RIA Compliance FAQ

1. What states do not recognize de-minimus, and how do I register there?

For state-registered advisors, the states that do not recognize de-minimis are Texas and Louisiana. See more info about each state below.  For SEC-registered advisors, the firm must notice-file in the following states upon the acceptance of one client: Texas, Louisiana, New Hampshire, and Nebraska

For state-registered advisors:

Texas: There are two types of registration for Texas at the state level: (i) Notice-filing/Conditional Approval and (ii) Full Registration. The difference is explained below:

Notice-Filing (1-2 weeks) - this is for firms with no place of business in TX and fewer than five clients. You would pay the $110 registration fee via Finra Gateway. We'll file the ADV/U4 amendment and send a letter asking for an exemption from registration based on having a de-minimis amount of clients. Notice filing is usually granted in 1-2 weeks. 

Full Registration (6-8 weeks) - if you have a place of business or know that you'll have more than five clients in the state, you would want this option. You would pay the $110 registration fee via Finra Gateway, and we'll work together to gather all the requested additional documentation such as Agreements, Corporate Docs, Balance Sheets, etc. The state conducts a full review, and then registration is granted in about 6-8 weeks. 

Support with these filings can be requested through the Member Dashboard by accessing Member Benefits>Compliance>Premium Service Request. 

For the notice filing, you would want to select 'hourly consultation,' and for full registration, you'll want to select additional state registration.

2. I’m hiring a paraplanner/virtual assistant/new IAR. What are the compliance considerations?

See our checklist of compliance considerations when making a new hire, whether it be for another investment adviser representative or non-registered personnel. 

3. When do I need to update my ADV?

There are three times when an ADV Brochure needs to be sent out to clients:

  1. Initially, either 48hours before or at the time of signing a Client Agreement
  2. 30 days after a material change to the ADV Brochure
  3. Annually, within 120 days of your fiscal year-end. 

4. If I change my fees, do I have to amend my ADV or Agreements?

You should update your ADV within 30 days of information becoming inaccurate. You will also need to update your Agreement. If the new change affects existing clients, they must sign a revised agreement or addendum.

5. When do I need to register in an additional state?

If you have a place of business (i.e. moving to another state, opening a branch office, or hiring a new investment adviser representative in a new state), then you must register prior to providing advice to any clients in that state. 

Besides the states listed in FAQ. 1, you must register in states before bringing on a sixth client in a 12-month lookback period. For counting clients, Advisors can rely on Rule 202(a)(30)-1. 

6. How do I count clients for purposes of de-minimis?

For most state de minimis exemptions, you can count as a single client, any natural person, their minor dependents, and any spouse or relatives in their direct household. 

An individual and their spouse, as well as their minor dependents, could be included as a single client even if you have five different accounts among the group of individuals. You can also include any trusts or solo-retirement plan accounts of which the natural person and/or the individual persons referred to in this paragraph are the only primary beneficiaries.

If you manage retirement plans for a business with multiple employees, you count each plan (or plan sponsor) as a client, not each participant.

You should include all advisory clients, such as investment management clients, ongoing financial planning clients, and hourly or project-based financial planning clients. Prior clients can roll off your client count 12 months after their termination date.

7. What do annual renewals mean, and what do I need to do?

Annual renewals mean that you are required to pay your renewal fee. Preliminary renewal statements generally come out in November. Advisors must pay the amount listed in their preliminary renewal statement before the end of the year. If there are new registrations after the Preliminary Renewal statements have come out, a Final Renewal statement will be issued in January, with payment due at the end of January. All renewal fees are paid through FINRA’s E-Bill system. There are two accounts: Flex Funding Account and Renewal Account. We recommend depositing the fees in the Renewal account. 

8. Do I have continuing education requirements? 

Some states have adopted continuing education for investment adviser representatives. This applies to all representatives registered in that state regardless if the firm is SEC or state-registered. More information can be found here. To see which states require IAR CE, please see here. 

9. How do I keep my Series 7 active?

The series 7 is an agent of a broker-dealer examination. You cannot keep your Series 7 active unless registered with a broker-dealer. The exam will lapse after two years from the date of termination with a broker-dealer. 

If you are relying on your 7 & 66 for your IAR registration, the 65 portion of the 66 will remain active for the duration of your registration. 

In 2022, FINRA created the Maintaining Qualifications Program (“MQP”). Persons terminated from a broker-dealer may opt-in to participate in the MQP by creating a FinPro account, completing continuing education, and paying the annual fee. If all requirements are satisfied, certain exams will remain active for 5 years. 

10. What compliance documents must be provided to my clients, and when?

Clients should be provided with three documents upon engagement:

  1. A copy of their signed Client Agreement;
  2. ADV Part 2A & 2B (and Form CRS if SEC-registered); and
  3. Privacy Policy. 

Additionally, if requested by the client (not common), a copy of your Code of Ethics. 

*Some states may require additional disclosure (i.e., MA requires a Table of Fees for Services, and NJ requires a Form 8, Investor Protection Form). 

11. How long do I need to maintain books and records?

Books and records retention is for 5 years from the date of the last entry. We recommend keeping books and records for 6 years and always having a copy of the client's signed agreement(s) since inception.

12. When will my firm get audited? What is the audit process like? 

Every jurisdiction operates differently. 

The SEC usually conducts a newly registered firm examination within the first year. This is a limited-scope exam, meaning they look at a handful of key documents, such as your ADV, Agreement, and Compliance Manual, versus a full-scale examination, where they dive into your ongoing compliance program.

For state-registered firms, every state operates differently. Some will see from in a cycle period of every five years, whereas others might see firms more frequently. 

In all cases, the usual process is a notification of the examination, a request for documentation, an interview, a letter outlining their findings, and a requirement to correct the findings.

13. How can I qualify to become SEC-registered?

For most firms, the only way to register with the SEC is if the firm has assets under management of at least $100 million ($25 million if your primary place of business is in New York). Limited exemptions can be found HERE.  

14. Do I need to send invoices to clients?

SEC firms are not required to send clients invoices. However, we recommend it as a best practice. 

Many states require that state-registered firms send invoices if the firm directly deducts its fee from client accounts. States include CA, CO, DC, FL, and MD, among others. You’ll need to check with your state if this is required. If not, note if the firm becomes registered in an additional state, it may be required in the future. Thus, we highly recommend advisors send invoices as a best practice. 

15. My firm has a move money authorization to transfer money to third-party accounts. Is this custody? 

Yes, this is considered custody. Advisor will need to answer ‘yes’ to Item 9 of Form ADV Part 1A and make a disclosure to their ADV Part 2A, Item 15. Note that a surprise audit is not required if this is the sole reason an Advisor has custody, so long as the Advisor has ensured the seven safeguards are met. 

16. What is the difference between discretion and non-discretion? 

Discretion provides the advisor with trading authorization, and the Advisor is free to buy and sell securities without consulting the client before effecting a transaction. 

Non-discretion still provides the advisor with trading authority. However, the Advisor must consult with the client and obtain approval before effecting the transaction. 

17. Can I make formatting changes to the XYPN templates?

Yes. You can make formatting changes to any document received from the Compliance team. If you are making changes to your Form ADV or Agreement, note some states require a copy of the changes to be submitted directly to the states (i.e., Maryland and Virginia). Please get in touch with your state to inquire whether you need to send them a courtesy copy.

18. An auditor is asking for policies and procedures. What is that?

Policies and Procedures generally mean your Compliance Manual. However, we recommend providing the following in addition to your Compliance Manual (if not already embedded):

  • Data Security Policy/Cyber security
  • Business Continuity Plan
  • Elder Abuse Policy
  • Code of Ethics 

19. I manage a Solo 401(k). Is there anything special I need to do? 

Generally, SIMPLE IRAs, SEP IRAs, and Solo 401(k) are under the service of investment management, and advisors can utilize their investment management agreement to service those accounts. 

20. Can I deduct my advisory fee from an IRA? 

From a regulatory perspective, you can deduct your fee from any account as long as the client has agreed to that payment method. From a tax perspective, please see this blog published by the Kitces.com team for more information. 

21. I’m starting my website. What are the compliance considerations?

Ensure that the positioning of your services and fees are consistent with how they are described in your ADV Part 2A and Client Agreements. Those documents and the advertising of your advisory services (websites fall under advertising) must always align. 

22. I’m starting an online coaching course. Do I need to create a separate entity? 

Online coaching can be positioned in an assortment of ways. Some RIAs choose to add this service as part of their firm offerings. Others will create a separate business entity for this venture and work as a sole proprietorship or in a contractor capacity. 

Online courses do not typically fall under “advisory services” as they tend to be purely education-focused and do not include personalized investment/financial advice or recommendations. Therefore, you do not need advisory contracts for attendees, and the ADV delivery requirements should not apply.  

If offered under your firm, a recommendation would be to disclose it simply as an “other business activity” that the firm engages in. (Review Item 6.B(3) of Form ADV Part 1A and Item 10 and/or 14 of Form ADV Part 2A).

23. I’m considering doing bookkeeping as a service. Are there any compliance considerations? 

A person will be deemed to have custody if said person:

(1) Directly or indirectly holds client funds or securities, or

(2) Has any authority to obtain possession of them, or

(3) Has the ability to appropriate them in connection with advisory services the investment adviser provides to clients.

If any representative of the Advisor is able to move money, write checks, pay for bills, etc., then this would be considered custody. 

Otherwise, if it's exclusive to services such as record-keeping, then advisors may add this as a service of the firm or as an outside business activity of the firm.

24. I want to charge for fee-based annuities. Do I need to amend my ADV or Agreements?

Fee-based Annuities can be grouped alongside any other investment determined as part of your billable assets under management. However, if variable annuities present any type of unique risk, you should disclose those risks in Item 8 of your ADV Part 2A. In addition, if the Advisor provides an invoice, the invoice shall also include the variable annuity if you are including that in billable assets under management.

25. An IAR is leaving my firm. What do I need to do?

See our checklist of compliance considerations when making a new hire, whether it be for another investment adviser representative or non-registered personnel. This includes an offboarding column for personnel who exit the firm. Form U5 must be filed for registered personnel within 30 days of termination, with a copy sent to the individual within 30 days of filing. 

26. Who do I need to collect personal securities statements from?

Please see our Code of Ethics templates that outline the types of securities that are reportable and by who. Generally, the firm should maintain personal securities transactions for “Access Persons” as defined in the template and their immediate family members.  

27. It says in my Data Security Manual to conduct testing. How can I achieve this?

Testing can be done in all different ways. You can utilize the 3rd party if you outsourced some type of cybersecurity audit. Other forms of testing include:

28. I’m outsourcing tax preparation. Do I need to disclose this?

Disclosure depends on the type of relationship and any fees in connection with the services you provide to your clients. If you are merely referring a client to a third party, at minimum, we recommend a disclosure that you are not affiliated with any third-party professionals you recommend, nor do you have any fee-sharing agreement. If there is some sort of fee arrangement, such as the Advisor charging an additional fee for tax preparation services, then we recommend disclosure in Item 4 & 5 of the ADV Part 2A Brochure and adding the service to Item 5 of Part 1A.

29. Is an Investment Policy Statement required? 

An investment policy statement is not required by regulators. However, you may want to review your Form ADV and Agreement regarding mentioning an investment policy statement. It is required that firms maintain suitability information (i.e., risk tolerance, objective, time horizon, net worth, etc.) for clients, conduct regular reviews of client accounts, and document changes to clients' objective or other life changes. Many firms utilize an IPS to meet these requirements, and many regulators are accustomed to seeing this practice and will typically ask for these during exams.

30. I have a client who is not a US citizen. Can I take them on as a client?

Generally, yes. If they are green card holders or permanent residents or are located in the US temporarily, such as through a work visa, you should be able to provide financial planning to them. However, some custodians will not open accounts for international clients with citizenship in various countries. It is best to check with your custodian regarding account opening and investment restrictions for clients who are not U.S. citizens. 

In addition, if these clients have assets in their country of origin or citizenship and you will be advising on or managing those foreign assets, you must ensure you understand and comply with the applicable regulations of that jurisdiction.

31. I have a client who lives abroad. What do I need to do?

Working with ex-pats or international clients requires you to become familiar with the regulatory authorities and rules and regulations governing financial advisors in the jurisdiction where the client resides. Most countries have some level of regulatory framework establishing requirements for those delivering certain investment advisory and planning services to residents of those countries. So first, determine who the regulatory authority is in the given country, identify their registration or licensing requirements and any potential exemptions, and contact the appropriate division of the regulatory authority to inquire further if you still have questions about any requirements. 

Still need help? Contact Us Contact Us