many things for granted in today’s world, but it wasn’t long ago when starting a business such as an RIA firm was an arduous process. The prevalence of the internet, email, and web-based technology applications have changed this dynamic dramatically, empowering aspiring entrepreneurial advisers to do things no small business owner could have dreamed of only a few years ago.









Please note: Any individual considering starting an RIA firm is strongly advised to seek proper legal counsel in matters relating to employment agreements, outside business activity, and any applicable restrictive covenants including non-compete or non-solicitation agreements. RIA in a Box is not a law firm, investment advisory firm, or CPA firm. RIA in a Box does not provide legal advice or opinions to any party or client.

Carolyn McRae Carolyn is Blueleaf’s in-house marketing guru. She writes on The Blueleaf Blog to make advisors’ lives easier, offering practice management and client engagement tips where and when they’re useful. Outside of the Blueleaf offices, she can be found running a 10k or cooking her famous chili. Chat LIVE with Carolyn on Twitter @BlueleafAdvisor!
  • fritz widener

    Thought-provoking analysis . I loved the information . Does someone know where my assistant might be able to find a fillable NYS OSC AC 3290-S copy to use ?

    • Marion Blais

      Hello Fritz , my assistant came accross a sample CA DE-120 form with this link http://goo.gl/hFGsx0