Wednesday, April 13, 2011
If they have a place of business in the state
The Series 65/66 exam asks LOTS of questions on what I call "registration of persons." Does this broker-dealer or that adviser have to register in the state if it deals exclusively with institutional investors? That sort of thing. The exam is typically obsessed with these questions . . . which, to me, seems odd, since every single person taking the test obviously has to register and knows he has to register. Whatever. Let's keep it simple. If the "person," which means agent, broker-dealer, investment adviser, and investment adviser representative, has a place of business in the state, he/they have to register in that state. What does it mean to have a "place of business" in a state? More than you'd probably think. Most candidates assume that we're talking about an "office." And, we are, but that's just one example of a place of business. If the agent or adviser meets with people at a diner in New Jersey, THAT is their place of business. More surprising, simply "holding yourself out as an adviser" in a state means you have a place of business in that state. If you're soliciting clients in Minnesota, you're "holding yourself out as an adviser" in that state and need to register. After you get your 6th client? No, as soon as your start soliciting. Remember, if they have a place of business in the state, they register in the state. Except when they don't--the only exception here is the federal covered adviser. For everybody else, if they have a place of business in the state, they register with the state. For the federal covered adviser things are different. They might have a place of business in Nevada but since they're the adviser to a mutual fund company, they are federal covered. They register with the SEC and provide copies (notice filings) to Nevada. There, nice and simple, just the way the regulators like it.
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Mr. Walker,
ReplyDeleteThanks for your very useful blog writings. I have a related (to place of business for RIA) question about the following situation. My partner and I live in Mass. We created a Nevada LLC initially for web only impersonal trading advisory business. Recently we decided to create an RIA around our prop trading model, register in Mass where we live and attach our NV LLC to it. LLC is a corp, not partnership. As such (being a NV corp), I believe we don't have to report RIA income to Mass as long as we don't have any RIA (paying?) clients in Mass (not conducting any business in Mass while living there?). Do you think this is a valid assumption? The second question is about registering ourselves as IARs. I understand we would need to pass Series 65 exams before registering RIA, but I am not sure about the point we would have to register as IARs with our RIA company. Thanks in advance for your answer.
Generally, you register where you have a place of business--Nevada. And, if you have over 5 clients in another state, you register there, too. Not relevant that your HOUSE is in Massachussetts (see how MA defines a "place of business". Their website is very helpful). If you register with a state, you and your partner need to pass the Series 65 exam (or 7/66). If the state wants you to also be the IARs of the RIA, you just pay that fee--they'll already get your info on Form ADV; should not be a separate U4 involved. But--for sure--no extra exam to take. Our materials are at www.passthe65.com, btw
ReplyDeleteActually, Mass securities law says the following. Here is the quote: "Every person who renders investment advice or provides financial planning services that includes investment advice, in Massachusetts, for compensation, must register with the Massachusetts Securities Division (the "Division") as an investment adviser unless that person is specifically excluded from the definition. " To me this statement may mean that if you are simply acting as an investment advisor and are physically present in Mass (irrespective where your place of business is or clients are) , then you have to register.
ReplyDeleteOne more quote from Mass securities law:
ReplyDeleteQuestion: Is there a de-minimis exclusion from the definition of investment adviser?
A. Yes. A person who has no office or OTHER PHYSICAL PRESENCE in Massachusetts and has no more than 5 clients during any 12-month period need not register or notice file with the Division.
How do you interpret that? Does your firm have a physical presence in Massachussets? Do you have clients in Massachussets? Are you soliciting new clients in Massachussets? I'm sure many people who work in NYC live in Connecticut. The Connecticut securities regulators don't care about the folks who live in Connecticut and take the train into Manhattan to their office. Unless they have clients in Mass.
ReplyDeleteThe definitions/requirements are not based on the residence of the folks who own and manage the RIA. They're based on the location of the firm and whether it's "holding itself out" as being in the business in that state.
ReplyDelete