Business Compliance Partners Discusses SEC’s Approach to Regulating Advisors

Share Article

Because securities regulations are open to interpretation, the Securities and Exchange Commission (“SEC”) has made an effort to provide some insight regarding their approach to regulating investment advisors.

Business Compliance Partners has reviewed the SEC’s publication, Regulation of Investment Advisers by the U.S. Securities and Exchange Commission and will highlight some of the relevant information.

Who is considered an investment advisor?

According to the Publication, any person or firm that is engaged in the business of providing advice to others or issuing reports or analyses regarding securities for compensation (any economic benefit) is an investment advisor.

When a person gives advice to another person directly or indirectly (i.e. a limited partnership) about market trends, the selection and retention of other advisors, asset allocation, provides a selective list of securities, or gives advice about the advantages of investing or securities investing versus other types of investments, that person is considered to be giving advice about securities even though the connection to securities is indirect.

Securities generally include stocks, bonds, mutual funds, limited partnerships, and commodity pools.

Exemptions may apply to advice given by the following:

  •     U.S. banks and bank holding companies (not including non-U.S. banks, credit unions, and investment advisor subsidiaries)
  •     Lawyers, Accountants, Engineers, and Teachers, if the advice given is incidental to the practice of their profession
  •     Broker or Dealer if the advice given is “solely incidental” to the conduct of its business as broker or dealer or if the advice is limited to discussions with issuers’ about their securities offerings
  •     Publishers (impersonal advice, disinterested commentary and analysis, and general and regular circulation of publications)
  •     Government Securities Advisors (advice limited to U.S. government issued or guaranteed securities)
  •     Credit Rating Agencies
  •     Governments and Political Subdivisions
  •     Family Offices – A family office only provides investment advice to family clients (family members and certain family owned or controlled entities), is owned and controlled entirely by family clients and does not present itself to the public as an investment advisor.

Advisors based outside of the U.S. are not automatically exempt based on that status and would have to qualify under a recognized exemption. In addition, neither are U.S. persons exempt if they are providing advice only to non-U.S. persons.

Exemptions may be voided under certain conditions for:

  •     Persons presenting themselves to the public as investment advisors
  •     Persons directly or indirectly receiving compensation for giving advice

Firms that match the definition of investment advisor and don’t qualify for an exemption must register with the SEC or applicable state(s). Generally a firm with less than $25 million of assets under management must register on the state level unless it has its principal office and place of business in a state that doesn’t regulate investment advisors. In which case, it must register with the SEC.

A firm with between $25 million and $100 million of assets under management with its principal office and place of business in a state where it is not subject to examination or regulation must also register with the SEC. Firms with $90 million of assets under management can elect to register on the state level or the SEC but once they surpass $100 million under management they must register with the SEC.

A firm that gives advice to U.S. persons but has its principal office and place of business outside the United States doesn’t have to meet an assets-under-management threshold to register with the SEC. Other exemptions are available. Business Compliance Partners guides firms through the registration process and can help address federal and state securities regulations.

The SEC subjects SEC covered advisors to the following requirements:

  •     Fiduciary duties to clients
  •     Substantive prohibitions and requirements
  •     Contractual requirements – Although contracts with clients are governed by state law, the SEC requires that its registrants’ contracts include certain required provisions and prohibitions.
  •     Recordkeeping requirements
  •     Administrative oversight by the SEC

In addition to the Publication, more information can be found on the SEC’s website at their Division of Investment Management page.

Business Compliance Partners is a regulatory compliance consulting firm that specializes in the financial services industry.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Paul Cox

Chris Kosifas
Visit website