Tag Archives: IA

Investment Adviser Representative Registration Requirement

Employees of Registered IAs Must Generally be Registered

State-registered investment advisory firms need to make sure that their employees who are deemed to be “investment advisory representatives” are appropriately registered. This means that any employee (or owner) of the IA firm who provides investment advice or who has supervisory authority will generally need to be registered with the state as a representative of the firm. In order to register, the applicant will need to have certain qualifications and generally the series 65 will be sufficient for these purposes.

There are consequences for not properly registering employees as investment advisor representatives. In an earlier article on whether IA firms can have silent owners, we discussed the fact that many state administrators have the power to censure or fine IA firms if they do not follow the registration rules. I recently stumbled across an example of a state taking such an action.

In the attached [intentionally removed], the Texas State Securities Board (“Board”) concluded that the “unregistered employee” of the registered investment advisory firm provided investment advice to IA clients for compensation and that the IA firm failed to maintain a supervisory system reasonably designed to ensure compliance with the Texas Securities Act and Board Rules. The Board reprimanded the IA firm and also ordered an administrative fine of $5,000. The firm was required to comply with the Act and Board Rules moving forward.

The two important take-aways from this order are:

  1. Always make sure employees are registered or clearly exempt from registration, and
  2. Always ensure that you have an up-to-date compliance program that helps to ensure that the firm will operate within all applicable laws and regulations.

We always recommend that registered IA firms discuss any registration and compliance related matters with an experienced investment management attorney with detailed knowledge of the laws of the state where the firm is registered.


Other related hedge fund law articles:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog.  Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund.  If you are a hedge fund manager who is looking to start a hedge fund or if you have questions about your investment advisor compliance program, please contact us or call Mr. Mallon directly at 415-868-5345.

IARD Fee Waiver for 2010

The press release below from NASAA, the representative body of the state securities administrators, announces an IARD (Investment Adviser Registration Depository) fee waiver for next year.  The fee waiver will cover both the IARD fees for registering investment advisory firms as well as the fees for individuals.  Previously firms had to pay an IARD fee to use the IARD system.  Now, firms which are registering as investment advisors for the first time (as well as firms filing investment adviser renewals) will not need to pay any IARD fees.  However, firms will still need to pay any applicable state fees.

Chief compliance officers of investment advisory firms should begin getting ready for the IA renewal process which begins in earnest in the beginning to middle of next month.  Keep checking in for more information on investment adviser registration and compliance.


October 13, 2009

NASAA Announces IARD System Fee Waiver

WASHINGTON (October 13, 2009) – The North American Securities Administrators Association (NASAA) today announced it will waive the initial set-up and annual system fees paid by investment adviser firms (IAs) and investment representatives (IARs) to maintain the Investment Adviser Registration Depository (IARD) system.

Denise Voigt Crawford, NASAA President and Texas Securities Commissioner, said, “The IARD system promotes effective and efficient investor protection through readily accessible disclosure of important information to the public while at the same time offering a consistent and streamlined registration process for investment advisers and their representatives. Given the current economic climate, we are pleased that the IARD system’s continued success will allow us to maintain the system fee waivers put in place in 2005 for investment adviser firms and also to fully waive for a second year the system fees paid by investment adviser representatives.”

NASAA’s Board of Directors approved the system fee waiver and will continue to monitor the system’s revenues to determine whether future fee adjustments are warranted.

The IARD system is an Internet-based national database sponsored by NASAA and the SEC and operated by FINRA in its role as a vendor.  IARD provides a single nationwide database for the collection and dissemination of information about individuals and firms in the investment advisory field and offers investment advisers and representatives a single source for filing state and federal registration and notice filings. The system contains the employment and disciplinary histories of more than 25,000 investment adviser firms and nearly 250,000 individual investment adviser representatives. IARD system fees are used for user and system support and for enhancements to the system.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

For more information:
Bob Webster, Director of Communications


Other related articles on investment advisers:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog.  Mr. Mallon’s law firm provides registration and compliance services to start up investment advisory firms.  If you are interested in starting your investment adviser, please contact us or call Mr. Mallon directly at 415-868-5345.

Investment Adviser Registration Filing Tips

How to get an IA application approved quickly

Occasionally we find the opportunity to comment on other blog posts from other legal professions within and outside of the investment management industry.  A legal blogger who I regularly follow is David Feldman from the Reverse Mergers & SPAC Blog.  David is the expert in the reverse mergers field and has authored the authoritative text Reverse Mergers: Taking a Company Public Without an IPO (Bloomberg Press).  In his post yesterday, Speeding a Self-Filing, he discusses some tips that are designed to help self-filers get through the registration process as quickly as possible.  The points are well-received and I would like to take the opportunity to discuss a couple of the points as they relate to the investment adviser registration process with the various state securities commissions.  [Note: unlike other types of regulatory filings with the SEC, a SEC investment advisor registration is fairly quick and relatively straightforward.  Managers should be aware, however, that the SEC is likely to do a quick examination within the first couple of months after a hedge fund manager registers with the SEC.  Usually this is to make sure the advisor is broadly aware of the compliance issues involved with being registered with the SEC.]


Tip 1

Respond quickly to comments: Management is busy, so are the lawyers and accountants. Nevertheless, one part of the process in your control is how fast you get back to the SEC when they have comments. If you care about getting the self-filing done quickly, drop everything and get the response done as soon as possible.

HFLB thoughts: it is the rare case when a state investment advisor registration gets approved without some sort of comment or inquiry from the securities commission.  Depending on the state, the inquiry can be more or less detailed and probing.  In most cases, however, once an inquiry is provided to the applicant, registration is likely to be right around the corner.  Accordingly, once an inquiry is provided to the manager, the manager and the lawyer should work to get a response drafted immediately.

Tip 2

Don’t argue on comments you will probably give in on later: Often a company or accountant will say, well, we think they will very likely not give us any room on our response, but let’s try and see what happens. If you care about the speed of the process, it is usually not worth challenging comments if your advisers believe there is virtually no chance of success.

HFLB thoughts: we would also like to add that if the regulators are asking for something that does not materially affect the investment program or the manner in which the management company will operate, the manager might be better off acquiescing instead of fighting.  I have had groups fight with regulators on principles only to later abandon the fight for practicality.  There is definitely an element of picking your battles wisely.

Tip 3

Always be respectful: The SEC is an important and powerful government agency. Almost everyone I have worked with there are highly intelligent and well-meaning folks. But their focus sometimes jibes with that of companies they are seeking to regulate for the protection of investors. Make sure you are always respectful and responsive to the SEC. Not only do they deserve it, but belligerence is just as likely to lead to more ire from them than positive results.

HFLB thoughts: this is an extremely important point.  Regulators are charged with a tough and important job and it does not help anyone to be anything less than absolutely respectful.

Many of the above comments apply equally as well for those groups who are registering with other regulatory bodies such as the CFTC (as a CPO or a CTA) and who need to go through the NFA disclosure document review process.


Please contact us if you have any questions about investment advisor registration or if you would like information on starting a hedge fund. Other related hedge fund law articles include:

Bart Mallon, Esq. runs hedge fund law blog and has written most all of the articles which appear on this website.  Mr. Mallon’s legal practice, Cole-Frieman & Mallon LLP, is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund.  If you are a hedge fund manager who is looking to start a hedge fund, or if you have questions about investment adviser registration with the SEC or state securities commission, please call Mr. Mallon directly at 415-296-8510.

Form U4 and Form U5 | Information About the Uniform Registration Forms for Broker-Dealers and Investment Advisors

Purpose of the Forms and Discussion of Recently Approved Changes & Requirements

The Financial Industry Regulatory Authority (FINRA), is the largest independent regulator for all securities firms doing business in the United States, and is the entity designated as the filing depository by the U.S. Securities and Exchange Commission for purposes of the Investment Advisers Act of 1940.  There are currently six different Uniform Registration Forms that are used to file information with FINRA. The Form U4 (Uniform Application for Broker-Dealer Registration) and the Form U5 (Uniform Termination Notice for Security Industry Registration) are used by broker-dealers to register, and terminate the registrations of, associated persons with self-regulatory organizations (SROs), and jurisdictions.

