The Securities and Exchange Commission’s recent review of the investment adviser registration threshold could have significant consequences for thousands of registered investment advisers (“RIAs”). If the SEC ultimately raises the assets-under-management (“AUM”) threshold required for federal registration, many advisers currently registered with the SEC could be required to withdraw their federal registrations and return to state regulation.
Although no formal rule proposal has yet been issued, SEC leadership has publicly questioned whether the current registration framework—largely unchanged since 2012—continues to reflect the division of regulatory authority contemplated by Congress.[1] For mid-sized advisers, the possibility of a higher registration threshold presents substantial compliance, operational, and business risks.
Under Section 203A of the Investment Advisers Act of 1940, advisers generally are prohibited from registering with the SEC unless they manage sufficient regulatory assets under management or otherwise qualify for an exemption. Following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress shifted many mid-sized advisers from federal oversight to state regulation by increasing the registration threshold from $25 million to $100 million in AUM.[2]
Today, advisers generally become eligible for SEC registration at approximately $100 million in regulatory assets under management and are generally required to register with the SEC once they reach approximately $110 million.[3] Advisers below those levels typically are regulated by one or more state securities regulators.
Why the SEC Is Reconsidering the Threshold
On April 8, 2025, then-Acting SEC Chairman Mark Uyeda announced that SEC staff had been directed to evaluate whether the current registration threshold remains appropriate.[4] Uyeda observed that the number of SEC-registered investment advisers has grown dramatically since the threshold was last adjusted in 2012 and suggested that the balance between federal and state oversight may warrant reconsideration.[5]
The rationale behind a potential increase is straightforward. The SEC’s examination and enforcement resources are finite, and federal regulators may conclude that those resources should be focused on larger advisers with broader national operations, while smaller and mid-sized firms are supervised primarily by state securities regulators.[6] While the SEC has not identified a specific replacement threshold, industry observers have speculated that any increase could be substantial.[7]
History Suggests the Impact Could Be Significant
The last major shift in adviser registration occurred following Dodd-Frank. When Congress increased the federal registration threshold from $25 million to $100 million in AUM, thousands of advisers were required to transition from SEC oversight to state regulation. SEC estimates at the time indicated that more than 3,000 advisers would move from federal to state registration.[8] Importantly, advisers generally were not permitted to remain SEC-registered simply because they had previously qualified for federal registration. Firms that no longer met the applicable threshold were required to withdraw their SEC registrations and register with the appropriate states.[9] If the SEC adopts a higher threshold today, many currently SEC-registered advisers could face a similar transition.
1. Multiple State Registration Obligations
One of the principal benefits of SEC registration is the ability to operate under a largely uniform federal regulatory regime. Advisers that lose eligibility for SEC registration may find themselves subject to registration, examination, and reporting requirements in multiple states.
Although NASAA and state regulators have worked to harmonize certain requirements, significant differences remain among state regulatory programs, filing requirements, examination practices, and enforcement priorities.[10] For firms serving clients across numerous jurisdictions, managing multiple state registrations can create substantial administrative burdens and increased compliance costs.
Many SEC-registered advisers have built compliance programs around federal rules, SEC examination priorities, and SEC guidance. A transition to state regulation may require firms to reevaluate compliance policies, procedures, and disclosure practices to address varying state requirements.
State regulators may also place different emphasis on advertising practices, custody arrangements, books-and-records requirements, and supervisory procedures. Maintaining compliance across multiple jurisdictions often requires additional legal and compliance resources.
A large-scale transition from SEC registration to state registration would likely involve significant operational expenses, including but not limited to:
· Preparation and filing of Form ADV amendments; · Withdrawal of SEC registration; · State registration filings and fees; · Revisions to compliance manuals and supervisory procedures; · Updates to client disclosure documents; and · Personnel training regarding state-specific requirements.
For firms operating in numerous states, these costs could be substantial.
Perhaps the most immediate challenge is uncertainty itself. Advisers currently have little guidance regarding what threshold the SEC may ultimately consider or whether any future rule would include transition periods, exemptions, or grandfathering provisions.
Recent SEC regulatory initiatives[11] also suggest that the Commission may be increasingly willing to revisit longstanding assumptions regarding the regulatory treatment of smaller entities. For example, the SEC recently proposed amendments to its rules implementing the Regulatory Flexibility Act (“RFA”), which would significantly expand the number of entities classified as “small entities” for purposes of SEC rulemaking analyses. The proposal acknowledges that many of the Commission’s existing size standards have not been updated for decades and no longer accurately reflect the modern financial services industry.
