3 Key Boxes to Check Off before Registering your RIA

So, you’ve decided to go independent and are committed to starting your RIA. Congrats! This is an exhilarating step for many soon-to-be business owners as you visualize your best life, dream practice, and ideal clients. What often gets overlooked until much later in the planning phase is registering as an investment adviser at the State or SEC level and how to prepare for that effectively. 

Here are the compliance-related areas you should focus on before registering your RIA. These include 

• Determine where you will need to register and the requirements to do so.
• Understanding the typical time frame for registration and how that plays into your overall timing for launching your firm.
• Advance work that will help you minimize unnecessary delays and contribute to a more seamless RIA registration process regardless of your jurisdiction

Determine the Jurisdiction in which you will be registered

Eligibility for SEC Registration 

In general, you are eligible to register with the SEC if you have $100,000,000 in regulatory assets under management (RAUM) or reasonably expect to reach that amount of RAUM within 120 days of becoming registered with the SEC. 

There are a few exceptions to this. We will not cover every one of those in detail, but here’s an overview of the top few that have applied to a limited number of XYPN members and their firms in the past. 

• Multi-State Adviser: “An adviser that upon submission of its application for registration with the Commission, is required by the laws of 15 or more States to register as an investment adviser with the state securities authority in the respective States, and thereafter would, but for this section, be required by the laws of at least 15 States to register as an investment adviser with the state securities authority in the respective States”

• 120-Day Exemption: “An adviser that, immediately before it registers with the Commission, is not registered or required to be registered with the Commission or a state securities authority of any State and has a reasonable expectation that it would be eligible to register with the Commission within 120 days after the date the investment adviser's registration with the Commission becomes effective.”

• Internet Investment Adviser: ‘An adviser that provides investment advice to all of its clients exclusively through an operational interactive website at all times. This is limited to those who “provide digital investment advisory services on an ongoing basis to more than one client whereby all investment advice is generated by the operational interactive website’s software-based models, algorithms, or applications based on personal information each client supplies through the operational interactive website.”

• Mid-Sized Adviser: Currently restricted mainly to New York-based investment advisers, a mid-sized adviser, eligible for SEC registration, is one who has regulatory AUM of at least $25,000,000 but less than $100,000,000 and is not subject to regulatory examination by the state where their principal place of business is located.

If one of these exceptions to the $100M RAUM requirement for SEC eligibility applies to you, please keep in mind that there are additional record-keeping requirements to ensure continued eligibility based on that exception.

State Registration 

For most new firm owners who are not eligible for SEC registration, you must register at the state level. While registering at either level requires sufficient planning and preparation, navigating state registration as an investment adviser can be more challenging, depending on your situation and primary jurisdiction. 

Your primary jurisdiction is the state in which your principal office and place of business will be located. To keep things simple, most of your advisory activities will take place in your principal office and place of business. Whether this location is a commercial office, co-working space, or a home office at your private residence, your primary jurisdiction at the state level is largely determined by this principal location. You must usually register as an investment adviser before registering in any other state. 

The requirements for investment adviser registration vary significantly by state, but in many cases, beyond the required filing fees and preparing and filing Form ADV and Form U4 (reminder: check out our Essential Guide to RIA Registration for the specifics on the process) to initiate the firm’s and each IARs registration application, you must 1) meet the exam requirements as an Investment Adviser Representative (IAR); 2) meet minimum net capital requirements: and 3) submit any additional state-specific documents as required.

1. 1. Examination Requirements: The standard exam requirement for registration as an Investment Adviser Representative under an RIA is to pass the Series 65 Investment Adviser Law Examination. However, there are a few alternate ways to satisfy this requirement. 
      1. • For those coming from the Broker-Dealer or hybrid BD/RIA space, it is most common to have the Series 66 and Series 7 combination. In most states, applying for registration with an active (not expired) Series 66 and Series 7 will satisfy the exam requirement for registration. A quick note on Series 7: You generally only need to show evidence of having previously passed the Series 7 exam, not maintain an active Series 7. The Series 7 will drop off your active examinations on your CRD Record after no longer being registered with a BD for at least 24 months. Your CRD Record should still show that you previously held Series 7, which should be sufficient as long as your Series 66 has been maintained by being registered in the capacity of an IAR under an RIA within the last 24 months. 
         • There are also several professional designations that, if maintained in good standing, will also satisfy the exam requirement. These include the CFP, CFA, PFS, CIC, and ChFC designations. In limited cases, depending on your state and specific situation, other exam waivers or professional designations can be relied on to satisfy this requirement. 
           