Representatives of broker-dealers and investment advisers use Form U4 to register with the states and with self-regulatory organizations (e.g., FINRA). Forms are filed electronically by their employing firms using the Central Registration Depository (Web CRD or IARD). Broker-dealer agents and investment adviser representatives have an obligation to update previously filed Forms U4 with any new information required to be disclosed. FINRA makes information filed on Form U4 publicly available through its BrokerCheck program.

Broker-dealers and investment advisers use Form U5 to terminate a representative’s registration in a particular jurisdiction or with a particular self-regulatory organization. Firms terminating the registration of an associated person must respond to a series of disclosure questions. Firms also have the obligation to update previously filed Forms U5 if they become aware of new disclosure information.

As discussed above, Form U4 and Form U5 filings (initial applications. termination notices, and amendments) will generally be made electronically through Web CRD or IARD. However, some individuals may need to file the form on paper, including: agents of issuers, certain persons filing with stock exchanges, and certain investment adviser representatives. In addition, NASD Rule 1013 requires the submission of certain paper Forms U4 along with an initial membership application.

The SEC recently approved amendments to Forms U4 and U5 that were proposed by FINRA that call for significant changes to disclosure questions on the Forms, including the addition of questions about certain regulatory actions. The new  amendments to the Forms include:

  • New regulatory action questions that will enable FINRA and other regulators to identify more readily persons subject to a particular category of “statutory disqualification” under the federal securities laws and the FINRA By-Laws. Among the items that would cause a person to become subject to a statutory disqualification are “willful” violations of the federal securities laws, the Commodity Exchange Act, or the rules of the Municipal Securities Rulemaking Board. Under the proposed rule changes, both Forms U4 and U5 would be amended to add questions requiring disclosure of findings of “willful” violations.
  • New questions that require firms to report allegations of sales practice violations made against a registered person in an arbitration or litigation in which the registered person is not a named party. Under the new amendment, reporting would be required if the registered person was either named in or could reasonably be identified from the body of the arbitration claim or civil litigation as a registered person who was involved in one or more of the alleged sales practice violations.
  • An increase in the monetary threshold for reporting settlements of customer complaints, arbitrations or litigation from $10,000 to $15,000.
  • The clarification that the date to be provided by a firm in the “date of termination” field is the “date the firm terminated the individual’s association with the firm in a capacity for which registration is required.” Under the new amendment, a firm would be permitted to change the date of and reason for termination, but would be required to state a reason for the change.

The revised Forms were implemented in Web CRD on May 18, 2009. The effective date for most of these changes  is May 18, 2009 (the “release date”). The effective date for the new regulatory action disclosure questions will be 180 days from the release date, or November 14, 2009.

Key Items Regarding the Forms Changes:

Invalidation of Pending Form Filings Upon Web CRD System Shutdown:

  • Implementation of the revised “form versions” will cause all pending (in-process) Form U4 and U5 filings that are not submitted to Web CRD prior to system shutdown on Friday, May 15, 2009, to become invalidated (i.e., converted to a read-only mode). Firm users that still need to submit the information on those invalidated filings will need to recreate the filings using the new forms.

Form U4 Amendments Required:

  • All registered persons are required to answer new regulatory action disclosure summary questions the next time they file a Form U4 amendment or no later than 180 days following the release date.

Copies of the revised Forms and instructions are available here.


Please contact us if you have any questions or would like to start a hedge fund.  Other related hedge fund law articles include:

SEC and Registered Hedge Fund Investment Advisors: Report by the GAO

This article is part of a series examining the statements in a report issued by the Government Accountability Office (GAO) in February 2008.  The items in this report are important because they provide insight into how the government views the hedge fund industry and how that might influence the future regulatory environment for hedge funds.  The excerpt below is part of a larger report issued by the GAO; a PDF of the entire report can be found here.

There are many important items in the except below.  While many hedge fund investment advisors are no longer registered with the SEC because the hedge fund registration rule was vacated by a circuit court judge, many hedge fund managers are registered.  As I have done with certain previous articles (see SEC Emphasizes IA Compliance for Hedge Funds), I believe that the following excerpt should be required reading for all investment advisor chief compliance officers (CCOs). The article discusses, the areas which the SEC examiners are likely to emphasize during an examination.  Such areas include: soft dollars, prime brokerage, calculation of the performance fee, valuation of hedge fund assets, and custody of hedge fund assets.

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