State Licensed Investment Adviser
Note: On the web pages below, references are made to the Rules as found in Title 10, Chapter 3, California Code of Regulations (“CCR”). For information concerning the CCR and accessing sections of the CCR referenced on these web pages, click here.
WHAT IS AN INVESTMENT ADVISER?
It is as simple as ABC. An investment adviser (“IA”) is defined in Corporations Code (“Code”) Section 25009 generally as any person who, for Compensation, engages in the Business of Advising others, either directly or indirectly through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, publishes analyses or reports concerning securities. (See Section 25009 for a complete definition exclusion)
SHOULD A PERSON REGISTER WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) OR THE STATE OF CALIFORNIA?
It depends on certain statutory criteria. The SEC requires an investment adviser to register with the SEC if it has assets under management of at least $100 million or the investment adviser provides investment advice to an investment company registered under the Investment Company Act of 1940 (SEC Rule 203A-1). If the investment adviser has between $25 and $100 million of assets under management and must register with 15 or more states, the investment adviser must register with the SEC. If an investment adviser is eligible for an exemption as found under Dodd-Frank, it may also register with the SEC. If the investment adviser does not meet SEC statutory criteria, the investment adviser must be registered or licensed by a state, unless otherwise exempt.
Generally, the SEC regulates investment adviser firms with more than $100 million in assets under management (and certain other investment adviser firms that meet other statutory criteria). The states regulate investment adviser firms with less than $100 million in assets under management and fee-only financial planners.
Exemptions from the licensing requirement for broker-dealers and investment advisers are found in Code Sections 25200 thru 25209 and California Code of Regulations (“CCR”) Sections 260.200 thru 260.204.12.
Code Section 25202 is specifically related to investment advisers that are registered, licensed, or qualified, by another state and provides a de minimis exemption from the licensure requirement to any investment adviser that (1) has no place of business in this state and (2) during the preceding 12-month period has had fewer than six clients who are residents of this state.
HOW DOES A PERSON APPLY FOR AN INVESTMENT ADVISER CERTIFICATE??
Any person who wants to become an investment adviser in California may apply for a certificate by filing an application. The forms and instructions for filing an application are found on our web site. The applicant should review the Information to Assist Persons Applying for an Investment Adviser Certificate and Instructions for Completing and Filing Application for Investment Adviser Certificate on Form ADV pages prior to filing an application. Any questions concerning the application process should be directed to our Customer Services Office at 1-866-275-2677.
Form ADV must be filed electronically with the Investment Adviser Registration Depository ("IARD"). To file electronically with IARD, the applicant will need to obtain, complete and return the entitlement forms. These forms may be found on the IARD web site at www.iard.com. For further information, please visit the IARD web site.
Fees: The fee for filing an application is $125. This fee is to be paid directly to IARD in accordance with its procedures. Fees are not refundable except as provided in Government Code Sections 13140-13144. Note: The filing fee does not apply to any applicant that is also Licensed as a broker-dealer under Code Section 25210.
Once the certificate is issued, it remains in effect until suspended or revoked by order of the Commissioner of Business Oversight (“Commissioner”) or surrendered by the investment adviser. Some, but not all, post effective requirements may be found in Investment Adviser Certificate - Post Effective Requirements. A synopsis of the information that may be found in this page is as follows:
Annual Renewal Fee [Code Section 25608(q)]
An annual renewal fee of $125 is due in December of each year and the payment of this fee will keep your certificate in effect during the next calendar year. This fee must be paid directly to IARD in accordance with its instructions. The annual renewal program begins in November of each year with the annual renewal payment due to IARD in early December. More information on the renewal program and key dates may be found on the IARD web site at http://www.iard.com/renewals.asp.
The annual renewal fee does not apply if you are also Licensed as a broker-dealer under Code Section 25210.
ADV Amendments [CCR § 260.241.4]
Each year you must file an annual updating amendment to your Form ADV. This annual updating amendment should be filed with IARD within 90 days of your fiscal year end. You must also amend Form ADV (Parts 1 and 2) whenever the information in your Form ADV becomes inaccurate. The instructions (Item 4) to Form ADV list the items in Part 1 that must be promptly updated. These instructions may be found on the NASAA web site at http://www.nasaa.org/industry-resources/uniform-forms/form-adv/ . Any amendments to Part 2 of Form ADV are to be filed with IARD within 30 days after the change occurs.
