Saturday, June 6, 2009

Investment Adviser Registration Requirements

Here is a likely question on your Series 65 or 66 exam:

If an investment adviser is properly registered in State X, where it maintains its main office, and the adviser is also registered in State Y, what is true if the Administrator of State Y requires higher net capital than what is required in State X?
A. The Adviser must obtain a surety bond to cover State Y's requirement
B. State Y can not have a higher requirement than State X
C. The adviser does not need to comply with the higher requirement in State Y
D. The SEC must provide no-action relief to the adviser

EXPLANATION: you'll find this rule in the Investment Advisers Act of 1940, and it makes perfect sense. If the adviser is properly registered in State X and meets the state's financial requirements, the firm can not be forced to meet the other state's higher requirement. Similary, a state regulator can not tell a federal covered adviser that their net capital isn't high enough--that's the SEC's job.



  1. Bob,

    What would the answer be if Y finds that the adviser's financial condition has weakened and they want them to increase their bond above that required by state X?

  2. Good question. The answer would not change. See Section 222 of the IA Act of 1940 at, which says: No State may enforce any law or regulation that would require an investment adviser to maintain a higher minimum net capital or to post any bond in addition to any that is required under the laws of the State in which it maintains its principal place of business, if the investment adviser--

    is registered or licensed as such in the State in which it maintains its principal place of business; and

    is in compliance with the applicable net capital or bonding requirements of the State in which it maintains its principal place of business

  3. I currently reside and do business in AZ as an IAR with series 7 & 63. Under what rules would I have to get a 65 to be an IAR. I understand I do not have to have a 65 in AZ. I haven't found the answer on the FINRA website. Please advise. Thanks

  4. If you're meeting Arizona's registration requirements, I don't think any other state would hassle you . . . unless you gave them a reason to. Did not know Arizona had no Series 65/66 requirement for IAR's....? May have to check their website.