How to register as an RIA: Six considerations for RIA registration in 2023

You’ve made the decisions to start your own registered investment adviser (RIA) firm. Congratulations! But, now what? There are a multitude of factors to take into consideration when registering your firm, not the least of which is whether your firm will be registered with the state or the Securities and Exchange Commission (SEC). In this blog post, we’ll break down the top six considerations for those RIAs just starting out, highlighting key factors which will be crucial to setting your firm up for success in 2023 and beyond.

RIA registration: The top six factors to consider in your registration process

As a new adviser just starting out, you’ll likely have quite a few questions about the RIA registration process and what is required of you by regulatory bodies. While this is by no means an exhaustive list, these six considerations will help guide you in the process and answer some of your biggest questions.

1. Will you register your RIA with the state or the SEC?

To help answer this question, you’ll need to establish the assets under management (AUM) of your prospective RIA firm. If that number is less than $100 million, you will need to register with the appropriate state, while if it is $100 million or over, you will need to register with the SEC.*

To determine what state(s) you should register in, you will need to consider the following:

• Where is your physical location or office?
• What states do you have representative physically located in?
• In what states do you have five or more clients (or a single client in the states of Texas and Louisiana)?
• What states are you physically soliciting in?

When registering with the SEC, it’s important to bear in mind these additional factors:

• Advisory firms with principal office and place of business in New York generally must register with the SEC if their AUM is $25 million or greater.
• Firms that serve as adviser to an investment company registered under the Investment Company Act of 1940 must register with the SEC regardless of AUM.
• RIAs that are required to register in 15 or more states will generally register with the SEC regardless of AUM.
• Internet-only investment advisers may register with the SEC regardless of AUM.

*Keep in mind there are exceptions to this rule.

2. Will you register as a hybrid RIA firm?

As a hybrid RIA you will maintain an affiliation with both a broker-dealer. Oftentimes, hybrid RIAs will affiliate themselves with an independent broker-dealer and simultaneously establish a non-affiliated RIA. This set up structure allows the adviser to maintain more control over their advisory practice, while also offering brokerage services.

It is important to note, this type of RIA firm is much more highly scrutinized by regulatory bodies.

3. Do you have the necessary forms and documents drafted?

Registering your RIA requires the filing of the following forms and documents:

• FINRA Entitlement paperwork.
• Form ADV 1 (online).
• Form ADV 2A (paper and online).
• Form ADV 2B (paper and online).
• Client advisory contract and regulatory paperwork.
• Policies and procedures manual.
• Privacy policy statement.
• Code of Ethics.

You will also need to pay the appropriate SEC or state filing fees.

4. Do you understand your fiduciary duty?

When serving as an RIA you have a fiduciary duty to your clients, which includes:

• Duty of care.
• Duty to provide advice which is in the client’s best interest.
• Duty to seek best execution.
• Duty to act and provide advice and monitoring over the course of the relationship.
• Duty of loyalty.

As of 2019, the SEC mandated advisory firms, “owes a fiduciary duty to its clients under the Advisers Act—a duty that is established by and enforceable through the Advisers Act. This duty is principles-based and applies to the entire relationship between an investment adviser and its client.” In the same ruling, the SEC instituted the Form CRS Relationship Summary which required firms, “to deliver a relationship summary to retail investors at the beginning of their relationship. Firms will summarize information about services, fees and costs, conflicts of interest, legal standard of conduct, and whether or not the firm and its financial professionals have disciplinary history.”

5. Have you selected a chief compliance officer (CCO)?

While the entire advisory firm is responsible for maintaining compliance, your CCO will act as the leader of this effort, ensuring all regulatory rulings are followed. When selecting your CCO it is important to consider whether or not this person has both the fiduciary knowledge and leadership/authority within the firm to institute the appropriate policies and procedures.

Many RIA firms will often partner with outside consultants or invest in automation to assist the CCO in fulfilling their duties as mandated by the SEC.

6. Do you have the appropriate insurance?

It can be difficult to think of the worst when you are just starting out, however, it is critical to arm your firm with the appropriate insurance to protect yourself from potential liability. Two of the most common types of insurance RIA firms will invest in are:

• Errors and omission insurance.
• Cybersecurity insurance.