The U.S. Securities and Exchange Commission (SEC) defines an investment adviser as “an individual or firm that is in the business of giving advice about securities to clients.” 2Investment advisers are required to register either with the SEC or the securities agency for the state in which the investment adviser’s principal place of business is located. Investment advisers who manage $30 million or more in client assets are required to register with the SEC, using a form called Form ADV. Investment advisers who manage $25 million or more may register with the SEC, but are not required to do so unless their assets under management total $30 million or more. Advisers whose client asset management is under $25 million must register with their home state securities agency. 3
A registered investment adviser often is referred to as an “RIA.” SEC-registered RIA’s must file annual reports with the SEC. State-registered RIA’s must file updated reports in accordance with the applicable state’s reporting requirements. Once registered, SEC-registered RIAs are required to report on an ongoing basis to the SEC and the public certain legal and disciplinary events, including the following:
RIA’s registered with the SEC must disclose all of the above items on their annual report to the SEC, consisting of an updated Form ADV Part 1A.
In addition to the above items, RIAs registered with the state of their principal place of business must disclose information about surety bonds if required by the RIA home state, unsatisfied judgments and liens, investment-related judicial actions (court lawsuits) AND arbitrations filed against the RIA or its representatives. These additional disclosures are unique to state-registered RIA’s; SEC-registered RIA’s need not report these items on Form ADV, Part 1A. Those RIA’s registered with a state must disclose the criminal and regulatory items described in the previous paragraph on their Form ADV Part 1A, and the items in this section (surety bonds, unsatisfied judgments and liens, judicial actions, and arbitrations) on Form ADV Part 1B.
The SEC encourages investors to research investment advisers and brokers before investing with them. To help investors with this process, the SEC makes publicly available SEC-registered RIA forms and filings in its Investment Advisor Registration Depository (IARD). The public can research any RIA currently registered with the SEC by searching the advisor at the SEC’s Investment Adviser Public Disclosure website (IAPD) at the SEC IAPD Home Page 4Investors also can search for each state’s regulator contact information at the North American Securities Administrators Association’s (NASAA’s) State Regulator Search Page, to research state-regulated RIAs. 5
Unlike broker-dealers (B-D’s), RIA’s are not required to report the above information to the Financial Industry Regulatory Authority (FINRA). FINRA maintains separate records and filings by registered B-D’s in its Central Registration Depository database, which the public can access through FINRA’s Broker Check program online. 6
For more information about investor education, visit the SEC’s retail investor information page at http://investor.gov/.
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1 Ms. Toleno is a partner in Shustak & Partner’s San Diego office specializing in securities litigations and arbitrations.
2 See http://sec.gov/investor/pubs/invadvisers.htm
3 Pursuant to SEC rule adopted in January, 2011, that amount is going to increase to $100 million but the effective date of the implementation of the rule has been delayed until July, 2011 and may be delayed even further. This is the current rule as of the time this article was written.
4 See http://www.adviserinfo.sec.gov/(S(nsvufniwzmr0r3fqtdjwixzx))/IAPD/Content/IapdMain/iapd_SiteMap.aspx.
6 See http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm.