What Types of Compliance Are RIAs Subject To?

September 14, 2016

Amy Easterly
Compliance Errors

The regulations and requirements for registered investment advisors have changed a lot in the last decade, and RIA compliance continues to evolve. But what are the types of RIA compliance, and how can you know which regulatory agency you’re required to comply with?

Ultimately, that answer depends on several factors. The amount and type of business you do, along with your location, could place your RIA firm under different regulatory agencies.

Securities Exchange Commission (SEC)

When your assets under management (AUM), meaning the market value of all financial assets handled by your firm, reach $100 million, you have the option of registering with the SEC and being subject to their compliance rather than your state regulators. Once your AUM hits $110 million, you must register with the SEC. If you do business in more than 14 states, you are also subject to the SEC’s compliance requirements.

RIA compliance under the SEC comes from the Investment Advisors Act of 1940. The SEC requires RIA firms to adhere to a set of rules to safeguard clients’ wealth and make sure investors are informed and treated fairly.

State Regulation

In 2011, the Dodd-Frank Act raised the AUM threshold for SEC compliance versus state regulation from $25 million to $110 million, meaning that thousands of RIA firms switched from SEC to state. As discussed above, if your AUM falls between $100 million and $110 million, you may choose between SEC and state regulation. You may do business in up to 14 states and still fall under just your home state’s regulations.

Each state has similarities to and differences from SEC compliance, and each state’s rules can be different. Some states do not make an RIA register if the firm does not have an office in the state and hasn’t reached a threshold number of clients and AUM in the state. Others make an RIA with just one client register.

The North American Securities Administrators Association is an excellent resource for information on the compliance rules for the state or states in which you have clients. As industry authorities, this active group establishes best practices for state RIA compliance, which must be adopted on a state-by-state basis, like this Continuity of Business model rule.

FINRA

The Financial Industry Regulatory Authority (FINRA) is an independent, non-profit organization that self-regulates broker-dealer firms. It does not regulate RIAs, but if an RIA firm’s business includes broker-dealer services, it would fall under FINRA as well as the SEC or state RIA compliance.

However, FINRA does administer the online filing system for Form ADV, an annual filing requirement for RIAs.

While the compliance landscape for your firm is constantly changing, either due to growing your business or developments on the regulatory front, compliance doesn’t have to be a nightmare.