Although the RFA proposal is unrelated to investment adviser registration, it reflects a broader willingness by the Commission to reconsider regulatory thresholds that have remained largely unchanged over time. That same policy rationale could support a reevaluation of the investment adviser registration threshold established in 2012. Indeed, some industry observers have suggested that if the SEC concludes that its examination and enforcement resources should be concentrated on the largest market participants, the Commission could ultimately consider a threshold as high as $1 billion in regulatory assets under management, effectively returning a substantial segment of today’s SEC-registered advisers to state oversight.
To be clear, the SEC has not proposed a $1 billion registration threshold, and no formal rulemaking has been initiated. Nevertheless, the Commission’s ongoing review of the federal-state division of regulatory authority, coupled with its broader reassessment of regulatory size standards under the RFA, may signal an increased openness to significant structural changes in adviser regulation. As a result, firms near any plausible future threshold face difficulty predicting their long-term regulatory status.
Although no formal rulemaking proposal has been released, advisers should begin evaluating the potential impact of a higher registration threshold. Firms should consider:
· Current and projected regulatory assets under management; · States in which registration would be required if SEC registration were unavailable; · Existing state-law exemptions that may apply; · Potential transition and compliance costs; and · Whether current compliance systems are capable of supporting multi-state regulation.
Advisers near any potential future threshold should also closely monitor SEC developments and consider discussing contingency planning with experienced securities counsel.
The SEC’s review of the investment adviser registration threshold represents one of the most consequential potential regulatory developments affecting mid-sized advisory firms in more than a decade. While the Commission has not yet proposed a rule, the possibility that thousands of advisers could once again be shifted from federal oversight to state regulation is a realistic scenario.
For advisers that have spent years operating under a federal regulatory framework, a return to state registration could bring increased compliance obligations, higher operating costs, and greater regulatory complexity. Firms that begin evaluating these risks now will be better positioned to respond if the SEC ultimately decides to raise the registration threshold.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses. Attorney Robert R. Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
1. Mark T. Uyeda, Remarks at the Annual Conference on Federal and State Securities Cooperation (Apr. 8, 2025).
2. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 410, 124 Stat. 1376 (2010).
On February 1, 2021, a new amendment to the New York Investment Advisory Act went into effect, now requiring investment advisor representatives (“IARs”) doing business in the state of New York to register themselves with the New York Attorney General. Registration is accomplished by filing a Form U4 application with state regulators via the Investment Adviser Registration Depository (“IARD”) after completing any required examinations.
Any individual that represents a Registered Investment Advisor (“RIA”) in New York in performing investment advisory duties will now be deemed a “NY IAR” if he or she “for compensation, engages in the business of advising members of the public, either directly or through publications or writings within or from the State of New York as to the value of securities or as to the advisability of investing in, purchasing, or selling or holding securities, or who, for compensation and as a part of a regular business issues or promulgates analyses or reports concerning securities to members of the public within or from the State of New York.” [1]
All new NY IARs will be required to meet examination and registration requirements with the state. Individuals seeking registration must (i) file a Form U4 application with state regulators via IARD, and (ii) complete either the Series 65 examination, or all three of the Securities Industry Essentials Examination, the Series 7 examination, and the Series 66 examination. However, several exceptions may permit experienced advisers to avoid the examination requirement if he or she has operated continuously for two years [2], or holds certain other professional designations. [3]
Additionally, New York-based supervised persons of an SEC RIA will now be required to register with state regulators if he or she meets the definition of “Federal IAR,” [4] meaning he or she: (i) has more than five clients that are natural persons; and (ii) has a client base more than 10 percent of which is comprised of natural persons [5]. However, since advisory personnel must serve natural person clients to be considered a Federal IAR, the new requirements may not apply to advisory personnel that only manage private funds and/or managed accounts for institutional clients. [6]
Solicitors are individuals whose regular business it is to “provide investment advice to the limited extent that such person receives compensation for introducing a prospective investor” [7] to an SEC Registered Adviser or a NY State Registered Adviser. Under the new regulations, solicitors are included in the definition of, and are now required to register as, a NY IAR if they have six or more clients in New York, excluding financial institutions and institutional buyers. [8]
Existing advisory personnel that must register under the new rules have until December 2, 2021 to pass the required examinations. However, because the New York Attorney General expects a high volume of new Form U4 applications, it has set a hard deadline of August 31, 2021 for application submissions. Consider submitting applications, especially those including requests for an examination waiver, as soon as possible to prevent the expected delays in processing from negatively impacting your business.
The new rules bring New York in line with other states, which have long required separate registration by RIAs and IARs. Many previously unregistered investment advisory professionals will need to sit for examinations and register with the state during the relatively short implementation period. If you are unsure whether or how the new rules apply to you, do not wait to consult a securities attorney.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Attorney Robert R. Boeche, II can be reached in the firm’s San Diego office at (619) 696-9500.
[2] Exemptions for existing IARs who (1) have operated “permissibly” for two years prior to February 1, 2021, and from a place of business in the state of New York; or (2) have been continuously registered for at least two years in another jurisdiction, and who have no pending or recent regulatory or civil action against them in the last 10 years. See 13 N.Y.C.R.R. § 11.7(b).
[3] Accepted professional designations include: Certified Financial Planner (CFP); Chartered Financial Consultant (ChFC); Personal Financial Specialist (PFS); Chartered Financial Analyst (CFA); and Chartered Investment Counselor (CIC). See 13 N.Y.C.R.R. § 11.7.
[4] Here, the term “federal investment adviser representative” is used as defined under the Investment Advisers Act of 1940 (the “Advisers Act”). Note that under the revised rules, the term is not defined the same way with respect to individuals associated with SEC Registered Advisers versus NY State Registered Advisers.
[5] A “natural person” is a human being, as distinguished from a person (such as a corporation) created by operation of law.
[7] The definition of “solicitor” is intended by the OAG to be consistent with the SEC’s definition in the Solicitation Rule under Investment Adviser Act Rule 206(4)-3. See 13 N.Y.C.R.R. § 11.12(k).
The Office of Compliance Inspections and Examinations (“OCIE”) recently sent out an alert highlighting the deficiencies regarding Rule 206(4)-7 (the “Compliance Rule”), a subsection of the Investment Advisers Act of 1940 (“Advisers Act”). It is significant for advisers to understand and uphold these requirements in order to avoid compliance violations.
The Compliance Rule has several notable requirements. First, the rule tells us that it is illegal for a registered adviser to provide investment advice unless the adviser has implemented written policies to uphold the requirements of the Advisers Act. Next, the rule requires brokers to formalize policies regarding their fiduciary and regulatory obligations under the Advisers Act. The act does not set out specifics of what should be included in these policies. However, it advises advisers to develop policies that incorporate the nature of their firm’s operations and have a system in place for any violations that may have occurred. In order to keep the policies current, the Compliance Rule also requires brokers to review these policies annually, taking into account any notable occurrences or changes. Lastly, the rule requires each broker to appoint a qualified chief compliance officer (“CCO”) as an administrator of their compliance policies.
OCIE notes that inadequate compliance resources, insufficient authority of CCOs, annual review deficiencies, inaction regarding written policies, and poorly written and inefficient policies summarize the weaknesses of parties subject to the Compliance Rule. This ineffectiveness, in turn, reveal over-arching issues of lack of accountability and oversight. In its alert, OCIE identifies and describes these deficiencies in detail, pointing to the lack of attention in this area.
Lack of adequate compliance training and minimal resource dedication are specifically cited in the report. In addition, firm CCOs lack access and involvement in important compliance matters. This, coupled with failure to perform annual reviews and failure to promote their own policies, reveals major weakness for many advisers and their firms.
We encourage firms to review their policies no less than annually and make compliance a priority.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Attorney Robert R. Boeche, II can be reached in the firm’s San Diego office at (619) 696-9500.
In October 2020, the U.S. Securities and Exchange Commission (“SEC”) proposed an order [1] which could expand when/what “finders” are permitted to receive as compensation without registering as a broker. Generally speaking, a finder connects investors with issuers of securities for a commission, or a finder’s fee. Currently, the Exchange Act of 1934 takes a narrow view on when it is permissible to pay finders without triggering registration requirements. The proposed order would create two classes of finders, each subject to conditions tailored to the scope of their respective activities:
1. Tier 1 finders would be permitted only to provide a list of potential investors, and their contact information, for only a single capital raising transaction per 12-month period. The finder could not contact the potential investors about the issuer or investment opportunity.
2. Tier II finders could solicit individual investors on behalf of an issuer, so long as he or she provides certain disclosures at the time of solicitation. The finder would be limited to these activities:
identifying, screening, and contacting potential investors;
distributing issuer offering materials to investors;
discussing issuer information included in any offering materials, provided that the Tier II finder does not provide advice as to the valuation or advisability of the investment; and
arranging or participating in meetings with the issuer and investor.
The order proposes exemption from registration as a broker at the Federal level, but does not provide relief from any state level restrictions on a finder’s activities. However, finders based in California may rely on Corporations Code Section 25206.1 for exemption from broker-dealer registration when connecting a California issuer with accredited investors if the offering is less than $15 million.
While the period to submit comments on the proposed rule has closed, the SEC has issued some remarks on the progress of proposed regulations. [2]
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Attorney Robert R. Boeche, II can be reached in the firm’s San Diego office at (619) 696-9500.
The SEC and other regulatory bodies have made protecting the non-public personal information of clients a top priority. This can be seen in the multitude of rules, enforcement actions and books, and records requirements imposed upon registrants in the past few years.
While those in the financial services industry are well aware of this fact, confidentiality of current clients is often overlooked when transitioning into a new job. Many brokers and financial advisors do not realize that the slightest miscue about privacy protection can have major consequences. However, there should be a huge emphasis in every professional setting to protect confidentiality of clients at all costs.
On September 9, 2020, FINRA handed down a disciplinary fine and suspension to financial advisor Patrick J. Knox for violating SEC regulation S-P and FINRA Rule 2010. These regulations prohibit financial advisors from disclosing non-public personal information about clients unless proper notice is given to the client and the client is given an opportunity to opt out of their personal information from being disclosed.
Per FINRA allegations, while he was still registered through an association with Lincoln Investment, and in anticipation of moving to a new employer, Mr. Knox printed a client list that contained “nonpublic personal information” about his clients including their names, social security numbers and dates of birth. He then proceeded to provide this list to his new employer without obtaining client consent. FINRA found these actions to be “improper” and in violation of Regulation S-P and FINRA 2010.
Without admitting or denying the allegations, Mr. Knox entered into an AWC, whereby FINRA suspended Knox for 10 business days and slapped him with a $2,500 fine. Additionally, such sanctions must be disclosed as part of the registrant’s public record.
Confidentiality and privacy protection need to be a top priority in every financial institution in order to protect clients’ interests and personal information. Those financial professionals seeking to transition to a new employer must remain mindful of such privacy rules that govern their practices and the industry as a whole.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Partner Robert Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
On August 26, 2020, the Securities and Exchange Commission (SEC) adopted updates to the definition of “accredited investor” under the Securities Act of 1933. Historically, only investors who met specific income or net worth requirements qualified for the accredited investor designation, which permits participation in private markets. Now, an individual can also qualify as an accredited investor based on established, clear measures of financial sophistication. Also, certain entity types that were previously excluded from the designation are now allowed.
The rules update formally codified positions long held by the SEC. It is now clear that Limited Liability Companies with assets in excess of $5 million may be accredited investors. Registered investment advisers, exempt reporting advisors, and rural business investment companies may also qualify.
These changes are examples of the SEC’s ongoing efforts to improve the exempt offering regulatory framework. The Commission characterizes the modernization effort as the “harmonization” of hodgepodge securities offering exemptions. By updating the framework and reworking definitions, the SEC seeks to expand investment opportunities and promote capital formation without compromising investor protections.
Highlights of the final rule amending the definitions include:
Natural persons can qualify as accredited investors based on certain professional certifications, designations, or credentials. Holders in good standing of Series 7, Series 65, or Series 82 licenses now qualify.
There is a new category of accredited investor for any entity that was not formed for the specific purpose of investing in securities, and that owns investments in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered. This category includes Indian tribes and government bodies.
These changes become effective no sooner than late October 2020.
We greatly appreciate Andrew Steiger’s contribution to our firm! Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We routinely represent broker-dealers and financial advisors in arbitrations, financial advisor transitions, broker protocol disputes and related matters. Please direct any questions to partner Robert R. Boeche II, Esq. and contact us today for a confidential, complimentary consultation.
Financial advisors (“FA’s”) at registered investment advisory firms (“RIA’s”) are facing yet another challenge atop already shaky markets. According to the June 2020 DeVoe & Co. Study Report[1] (the “Report”), owners and senior members of RIA’s are “approaching a succession crisis.” The Report notes that while the average RIA owner is in their early 60s and would prefer to pass on their loyal clientele and sell their well-established business internally, nearly 57% of surveyed RIA’s claim that a leadership transition would not only be difficult, but would create a “significant or severe challenge,” for the RIA. However, it is not too late to begin creating and bolstering a comprehensive succession plan.
Bolster Your Plans and Put Your Clients at Ease
Succession planning is the process, or “road map” of determining how the transfer of a business enterprise will occur following a “succession event” (e.g., upon the death, disability or retirement of a founder or a monetization event). Proper succession planning allows the surviving or continuing partner(s) to continue to run the business and provides liquidity to the departing partner or his or her estate. The succession plan itself will vary depending on the FA’s/RIA’s business model and should be customized accordingly. Specifically, succession plans should cover provisions which include, among other things: “performing due diligence, establishing a valuation for the firm, instructions as to transferring assets (if required), financing options, and/or determining whether additional notice filings/registrations are required.”[2]
For most advisors, their clients and book of business are the result of many years of hard work and dedication, and is typically their family’s greatest single asset. Planning for an unexpected succession is a vital part of any business and must be in place before the succession event occurs – by which time it is usually too late to put a proper plan into effect. If you have previously created a plan, it is important to dig up your old succession plan periodically and review the document to spot where it could use updating. If you’re currently operating without a formalized succession plan in place, it is important to implement a plan that identifies who will oversee servicing client accounts should a succession event occur on a short, intermediate, or long-term/permanent basis. Shustak, Reynolds & Partners, P.C. can help review your current succession plan, or develop a customized plan, that ensures your business operations continue unabated, and that you’re properly compensated should a “successn event” occur.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Partner Robert Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
This is a reminder to registered investment advisers about the requirements surrounding your Form ADV annual amendment filing. For most registered advisers,[1] the deadline to file the firm’s Form ADV is rapidly approaching. According to Rule 204-1 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), registered advisers are required to file an annual amendment to Form ADV Parts 1 and 2 “annually, within 90 days of the end of your fiscal year.” As most firm’s have a fiscal year-end of December 31, the deadline to make this year’s annual filing is March 30, 2020. Subsequently, per Rule 204-3(b)(2) and (b)(4), advisory firms must deliver the amended Form ADV Part 2 to clients “within 120 days after the end of your fiscal year.”
This year however, in response to the current outbreak of coronavirus disease 2019 (“COVID-19”), the Securities and Exchange Commission (“SEC”) has provided temporary relief to advisory firms[2] impacted by COVID-19. Specifically, per the SEC’s order, a temporary exemption has been adopted that covers filing and delivery obligations as specified in the Advisers Act that are otherwise due in the period from the date the order was issued through April 30th. The order goes on to state that the time period could be extended, and additional exemptions may be provided.
However, it is important to note that the SEC’s relief is not self-effectuating. Rather, per the terms of the SEC’s order, registrants seeking to rely upon such relief provisions must satisfy the following conditions:
(a) The registered investment adviser (or exempt reporting adviser) is unable to meet a filing deadline or delivery requirement due to circumstances related to current or potential effects of COVID-19;
(b) The investment adviser relying on [the SEC’s order], with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement required by Rule 204-3(b)(2) or (b)(4), promptly provides the SEC via email at IARDLive@sec.gov and discloses on its public website (or if it does not have a public website, promptly notifies its clients and/or private fund investors of) the following information:
1. that it is relying on [the SEC’s order];
2. a brief description of the reasons why it could not file or deliver its Form on a timely basis; and
3. the estimated date by which it expects to file or deliver the Form.
Further, it is important to remember that state-registrants do not necessarily receive the same exemption. Such firms impacted by COVID-19 should contact the respective state(s) in which they are registered to determine whether such an exemption is applicable.
Should your firm need any assistance with interpreting the provisions of the SEC’s order and/or performing your Form ADV annual amendment filing, Shustak Reynolds & Partners is here to help. Please contact us by visiting our website at https://www.shufirm.com/contact/ or by calling (619) 696-9500.
