How to Register as an Investment Advisor

Many hedge fund managers come from brokerage firms or other investment advisory firms and may, accordingly, have some of the FINRA licenses like a Series 7 or a Series 65.  However, most managers have not registered an as investment advisor and do not understand the process.  This guide is designed to familiarize managers with the  investment advisor registration process.

Investment Advisor Compliance Firm

First, you will want to find a firm that will help you through the process of registering as an investment advisor.  A hedge fund lawyer or a hedge fund compliance firm (usually consisting of former SEC or state securities commission examiners) will be able to help you with this process. Potential investment advisors should not try to go through the registration process by themselves – it will take too much time and subject the advisor to potential liability.

Jurisdiction

The manager can register as an investment advisor with the SEC or the state securities commission of the state in which the manager resides.  The manager should have a conversation with the lawyer or complaice firm regarding the pros and cons of the registration with the SEC or state.  Generally, however, a manager will only be able to register with the SEC if the manager has at least $25 million under management.

Cost

The costs should be the same for the advisor whether they go with a hedge fund lawyer or with a compliance firm.  Generally, for state-registered investment advisers, the professional fees run anywhere from $2,500-$3,500 for the registration.  For SEC-registered investment advisors, the professional fees will run anywhere from $4,000 to $8,000 depending on the complexity of the investment advisory firm.
The above costs are service provider fees and do not include the fees an investment advisor firm will pay to the state of residence of the investment advisor.  Such fees will generally include the following:

  • IA firm registration fee (State registered IAs only)
  • IA representative fee
  • Form U-4 fee
  • Notice filing fee (SEC registered IAs only)
  • Other miscellaneous fees

Tests

The manager who is registering to be an investment advisor will typically need to have taken and passed the Series 65 exam within the two years prior to registration.  Most all states will also allow managers to register if they have the Series 7 exam and the Series 66 exam.  Since most managers who have the Series 7 will not have the Series 66, the managers will need to take this exam.

Additionally, most states will not require a manager to have any of the above exams if they have one of the following designations

  • Chartered Financial Planner (CFP);
  • Chartered Financial Consultant (ChFC);
  • Personal Financial Specialist (PFS);
  • Chartered Financial Analyst (CFA); or
  • Chartered Investment Counselor (CIC).

Forms

The investment advisor will need to complete a wide variety of forms during the registration process.  These forms include:

IARD entitlement Forms – “IARD” stands for the Investment Adviser Registration Depository which is sponsored by the SEC and the NASAA (the association of state securities regulations, www.nasaa.org) but which is operated by FINRA.  As the IARD system is an online system, these forms need to be manually completed and processed by FINRA before you can begin the registration process.  The forms can be found here: IARD Entitlement Forms

Form ADV – this is the form which all investment advisors complete.  When a firm is registered with the SEC or the state, then the filings can be seen here by typing in the advisor’s name.  Please see Form ADV.  (HFLB note: we will have a detailed guide on Form ADV coming out soon.)

Form ADV Part II – this is the part of Form ADV which provides more information on the advisor’s activities.  It is sometimes refered to as the investment advisory “brochure.”  Please see Form ADV Part II.  (HFLB note: we will have a detailed guide on Form ADV Part II coming out soon.)

Form U4 – this form will need to be completed for all members of the firm which will be investment advisor representatives.  If such members have been in the securities industry for a while, they will likely already have a U4 on file with FINRA.  (HFLB note: we will have a detailed guide on Form ADV Part II coming out soon.)

Registration Timeline

Your compliance provider will be able to help you determine how long it will take to become registered as an investment advisor.  Generally SEC registration will be quicker than state registration and many times registration can be completed within 2 to 4 weeks.

State registration is more difficult to determine and will depend on the state of registration.  A state like California may take 6 to 8 weeks.  A state like South Carolina will take about 2 weeks, it just depends and you should discuss this issue with your compliance provider if the registration is time sensitive.

Other helpful articles include:

Please contact us if you would like to register your firm as an investment advisor or if you have any questions on the above.

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  14. Victor Amakom

    I currently have FINRA Series 7 , 66 and 31. I am not affiliated with any brokerage firm. I live in Utah and I have my own company (LLC) incorproated in Utah. I would like my company to be an Investment Advisory company. We will not be holding any of clients funds nor transact securities (buy or sell). We will only be providing investment advisory services mostly for people ion Utah and foreign companies and individuals that want to do business in US. Please advise.

    Thanks,

    Victor

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