Starting your own Registered Investment Adviser (RIA) firm is a significant achievement, but the road to success involves navigating the complex landscape of regulatory requirements. On top of building out your brand, determining your business operations, and establishing your client base.
To help make the regulatory aspect a little easier, we’ve gathered six top considerations for firms navigating the registration process.
What your firm should know about registering
There are several topics your firm should know about when it comes to becoming a registered firm. Your firm should:
1. Either register with the state or Securities and Exchange Commission (SEC).
Determining whether your RIA should be registered with the state or the SEC hinges on your firm’s assets under management (AUM). If your AUM falls below $100 million, state registration is the route to take.
Surpassing the $100 million mark necessitates SEC registration. When making this decision, factor in elements like your physical location, representative presence and solicitation activities. Additionally, be aware of specific SEC registration criteria, including exceptions to the general rule.
Note: If you’re registered in more than one state, you’ll need to fulfill requirements set forth by both states. For example, if you’re registered in New York and Maryland, you’ll have to complete the 12 IAR CE to meet Maryland’s standard even though New York has no such standard.
2. Consider registering as a hybrid RIA firm.
Consider the option of registering as a hybrid RIA firm, maintaining affiliations with both a broker-dealer and an independent RIA. While this structure provides more control over your advisory practice and the flexibility to offer brokerage services, be prepared for heightened scrutiny from regulatory bodies.
3. Ensure that all necessary forms and documents are in order.
This encompasses FINRA Entitlement paperwork, Form ADV 1, Form ADV 2A, Form ADV 2B, client advisory contract, regulatory paperwork, policies and procedures manual, privacy policy statement and a Code of Ethics.
Don’t overlook the importance of budgeting for associated filing fees with the SEC or the state.
4. Become well-versed in fiduciary duty.
As an RIA, your firm will bear a fiduciary duty to its clients. Comprising duties of care, providing advice in the client’s best interest, seeking best execution, ongoing advice and monitoring and a duty of loyalty, understanding and adhering to these principles is paramount.
The SEC’s principles-based approach underscores the significance of the fiduciary duty throughout the adviser-client relationship.
5. Safeguard your firm by ensuring it has adequate insurance.
Shield your firm from unforeseen challenges by procuring the right insurance. Errors and omission insurance and cybersecurity insurance are two prevalent types that provide a safety net against potential liabilities. Investing in the appropriate coverage not only protects your firm’s interests but also fosters peace of mind.
6. Establish and maintain a robust compliance program.
The SEC places strong emphasis on ethical conduct within registered firms. Compliance professionals should establish and enforce a robust Code of Ethics, outlining standards of conduct for employees. Additionally, maintaining accurate and organized records is crucial to demonstrate compliance with regulatory obligations.
As a part of maintaining your firm’s compliance program, you should know that SEC RIA registration is not a one-time process. Your compliance team should conduct regular reviews to ensure ongoing adherence to regulatory requirements. This includes periodic updates to Form ADV, addressing changes in the firm’s structure, personnel or business practices.
In the dynamic realm of financial regulations, compliance professionals must stay well-versed in registration requirements to safeguard their firms and clients. Navigating the intricate process involves careful attention to eligibility, comprehensive Form ADV filing, transparent fee structures, ethical standards and ongoing compliance reviews.
This can be quite the undertaking, but you don’t have to go at it alone.
Complying with COMPLY
Meet COMPLY! At COMPLY, we understand how challenging it can be to navigate the complexities of RIA registration. As a matter of fact, COMPLY offers tailored consulting and technology services to help you ensure adherence to registration requirements, implement effective risk management strategies and stay up-to-date on the latest regulatory developments.
While historically, many advisory firms might wait until after state or SEC registration to start the process of selecting and implementing a regulatory compliance technology, firms may find that by investing in a technology before completing their RIA registration can help them avoid the hassle of manual compliance tasks.
By taking the time to invest in a new regulatory compliance technology before registering with the relevant regulatory body, firms can also ensure they are up and running from day one. Thereby avoiding the hassle of manual tasks and ensuring compliance from the very start of their firm.
As the regulatory landscape continues to change and impact firms, firms that are proactive will be well-positioned to thrive. By choosing COMPLY, you gain a trusted and reliable partner and guide.
Need further guidance on RIA registration? Let’s talk!