           
   2. Minimum Net Capital Requirements: While many states require that all investment advisers be solvent at all times, several states have varying net capital requirements to register as an RIA. These requirements may be based on whether or not your firm has discretionary authority or custody over client assets, or they may apply to all investment advisers in that jurisdiction. Some, but not all, states permit the use of surety bonds to meet the difference if you do not meet the net capital requirements. It's essential to know and understand the net capital requirements of your home state before getting into the registration process. 
      1. • A quick tip is to search “Investment Adviser net capital requirements in [your state]” and locate the references to these requirements or regulations on your state’s website…or contact your state regulator to confirm their requirements directly. 
         • A handful of states will require you to submit a balance sheet and other financial documents to evidence that you meet the net capital requirements, if applicable. It is a good practice to establish your business bank account prior to the RIA registration process.
           
           
   3. Additional State Required Documents: Speaking of possible additional documents that may need to be submitted, several states have additional forms that they require to be submitted as part of your registration application. As mentioned above, this can include financial statements. It can also include affidavits/attestations regarding prior business activity in that state, state, or federal background checks, fingerprint submission requirements, and other unique forms as required. These are usually discussed on each state securities division’s website - often under a section for Investment Advisers. Our compliance team will always help you navigate this as part of our RIA Registration Services. 

Understand the timing of RIA Registration and plan accordingly

If you register with the SEC, you can reasonably expect the registration process to take 30-45 days after the firm’s Form ADV and & CRS have been filed, assuming everything was completed correctly. 

If you register at the state level, the process typically takes longer and varies significantly between states. A general expectation would be to plan for state registration to take between 6-8 weeks after a complete application has been filed. Some states can take significantly longer, and the time frame for many states can vary based on your planned business model, the depth of the state’s review process, their staffing and volume of existing registrations, and any concerns that they have and ask about during the process. 

Regardless of your jurisdiction, plan for an additional 1-3 weeks on the front end to prepare your registration application, either on your own or with our compliance team. Our team has substantial experience in nearly every jurisdiction related to RIA Registration and can help simplify navigating this process and take much of the work off your hands. 

Flexibility and planning well before your desired launch date are essential. Starting the registration process 3-5+ months before you would like to launch is generally good practice. 

Preparing in Advance for the RIA Registration Process

While we cannot control the timing of the process within any given state, there are certainly a few things you can do to help prepare yourself that will cut down on unnecessary delays and ensure you are prepared to answer any questions that may come up during the registration process. 

• Make sure you have thought through your initial service model and desired fee arrangements before engaging in the registration process. You should know, in sufficient detail, what services you will be prepared to provide clients upon launching your firm (not what you may want to do 12+ months down the road - that can be added later), how those services will be separated as well as how each will be delivered, how often you plan to meet with each client, what deliverables you expect to provide to clients under each service, how you will document the delivery of the service and work provided to each client over time, and how you will charge for each service. 

1. • Your fee schedules must include the following: The amount of the fee or range of fees and how the fee is determined for each client, the methodology for calculating any fees if applicable (How you calculate % of AUM or % of Income & Net worth, etc… for example), whether fees are paid in advance or arrears, how often fees will be paid, what payment methods will be accepted, and how termination and refunding of any prepaid but unearned fees are handled. 

• Remember that some states determine the reasonableness of specific fee arrangements differently than others. 

1. • For investment management services, specifically with fees based on a percentage of assets under management, the typical standard for reasonable fee arrangements is that the annual fee does not exceed 2% of the client’s managed assets. If you are using a TAMP or other third-party asset manager, make sure to consider the amount of their fee as well, whether or not you will cover it, understand how their billing is addressed, how it differs from your proposed fee structure, and who will handle the billing of their fee versus your fee. 
   • For financial planning services, states currently vary significantly on their understanding of and comfortability with firms who provide ongoing financial planning as a core service. It is important to have this service ironed out at a pretty detailed level, even if it may change down the road so that it can be accurately and sufficiently disclosed during the registration process and communicated to the regulators should they have any questions regarding how you will deliver the service. Some states require fees to be tied back to a reasonable hourly rate, some want to see services provided to each client during each period in which you bill the client, and others simply want to know that it is clearly disclosed to clients what they should expect to receive over the year and how they will be billed for that service. Our compliance team can help you navigate the nuances of this for your state through our RIA Registration Services. 

Before diving into this endeavor, ensuring you’ve covered all regulatory bases is crucial. First, determining whether you need to register at the state or SEC level and understanding the specific eligibility requirements are paramount. Timing is also critical; whether you opt for SEC or state registration, expect varying processing periods that can impact your launch plans. Finally, thorough preparation is key—anticipating compliance needs, from jurisdiction-specific requirements to service model clarity, will expedite your registration and lay a solid foundation for your advisory practice’s future success. By addressing these key areas meticulously, you set the stage for a smooth RIA registration process and pave the way for a promising start to your independent advisory journey.