Yes, but generally only if they manage $100 million or more in assets; smaller firms must register with their state securities authorities instead.
Financial professionals often face a complex web of compliance rules before they sign their first client. The primary hurdle involves knowing which regulator oversees your business. You cannot choose freely. Federal and state laws draw a strict line based on the amount of money you manage. Crossing that line shifts you from state oversight to federal oversight.
Understanding this distinction prevents costly legal errors. If you file with the Securities and Exchange Commission (SEC) when you should report to the state, the SEC will reject your application. Conversely, if you stay with the state while managing billions, you violate federal law. This guide breaks down the specific asset thresholds, exceptions, and filing requirements you must follow.
The 100 Million Dollar Threshold Explanation
The Investment Advisers Act of 1940 sets the ground rules. The main trigger for federal registration is “Regulatory Assets Under Management” (RAUM). For most firms, the magic number is $100 million. If you manage less than this, federal law actually prohibits you from registering with the SEC. You must stick to state-level registration.
Congress created this division to let the SEC focus on systemic risks and large entities. State regulators typically have better resources to police local, smaller planning firms. However, this creates a “switch” moment in an advisor’s growth trajectory. You start local, but once you grow large enough, you must migrate your registration to the federal level.
The system is not perfectly binary. There are buffer zones and specific categories of advisors that skip the line regardless of asset size. You need to verify exactly where your firm fits on the scale below.
Assets Under Management Tiers And Authority
This table outlines where most advisors land based on their current managed assets. This covers the general standards for firms with standard retail or high-net-worth clients.
| Asset Level (AUM) | Registration Authority | Standard Classification |
|---|---|---|
| $0 to $25 Million | State Only | Small Advisor |
| $25 Million to $100 Million | State Only | Mid-Sized Advisor |
| $100 Million to $110 Million | SEC or State (Choice) | SEC Buffer Zone |
| Over $110 Million | SEC Mandatory | Large Advisor |
| Internet-Only (Any AUM) | SEC Allowed | Exemption Holder |
| Multi-State (15+ States) | SEC Allowed | Exemption Holder |
| New York Based ($25M+) | SEC (If rarely registered) | Specific State Exception |
When Are Investment Advisors Required To Register With SEC?
You must move to the SEC once you cross specific asset lines. The Dodd-Frank Act adjusted these numbers to reduce the SEC’s workload. Now, a firm becomes eligible for SEC registration at $100 million but is not strictly required to switch until it hits $110 million.
This $10 million buffer ($100M to $110M) prevents firms from constantly switching regulators if market fluctuations push their assets slightly up or down. If you sit at $105 million, you can choose to stay with the state or move to the SEC. Once you report $110 million on your annual amendment, the mandatory switch triggers. You then have 90 days to file your federal registration.
Common questions arise regarding what counts toward that total. You must count securities portfolios where you provide continuous and regular supervisory or management services. This includes family accounts, proprietary assets, and assets managed without compensation. You generally do not count personal assets of the advisor (not the firm) or assets where you only provide one-time consulting without ongoing monitoring.
The Prohibition On Smaller Firms
Federal law explicitly prohibits small and mid-sized advisors from registering with the SEC. If you have $50 million in AUM, you cannot simply choose federal oversight because it looks more prestigious. The SEC system (IARD) may technically allow you to start a draft, but the examiners will reject a final filing that lacks a valid basis.
Section 203A of the Advisers Act establishes this prohibition. The logic holds that states protect local investors better. State regulators often conduct more frequent audits of small shops than the SEC could ever manage. This prohibition remains active until you hit the $100 million mark or qualify for a specific exemption.
Exceptions To The General Rule For Registration
Assets are not the only ticket to federal oversight. Several exemptions allow specific types of advisors to register with the SEC even if they have $0 in assets under management. These exemptions exist because state laws might be too cumbersome for certain business models.
