The distinction between state and SEC registration is one of the most fundamental regulatory questions every investment adviser must answer. Under the Investment Advisers Act of 1940, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the line of demarcation sits at $100 million in regulatory assets under management (RAUM). Advisers with RAUM below this threshold generally must register with the state(s) in which they maintain a place of business, while those at or above $100 million are eligible for SEC registration. Between $100 million and $110 million an adviser may choose SEC registration, and at $110 million it must register with the SEC. An SEC-registered adviser need not withdraw unless its annual updating amendment reports less than $90 million.
State registration is governed by each jurisdiction's individual securities statutes, and the requirements can vary considerably. Requirements vary by state, including minimum net worth and bonding rules and qualification exams for advisory personnel. Every state requires advisers to file Form ADV through the Investment Adviser Registration Depository (IARD) system, but state-specific requirements often catch first-time registrants off guard.
Exempt Reporting Adviser (ERA) Status
Exempt reporting adviser (ERA) status occupies a middle ground that many smaller advisers overlook. Under certain federal exemptions, such as the private fund adviser exemption or the venture capital fund adviser exemption, firms that would otherwise need to register with the SEC may instead file as an ERA. However, ERAs are still subject to state regulatory authority, and some states impose registration or notice-filing requirements on ERAs that go beyond what the federal exemptions contemplate. Advisers should not assume that federal ERA status automatically exempts them from all state obligations.
Multi-State Registration Obligations
Multi-state registration obligations represent another layer of complexity for growing firms. An adviser with a place of business in one state that has clients in several other states may need to notice-file or register in each of those additional jurisdictions. The national de minimis standard in Section 222(d) of the Advisers Act binds every state: an adviser with no place of business in a state need not register there if it has had fewer than six resident clients in the preceding twelve months. Once a state-registered firm reaches six clients in the additional state, it must register there; an SEC-registered firm makes a notice filing instead where the state requires one.
Transition Triggers Between State and SEC Registration
Transition triggers between state and SEC registration are not always straightforward. An adviser whose RAUM crosses the $100 million mark must evaluate whether SEC registration is mandatory, permissible, or prohibited based on several factors including the state(s) in which it is registered and whether specific exemptions apply. New York does not examine investment advisers, so mid-sized advisers ($25 million to $100 million) with a principal office in New York register with the SEC rather than the state. The transition requires filing Form ADV with the SEC and withdrawing state registrations through Form ADV-W.
Preparing for the Transition
Firms approaching the transition zone should begin preparation well in advance of crossing the $100 million threshold. This means reviewing the firm's compliance manual to ensure policies address SEC-specific requirements such as the custody rule, proxy voting policies, and the code of ethics rule under Rule 204A-1. The SEC's examination program operates differently from most state programs, with a greater emphasis on risk-based examination selection. Understanding these differences and adapting the firm's compliance infrastructure accordingly is essential for a smooth transition.
Compliance Approved Support
Compliance Approved helps advisers navigate the state-versus-SEC registration landscape by providing a regulatory calendar for filing deadlines, home-state requirement tracking for state-registered firms, and policy management for the policies each registration type requires. Whether your firm is solidly in the state-registration camp, preparing for a transition to the SEC, or managing multi-state obligations, having a systematic approach to registration compliance reduces the risk of costly regulatory missteps.