It is important Form ADV contains current and accurate information. It is especially important that the contact person’s e-mail address is current. We use this e-mail address to keep you informed of current issues and developments.
Annual Reports [CCR § 260.241.2]
If you are subject to the minimum financial requirements as found under CCR § 260.237.2, you must file with the Commissioner, not more than 90 days after its fiscal year-end, an annual financial report that reflects your financial condition. The annual financial report is to contain a balance sheet and income statement that must be prepared in accordance with generally accepted accounting principles. The annual report should also include a supporting schedule containing the minimum financial requirements required under CCR § 260.237.2.
If you have held or accepted custody of funds and/or securities for or owe money or securities to customers or clients during the period covered, you must file audited financial statements prepared by an independent certified public accountant or independent public accountant. If you only have discretionary authority over client funds or securities, the financial statements need not be audited.
A verification form must accompany the financial statements. The verification form (a) must affirmatively state, to the best knowledge and belief of the person making the verification, that the financial statements and supporting schedules are true and correct and (b) must be signed under penalty of perjury. You may use the Verification Form Pursuant to CCR 260.241.2(b) form for this purpose.
Surrender of Certificate [CCR § 260.242]
You may surrender your certificate by completing Form ADV-W in accordance with the Instructions for Form ADV-W. Form ADV-W is to be filed directly with IARD in accordance with its procedures.
An investment adviser representative (“IAR”), sometimes referred to as a registered adviser (“RA”), or associated person is defined in Code Section 25009.5(a) as any partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with, or subject to the supervision and control of, an investment adviser that has obtained a certificate or that is required to obtain a certificate under this law, and who
(1) makes any recommendations or otherwise renders advice regarding securities,
(2) manages accounts or portfolios of clients,
(3) determines which recommendations or advice regarding securities should be given,
(4) solicits, offers, or negotiates for the sale or sells investment advisory services, or
(5) supervises employees who perform any of the foregoing.
Important: Each officer, director or partner exercising executive responsibility (or persons occupying a similar status or performing similar functions) or each person who owns 25% or more is presumed to be acting as an IAR or associated person.
Qualification Requirements [CCR § 260.236]
Each IAR, except those employed or engaged by an investment adviser solely to offer or negotiate for the sale of investment adviser services, must qualify by passing the examination(s) as specified in CCR § 260.236(a). The examination requirements are the Uniform Investment Adviser Law Examination (“Series 65”) passed on or after January 1, 2000 or the General Securities Representative Examination (“Series 7”) and Uniform Combined State Law Examination (“Series 66”). Effective October 1, 2018, FINRA has restructured Series 7 to be Series 7TO. Prior to taking S7TO, individuals must take and pass Securities Industry Essentials (SIE) exam. Waivers and exemptions to the examination requirements may be found in subsection (b) and (c) of CCR § 260.236. Individuals holding in good standing an approved professional designation meet the exemption found in (c)(3) of CCR § 260.236.
Individuals that must satisfy the examination requirement set forth under CCR § 260.236 can apply for the Series 65 examination by filing the Form U-10 form with the Financial Industry Regulatory Authority ("FINRA"). This form should be completed in accordance with the form instructions and mailed to the address as found in the instructions.
Employment Requirements [CCR § 260.236.1(a)]
Upon employment of an individual as an IAR, the investment adviser must obtain a properly executed Form U-4, evidence that the IAR meets the qualification requirements of CCR § 260.236, and have the responsibility and duty to ascertain by reasonable investigation the good character, business reputation, qualifications, and experience of an individual upon employment or engagement as an IAR.
Filing Requirements [CCR § 260.236.1(a)]
(1) Employment - Upon employment of an IAR, Form U-4 including any Disclosure Reporting Page(s) should be completed in accordance with the form instructions. The form is to be filed with, and the reporting fee paid to, CRD in accordance with its procedures. The filing of Form U-4 with CRD does not constitute an automatic approval of the filing by the Commissioner. The investment adviser should not consider an IAR “registration” approved until approved by the Commissioner and notification of the approval has been received through CRD.
(2) Changes – Within 30 days of any changes to Form U-4, an amendment to Form U-4 is to be filed. The amendment is to be filed directly with CRD in accordance with its procedures.
(3) Termination - Within 30 days of termination of an IAR, Form U-5 is to be filed in accordance with the form instructions. Form U-5 is to clearly state the reason(s) for termination. This form is to be filed directly with CRD in accordance with its procedures.
At this time there is no requirement to provide fingerprint cards.