[1] Including those entities relying upon the “Exempt Reporting Adviser” statutes under 203A(a)(1)(A) of the Advisers Act.
[2] The SEC’s order also provides relief for Exempt Reporting Adviser and private fund reporting (via Form PF) requirements.
A lot of noise has been made about the new Form CRS, but what exactly does it mean for registered investment advisers? On June 5, 2019, the Securities and Exchange Commission (the “SEC”) adopted Form CRS and new rules, as well as amendments to its forms and rules, under both the Investment Advisers Act of 1940 (“Advisers Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). While changes to the Exchange Act were substantive, for purposes of this article, only changes to the Advisers Act and subsequent additional requirements to investment advisers registered with the SEC will be discussed. Below is a “Q&A” of some of the more common questions being asked about Form CRS.
Per the SEC’s “Form CRS Relationship Summary; Amendments to Form ADV”[1] as part of the new rules, the SEC “adopted rule 204-5 (delivery of Form CRS) and amended the following form and rules: Form ADV to add a new Part 3: Form CRS, rule 203-1 (Application for investment adviser registration), rule 204-1 (Amendments to Form ADV), and rule 204-2 (Books and records to be maintained by investment advisers).” Basically, the SEC created a new document that needs to be drafted and filed as part of each SEC registrant’s Form ADV filing, which subsequently must be kept in the firm’s books and records in accordance with applicable books and records keeping requirements.
2. Is the New Form CRS in Addition to Current Form ADV Requirements?
Yes. The SEC is considering Form CRS to be “Form ADV Part 3” and is therefore in addition to all current Form ADV disclosure requirements.
If your firm is registered with the SEC, likely yes. According to the new rules, “every firm that offers services to retail investors must file.”[2] The SEC goes on to define “retail investors” as “a natural person, or the legal representative of such natural person.”[3] However, if your firm is registered at the state-level, you will want to confirm with the respective state’s governing body. Several states have chosen not to implement Form CRS requirements at this time.
4. What Needs to be Included in Form CRS?
There are five topics that are required to be addressed as part of Form CRS: (1) Introduction; (2) Relationships and Services; (3) Fees, Costs, Conflicts, and Standard of Conduct; (4) Disciplinary History; and (5) Additional Information. Each topic must be discussed in “plain English” and drafted pursuant to certain electronic and graphical formatting requirements. Additionally, the Form CRS is strictly limited to two (2) pages (or 4 if the firm is a dual registrant). The SEC has provided instructions to assist in the drafting of Form CRS as part of its adopting release which can also be found on the SEC’s website.[4]
5. Is there Any Special Considerations Regarding Form CRS?
Yes, quite a few actually. Below are some of the more important considerations:
Delivery: If delivered electronically, Form CRS must be “prominent’ by including it as an attachment or providing a direct link to the document. If delivered in paper format, Form CRS must be first among any documents delivered at that time.
Disseminating Form CRS: Form CRS must be provided to each retail investor:
Before or at the time the firm enters into an investment advisory contract with the retail investor;
Each time a retail investor opens a new account that is different from the retail investor’s existing account(s) (i.e., if a client opens an account for an IRA after already having a joint account under advisement by the firm, the firm must send out Form CRS at that time);
Each time the advisory firm recommends the retail investor rolls over assets from a retirement account into a new or existing account or investment;
Each time the advisory firm recommends or provides new service or investment that “does not necessarily involve the opening of a new account and would not be held in an existing account;”[5]
Within 30-days of a retail investor’s request;
Within 60-days following any updates/revisions to the current version; and
Annually within 120-days following the end of the advisory firm’s fiscal year.
6. When Does All of this Need to Happen?
For existing SEC registrants, Form CRS must be filed as part of an “other than annual amendment” made by the firm no later than June 30, 2020.[6] Firms applying for registration with the SEC on or after June 30, 2020 will need to include Form CRS as part of its registration application.
As evidenced above, new Form CRS will require not only the drafting of a new disclosure document, but also additional policies and procedures to ensure its content, delivery, dissemination and recordkeeping are in accordance with the new rules promulgated by the SEC.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. To speak with an attorney, contact us at (619) 696-9500.
[6] The IARD system will first be accepting such revisions as of May 1, 2020, so registrants only have a two-month window in which to complete the filing.