The Internet-Only Exemption
Robo-advisors or firms that operate entirely online can register with the SEC regardless of size. To qualify, you must provide investment advice exclusively through an interactive website. You cannot have more than 15 clients who receive advice through other means (like phone calls or in-person meetings). This rule helps digital-first companies avoid registering in all 50 states simply because their website is accessible everywhere.
The Multi-State Exemption
If compliance becomes too fractured, the SEC steps in. If an advisor is required to register in 15 or more distinct states, they may choose to register with the SEC instead. This “15-state rule” simplifies the paperwork burden. Managing 15 different state renewals and adhering to 15 different sets of books and records rules is impractical. This exemption creates a unified compliance standard for widely distributed firms.
New York And Wyoming Advisors
A quirk in state law affects advisors in New York and Wyoming. Neither state regulates investment advisors in the standard way mandated by federal law. Consequently, advisors with a principal office in Wyoming or New York (who manage between $25 million and $100 million) often register with the SEC because the state level lacks the specific oversight mechanism the federal government recognizes. You should check the SEC’s guide on investment adviser regulation to see how these geographic nuances apply to your specific situation.
Are Investment Advisors Required To Register With SEC? (The General Rule)
The overarching answer remains tied to the “Assets Under Management” metric. However, advisors must also look at the nature of their clients. If you advise a registered investment company (like a Mutual Fund), you must register with the SEC regardless of how little money that fund holds. The nature of the client supersedes the asset test in this case.
Pension consultants also have a lower threshold. If you provide consulting services to employee benefit plans with an aggregate value of $200 million, you are eligible for SEC registration. Note that the $200 million here refers to the plan assets, not the assets you directly manage. This allows consultants who influence huge pools of capital to come under federal watch.
Private Fund Advisers
Advisers to private funds (like hedge funds or private equity funds) face different rules. You might be an “Exempt Reporting Adviser” (ERA). ERAs do not fully register with the SEC but still file a truncated report. This status applies if you advise only private funds and manage less than $150 million in the United States. While not a full registration, it requires annual disclosure. Once a private fund adviser crosses $150 million, full SEC registration becomes mandatory.
Calculating Regulatory Assets Under Management (RAUM)
Getting the AUM number right determines your legal status. You cannot estimate this figure. The SEC provides a specific worksheet in the Form ADV instructions to calculate RAUM. Errors here constitute a significant compliance failure.
You must include the entire value of the account, even if you only manage a portion of the cash. If the account contains margin (borrowed money), you count the gross assets, not the net equity. This “gross” method often results in a higher AUM figure than advisors expect. For example, if a client has $1 million in stock and borrows $500,000 on margin to buy more, the RAUM is $1.5 million. You cannot deduct the debt.
You also include family assets. If you manage money for your spouse or children alongside client funds, those dollars count toward your RAUM total. However, you typically exclude uncalled capital commitments for private funds unless specific conditions apply.
State Vs SEC Registration Differences
Operating under state rules feels different than operating under federal rules. The transition involves more than just sending your check to a different address. The regulatory culture shifts significantly.
The Notice Filing Requirement
SEC registration does not completely eliminate state paperwork. Federal advisors must still complete a “Notice Filing” in every state where they have a place of business or more than five clients (in most states). You pay a fee to the state to let them know you are operating there, even though the SEC is your primary regulator. This is a revenue mechanism for states. Texas and Louisiana, for instance, have stricter notice filing rules than others.
Examination Frequency
States tend to audit new firms quickly. A state examiner might visit your office within the first year of registration. The SEC generally operates on a risk-based cycle. They prioritize firms with custody of client funds, disciplinary history, or unusual performance returns. A clean, standard SEC-registered firm might go years without an examination, whereas a state-registered firm might face an audit every 3 to 5 years depending on the state’s staffing levels.
How The Registration Process Works
Registration happens digitally. Whether you answer “yes” or “no” to are investment advisors required to register with SEC?, you will use the same website: the Investment Adviser Registration Depository (IARD). This system processes filings for both federal and state regulators.
The core document is Form ADV. This massive disclosure form tells regulators and the public everything about your business practices, fees, conflicts of interest, and disciplinary history. It consists of several parts, each serving a distinct audience.
Form ADV Breakdown
This table details the specific sections of the Form ADV you must complete. Both SEC and State advisors use these forms, though some specific questions differ based on your jurisdiction.
| Form Section | Primary Purpose | Who Sees It? |
|---|---|---|
| Part 1A | Data for regulators (AUM, owners, affiliates) | Regulators & Public |
| Part 1B | State-specific questions (Bonds, arbitration) | State Regulators Only |
| Part 2A (Brochure) | Narrative description of fees and services | Clients & Public |
| Part 2B (Supplement) | Resume of the individual advisor | Clients Only |
| Part 3 (Form CRS) | Relationship summary (Retail clients only) | Retail Clients & Public |
Ongoing Compliance Obligations
Registration is only step one. Once registered, you must maintain extensive books and records. The SEC Rule 204-2 mandates exactly what you must keep. This includes all communication regarding advice, trade confirmations, financial statements, and policies regarding code of ethics.
You must update your Form ADV at least once a year. This “Annual Updating Amendment” is due within 90 days of your fiscal year-end. During this update, you refresh your AUM numbers. If your AUM has dropped below $90 million, you may have to deregister with the SEC and switch back to the state. If you were state-registered and your AUM crossed $110 million, this is when you trigger the mandatory switch to the SEC.
The Custody Rule
The “Custody Rule” is a major focus for the SEC. If you have the ability to withdraw funds from a client’s account (like deducting fees) or if you hold client passwords, you technically have custody. This triggers strict requirements, often including a surprise annual audit by an independent accountant. State rules on custody vary wildly; some states flatly ban custody for certain advisors, while the SEC permits it with heavy oversight.
Common Pitfalls For New Advisors
Many advisors delay registration thinking they are just “testing the waters.” This is dangerous. Most states define an investment advisor as anyone who receives compensation for advising others on the value of securities. “Compensation” is defined broadly. It does not have to be a fee for service; it can be a commission, a referral fee, or even a soft benefit.
Another trap involves the definition of “Client.” In some states, having even one client triggers a registration requirement. The “de minimis” exemption (often allowing up to 5 clients before registration) exists in many states and the federal level, but specific states like Texas or Louisiana have historically aggressive interpretations. You must check the specific securities statutes of the state where your office sits.
The Solicitor Rule
If you pay someone to refer clients to you, strict rules apply. The SEC merged this into the new “Marketing Rule.” You need written agreements with solicitors, and they must provide disclosures to the prospective client. State rules on solicitors can be even stricter, sometimes requiring the solicitor to register as an Investment Adviser Representative (IAR) just to pass a name to you.
Your compliance manual must address these issues before you launch. You cannot build a compliance program retroactively. When regulators examine you, they look for a culture of compliance that started on day one.
Financial Planning Vs Asset Management
Pure financial planners often wonder if they fall under these mandates. If you create financial plans but do not manage assets, do you still register? Generally, yes. If you give advice about securities (like “buy this index fund” or “sell that stock”) and get paid for it, you are an investment advisor. Since you have $0 in AUM, you default to state registration.
The SEC rarely regulates pure financial planners because they lack the $100 million in assets to qualify for federal oversight. The only exception would be a large planning firm operating in 15+ states that uses the multi-state exemption. Otherwise, hourly or project-based planners remain under state jurisdiction.
Understanding the interplay between your business model and the regulators ensures longevity. The SEC offers detailed guidance for small businesses that can help clarify the specific exemptions you might qualify for. Securing the correct registration protects your practice from fines and builds trust with clients who verify your credentials.
Navigating the $100 million threshold requires constant vigilance. As your firm grows, your compliance officer must watch that number closely. The transition from state to federal oversight is a sign of success, but it brings a new tier of scrutiny that you must be ready to handle.