Recently, the state of Virginia has adopted a revision to the Virginia Securities Act. Registered investment adviser (RIA) firms doing business in that state should familiarize themselves with the changes and update their compliance requirements accordingly. The new amendments include, but are not limited to, issues pertaining to intrastate equity crowdfunding offerings, examination requirements and prohibited business conduct and operations. The issues directly affecting RIA registration and regulatory compliance are outlined in this post. The complete text of the rule changes are available at: http://www.scc.virginia.gov/srf/.
1) Examination/qualification
The first change pertinent to investment advisory firms relates to the registration examination and qualification for practicing in Virginia. Rule 21VAC5-80-1030(a) outlines specific changes in the testing requirements. An individual applying for registration is required to provide evidence of passing the Series 65, Series 66/ Series 7 within two years of the date of application. This rule alters the previous practice of allowing any registrant who meets the above criteria and is a representative in any state jurisdiction to be honored in Virginia. Specifically, this also eliminates the prior grandfathering provision for investment adviser representatives registered during the two years prior to the date of the application to be honored in Virginia without completing the exam requirements.
2) Performance based fees
The other noteworthy change newly outlined in these amendments focuses on updating the criteria for charging performance based fees. No business transaction is to be subject to unreasonable and inequitable fees for services performed. The fees now must be consistent with the current definition of a qualified client. Said client must have at least $1 million with the RIA or $2 million in net worth. Previously, the state of Virginia recognized a client being defined by $750,000 in assets under management or $1.5 million in net worth as outlined in rule 21VAC5-80-220(B)(1)(a).
Every RIA is required to comply with high ethical standards while conducting business. Failure to do so can be grounds for suspension or revocation of a registrant’s license. As RIA compliance consultants, we strongly recommend that investment advisory firms in the state of Virginia to review these new changes and ensure proper regulatory compliance.